Companies Act Case Law Common Causea Registered Society Vs Union Of India & Ors.

PETITIONER:
COMMON CAUSEA REGISTERED SOCIETY

Vs.

RESPONDENT:
UNION OF INDIA & ORS.

DATE OF JUDGMENT: 04/04/1996

BENCH:
KULDIP SINGH (J)
BENCH:
KULDIP SINGH (J)
FAIZAN UDDIN (J)

CITATION:
JT 1996 (3) 706 1996 SCALE (3)258
ACT:

 

HEADNOTE:

 

JUDGMENT:
THE 4TH DAY OF APRIL, 1996
Present:
Hon’ble Mr.Justice Kuldip Singh
Hon’ble Mr.Justice Faizan Uddin
D.P.Gupta, Solicitor General, Kapil Sibal, D.D.Thakur,
Hardev Singh, Jitendra Sharma, H N.Selve, G.L.Sanghi,
Sr.Advs., P.Parmeswaran, B.B.Ahuja, S.N.Terdol,
A.M.Khanwilkars, Ms.Madhu Moolchandani, Ms.G.Dara,
Ms.Minakshi Vij. B.K.Pal, Maninder Singh, Rakesh Prasad,
R.B.Misra, Kamlendra Misra, Sudhanshu, A.V.Rangam, A.
Ranganadhan, Rakesh K.Sharma, Goodwill Indeevar, V.
Krishnamurthy, T.H.Rish Kumur, P.R. Kovilan, P.K.Manohar,
Dr.Roxane Swamy, Bharat Sangal, Ashok Mathur Brijhender
Chahar and Vivek Gambhir, Advs. with them for the appearing
parties.
H.D.Shurie, in-person. for the Petitioner.
J U D G M E N T
The following Judgment of the Court was delivered:
COMMON CAUSE
A REGISTERED SOCIETY
V.
UNION OF INDIA & OTHERS
J U D G M E N T
Kuldip Singh, J
Common cause – a society registered under the Societies
Registration Act, 1860 which takes up various matters of
general public interest/importance for redress before the
courts – through its Director Mr. H.D. Shourie, has filed
this public interest petition under Article 32 of the
Constitution of India. The primary contention raised in the
petition is that the cumulative effect of the three
statutory provisions, namely Section 293A of the Companies
Act 1956, Section 13A of the Income-tax Act 1961 and Section
77 of the Representation of People Act 1950 is, to bring
transparency in the election-funding. People of India must
know the source of expenditure incurred by the political
parties and by the candidates in the process of election. It
is contended that the mandatory provisions of law are being
violated by the political parties with impunity. During the
elections crores of rupees are spent by the political
parties without indicating the source of the money so spent.
According to Mr. Shourie the elections in this country are
fought with the help of money-power which is gathered from
black-sources. Once elected to power, it becomes easy to
collect tons of black-money which is used for retaining
power and for re-election,, The vicious circle, according to
Mr. Shourie, has totally polluted the basic democracy in the
country.
Section 293A of the Companies Act, 1956 (the Companies
Act) is as under:
“293A. (1) Notwithstanding anything
contained in any other provisions
of this Act (a) no Government
company; and
(b) no other company which has been
in existence for less than three
financial years.
shall contribute any amount or
amounts, directly or indirectly,
(i) to any political party; or
(ii) for any political purpose to
any person.
(2) A company, not being a company
referred to in clause (a) or
clause(b) of sub-section (1), may
contribute any amount or amounts,
directly or indirectly
(a) to any political party; or
(b) for any political purpose to
any person:
Provided that the. amount or, as
the case may be, the aggregate of
the amounts which may be so
contributed by a company in any
financial year shall not exceed
five percent of its average net
profits determined in accordance
with the provisions of sections 349
and 350 during the three
immediately preceding financial
years.
Provided further that no such
contribution shall be made by a
company unless a resolution
authorizing the making of such
contribution is passed at a meeting
of the Board of Directors and such
resolution shall, subject to the
other provisions of this sections
be deemed to be justification in
law for the making and the
acceptance of the contribution
authorized by it.
Explanation: Where a portion of a
financial year of the company falls
before the commencement of the
Companies (Amendment) Act, 1985,
and a portion falls after such
commencement, the latter portion
shall be deemed to be a financial
year within the meaning, and for
the purpose, of this sub-section
(3)…………………………..
(4) Every company shall disclose in
its profit and loss account any
amount or amounts contributed by it
to any person during the financial
year to which that account relates,
giving particulars of the total
amount contributed and the name of
the party or person to which or to
whom such amount has been
contributed.”
Section 13A of the Income-tax Act, 1961 (the Income-tax Act)
is reproduced hereunder:
“13A. Any income of a political
party which is chargeable under the
head ‘Income from house property’
or ‘Income from other sources’ or
any income by way of voluntary
contributions received by a
political party from any person
shall not be included in the total
income of the previous year of such
political party:
Provided that
(a) such political party keeps
and maintains such books of account
and other documents as would enable
the [Assessing] Officer to properly
deduce its income therefrom;
(b) in respect of each such
voluntary contribution in excess of
ten thousand rupees, such political
party keeps and maintains a record
of such contribution and the name
and address of the person who has
made such contribution; and
(c) the accounts of such
political party are audited by an
accountant as defined in the
Explanation below sub-section (2)
of Section 288.
Explanation…………………..”
Section 77 of the Representation of Peoples Act, 1950 (the
RP Act) is in the following term:
“77. Account of election expenses
and maximum thereof. – (1) Every
candidate at an election shall,
either by himself or by his
election agent, keep a separate and
correct account of all expenditure
in connection with the election
incurred or authorized by him or by
his election agent between [the
date on which he has been
nominated] and the date of
declaration of the result thereof,
both dates inclusive.
[Explanation 1. Notwithstanding any
judgment, order or decision of any
court to the contrary, any
expenditure incurred or authorized
in connection with the election of
a candidate by a political party or
by any other association or body of
persons or by any individual (other
than the candidate or his election
agent) shall not be deemed to be,
and shall not ever be deemed to
have been, expenditure in
connection with the election
incurred or authorized by the
candidates or by his election agent
for the purposes of this sub-
section.’
It is averred in the petition that most of the
political parties in the country – registered and recognized
by the Election Commission – have, for many years, been
flouting the provisions of the Income Tax Act so much so
that they have not been maintaining accounts as required
under Section 13A of the Income Tax Act. Most of the
political parties have not been filing returns of income in
violation of the mandatory provisions of law. According to
The petitioner it is a matter of common knowledge that
political parties receive large amounts of money by way of
donations/contributions from companies on a quid pro quo
basis. The companies invest to seek favours when the party
is in power. Neither the companies nor the political parties
show the contributions/donations in their account-books. The
donations and contributions received by the political
parties are obviously out-of- account and in the nature of
black money which would not figure in the balance sheets of
the companies concerned. There is, thus, patent violation of
Section 293A of the Companies Act and Section 13A of the
Income Tax Act.
The Union of India has filed counter affidavit dated
October 7, 1995. Supplementary affidavit has also been filed
on February 13, 1996. We may at this stage indicate the
position regarding filing of returns of income by the
political parties as disclosed by the Union of India in the
two counter affidavits.
All India Forward Block did not file any return of
income. The department served notices under Section 142(1)
of the Income Tax Act on the party on September 21, 1995 and
November 30, 1995. The party has not filed any return
despite notices.
Bhartiya Janta Party did not file any return till
December 28, 1995 when in response to the notice issued by.
the Income Tax Department on December 4, 1995, the party
filed return of income for the assessment year 1995-96. The
party also furnished information as required by the
department for the accounting period ending March 31, 1993
and March 31, 1994. According to the department the returns
of income filed by the party suffered from infirmities as it
did not include accounts of the State units.
The Communist Party of India and the Communist Party of
India (Marxist) have been filing their returns of income
regularly.
The Indian National Congress did not file any return of
income. The income tax department issued notice dated
December 3, 1995 and letters dated November 30, 1995 and
January 17, 1996. Shri Sita Ram Kesri, Treasurer of the
party, has filed an affidavit dated February 16, 1996
stating that the returns of income relating to the
assessment years 1993-94, 1994-95 and 1995-96 have been
filed on December 14, 1995.
The Janta Dal did not file any return of income for all
these years. Despite notices issued by the department on
September 21, 1995 and January 17, 1996 the return of income
has not been filed.
The Janta Party (JP) and the Revolution Socialist Party
have not been filing return of income.
All India Anna Dravida Munnetra Kazagam (AIADMK) has
filed return of income for the assessment years 1979-80 to
1986-87. The party has not filed the return for the year
1987-88 to 1995-96, however, the party has filed on January
10, 1996 a list of donations of Rs. 10,000 or more received
during the period relevant to the assessment years 1988-89
to 1995-96.
Dravida Munnetra Kazhagam (DMK) has filed the return of
income from 197-80 till 1995-96. Some of the returns,
however, are not valid and some were filed belatedly.
Section 13A of the Income Tax Act was introduced by way
of amendment which came into force on April 1, 1979. The
political parties were required to file return of income for
every assessment year from 1979-80 onwards. Except the
Communist Party of India, the Communist Party of India
(Marxist), the DMK and the AIADMK, no other has been filing
return of income as required under law. Notices were issued
to the political parties some time in the year 1990 calling
for returns of income for the assessment years 1986-87 and
onwards. There is nothing on the record to show, why the
income tax department did not issue notices to the political
parties for the period prior to 1986-87. The political
parties have failed to file returns for all the years from
April 1, 1979 till the assessment year 1990-91 and
thereafter till-date. The reason given by the Union of
India, in the counter affidavit, for not taking any action
against the parties is as under:
“I submit that most of the State
and national level political
parties have not been filing their
returns of income, and statutory
notices issued have not been
complied with as mentioned above.
In some cases, in reply to
statutory notices issued by the
Assessing Officer, some political
parties took a stand that they do
not have any income which is liable
to be taxed and their sources of
income are only those which are
specifically exempted by section
13A of the Income Tax Act and that,
therefore, they are not required to
file returns of their income. In
cases where notices were issued as
stated above, since there was no
definite information available to
the Assessing Officers that the
parties were having incomes above
taxable limits as per the
provisions of the Income Tax Act,
the proceedings initiated by issue
of statutory notices were dropped
with the observation that in case
any information or additional facts
come to the notice to the
Authorities concerned, action under
Section, 147 of the Income Tax Act
would be taken.
It is obvious that there has been total in-action on
the part of the Government to enforce the provisions of the
Income Tax Act relating to the filing of a return of income
by a political party. The provisions of Section 134 of
Income-tax Act read with Section 293A of the Companies Act
clearly indicate the legislative scheme the object of which
is to ensure that there is transparency in the process of
fund-collecting and incurring expenditure ‘by the political
parties. The requirement of maintaining audited accounts by
the political parties is mandatory and has to be strictly
enforced. It was obligatory for the income tax authorities
to have strictly enforced the statutory provisions of the
Income Tax Act. We may refer to Sections 139 (48), 142(1)
and 276 CC of the income tax which are relevant:
139.(4B) The chief executive
officer (whether such chief
executive officer is known as
Secretary or by any other
designation) of every political
party shall, if the total income
in respect of which the political
party is assessable (the total
income for this purpose being
computed under this Act without
giving effect to the provisions of
section 13A) exceeds the maximum
amount which is not chargeable to
income-tax, furnish a return of
such income of the previous year in
the prescribed form and verified in
the prescribed manner and setting
forth such other particulars as may
be prescribed and all the
provisions of this Act, shall, so
fan as may be, apply as if it were
a return required to be furnished
under subsection (1).]
Inquiry before assessment.
142. (1) For the purpose of making
an assessment under this Acc, the
[Assessing] Officer may serve on
any person who has made a return
under section 139 [or in whose case
the time allowed under sub-section
(1) of that section for furnishing
the return has expired a notice
requiring him, on a date to be
therein specified,
[(i) where such person has not
made a return [within the time
allowed under sub-section (1) of
section 139] to furnish a return of
his income or the income of any
other person in respect of which he
is assessable under this Act, in
the prescribed form and verified in
the prescribed manner and setting
forth such other particulars as may
be prescribed, or]
[(ii)]to produce, or cause to
be produced, such accounts or
documents as the [Assessing]
Officer may require, or
[(iii)]to furnish in writing
and verified in the prescribed
manner information in such form and
on such points or matters
(including a statement of all
assets and liabilities of the
assessee, whether included in the
accounts or not) as the [Assessing]
Officer may require: Provided that-
(a) the previous approval of
the [Deputy] Commissioner shall be
obtained before requiring the
assessee to furnish a statement of
all assets and liabilities not
included in the accounts;
(b) the [Assessing] Officer
shall not require the production of
any accounts relating to a period
more than three years prior to the
previous year.
Failure to furnish returns of
income 276CC, If a person willfully
fails to furnish in due time. the
return of income which he is
required to furnish under.
subsection (1) of section 139 or by
notice given under [clause (i) of
sub-section (1) of section 142] or
section 148, he shall be
punishable,
(i) in a case where the amount
of tax, which would have been
evaded if the failure had not been
discovered, exceeds one hundred
thousand rupees, with rigorous
imprisonment for a term which shall
not be less than six months but
which may extend to seven years and
with fine;
(ii) in any other case , with
imprisonment of a term which shall
not be less than three months but
which may extend to three years and
with fine:
Provided that a person shall not be
proceeded against under this
section for failure to furnish in
due time the return of income under
subsection (1) of section 139
(i) for any assessment year
commencing prior to the 1st day of
April, 1975; or
(ii) for any assessment year
of commencing on or after the 1st
day of April, 1975, if
(a) the return is furnished by
him before the expiry of the
assessment year; or
(b) the tax payable by him on
the total income determined on
regular assessment, as reduced by
the advance tax, if any, paid, and
any tax deducted at source, does
not exceed three thousand rupees.]”
The political parties, therefore, are under a
statutory obligation to furnish a return of income for each
assessment year. To be eligible for exemption from income-
tax they have to maintain audited accounts and comply
with the other conditions envisaged under Section 13A of
the Income-tax Act. Admittedly most of the parties have
done neither. It is not a matter where the parties have
overlooked to file a return of income by accident once
or twice. The political parties have in patent violation of
law – neither maintained audited accounts nor paid tax since
1979-80. – Subsection 4B of Section 139 of the Income Tax
Act makes it obligatory for the Chief Executive Officer of
every political party to furnish a return of income for
each year in accordance with the provisions of the
Income Tax Act. Section 142(1) provides for inquiry
before assessment. It it not disputed that notices under
Section 142(1) were issued by the income tax authorities to
the defaulting political parties but despite that the
returns of income have not been filed by the said parties
Failure to furnish a return of income has been made a
criminal offence punishable under Section 276 CC of the
Income Tax Act. It leaves no leeway. The mandatory
provisions of the law have to be enforced. It is common
knowledge that there is ostentatious use of money by
political parties in the elections to further the prospects
of candidates set up by them. Display of huge – cut-outs
etc. of political leaders on road-sides, crossings, street
corners, etc. and setting up of arches, gates, hoardings,
etc. at prominent places and printing of posters and
pamphlets are some of the ways in which money-power is
displayed by the parties. In many cases large-scale
advertisements are also given in newspapers by political
parties.
The General Elections – to decide who rules over 850
million Indians – are staged every 5/6 years since
independence. It is an enormous exercise and a mammoth
venture in terms of money spent. Hundreds and thousands of
vehicles of various kinds are pressed on to the roads in the
543 parliamentary constituencies on behalf of thousands of
aspirants to power, many days before the general elections
are actually held. Millions of leaflets and many millions of
posters are printed and distributed or pasted all over the
country. Banners by the lakhs are hoisted. Flags go up,
walls are painted, and hundreds of thousands of loud
speakers play-out the loud exhortations and extravagant
promises. VIPs and VVIPs come and go, some of them in
helicopters and air-taxis. The political parties in their
quest for power spend mora than one thousand crore of rupees
on the General Election (Parliament alone), yet nobody
accounts for the bulk of the money so spent and there is no
accountability anywhere. Nobody discloses the source of the
money. There are no proper accounts and no audit. From where
does the money come nobody knows. In a democracy where rule
of law prevails this type of naked display of black money,
by violating the mandatory provisions of law, cannot be
permitted.
Mr. R.V. Pandit – a writer, and an economic analyst –
has intervened in this petition. Along with his intervention
application, he has annexed an article written by him and
published in the “imprint” of September, 1988. In the said
article, he highlights the corruption in this country in the
following words:
“I maintain a Savings Bank account;
and from this account drew crossed
Account Payee cheques of varying
sums of money towards election
expenses of candidates I felt would
serve the public cause. Armed with
my Bank Pass Book, I have discussed
the question of elections and
corruption with almost all
important office holders since
Jawaharlal Nehru. From these
discussions, I have drawn the
conclusion that most politicians
are not interested in honest money
funding for elections. Honest money
entails accountability. Honest
money restricts Pending within
legally sanctioned limits (which
are ridiculously low). Honest money
leaves little scope for the
candidate to steal from election
funds. Honest money funding is
limiting. While the politicians
want money for election, more
importantly, they want money for
themselves – to spend to hoard, to
get rich. And this they can do only
if the source of money is black The
corruption in quest of political
office and the corruption in the
mechanics of survival in power has
thoroughly vitiated our lives and
our times. It has sullied our
institutions The corrupt politician
groomed to become the corrupt
minister, and, in turns the corrupt
minister set about seducing the
bureaucrat THINK OF ANY problem our
society or the country is facing
today, analysis it, and you will
inevitably conclude, and rightly,
that corruption is at the root of
the problem. Prices are high.
Corruption is the cause. Quality is
bad. Corruption is the cause. Roads
are pockmarked. Corruption is the
cause. Nobody does a good job.
Corruption is the cause. Hospitals
kill. Corruption is the cause.
Power-failures put homes in
darkness, businesses into
bankruptcy. Corruption is the
cause. Cloth is expensive.
Corruption is the cause. Bridges
collapse Corruption is the cause.
Educational standards have fallen.
Corruption is the cause. We have no
law and order. Corruption is the
cause. People die from poisoning,
through food, through drink,
through medicines. Corruption is
the cause. The list is endless. The
very foundation of our nation, of
our society, is now threatened. And
corruption is the cause.”
According to Mr. Pandit the above quoted scenario has
not improved, it has rather become worse. The General
Elections bring into motion the democratic polity in the
country. When the elections are fought with unaccounted
money the persons elected in the process can think of
nothing except getting rich by amassing black money. They
retain power with the help of black money and while in
office collect more and more to spend the same in the next
election to retain the seat of power. Unless the statutory
provisions meant to being transparency in the functioning of
the democracy are strictly enforced and the election-funding
is made transparent, the vicious circle cannot be broken and
the corruption cannot be eliminated from the country.
We have no hesitation in holding that the political
parties who have not been filing returns of income for
several years have violated the statutory provisions of
Incomes Tax Act. The income tax authorities have been wholly
re-miss in the performance of their statutory duties under
law. It was mandatory for the income tax authorities to have
put in motion the statutory machinery against the defaulting
political parties. The reasons for not doing so – as
disclosed in the counter affidavits – are wholly extraneous
and unjustified. The political parties are not above law and
are bound to follow the same.
A political party which is not maintaining, audited and
authentic accounts and is not filing the return of income
before the income tax authorities cannot justifiably plead
that it has incurred or authorized any expenditure in
connection with the election of a party candidate. The
expenditure “incurred or authorized in connection with the
election of a candidate by a political party” can only be
the expenditure which has a transparent source. Explanation
1 to Section 77 of the Income-tax Act does not give
protection to the expenditure which comes from an unknown or
black source. Bulk of income of a political party by way of
contributions/donations is from companies. Section 293A of
the Companies Act makes it mandatory that such
contributions/donations are made in a transparent manner as
provided under the said section. Similarly, Section 13A of
the Income-tax Act lays down that all income derived from
contributions/donations is exempt from income tax, only if a
political party satisfies that (i) it keeps and maintains
such books of accounts and other documents as would enable
the assessing officer to properly deduce its income
therefrom; (ii) it keeps and maintains a record of each
voluntary contribution in excess of Rs.10,000 and of the
names and addresses of persons who have made such
contributions; and (iii) the accounts of political party are
audited by a chartered accountant or other qualified
accountant. Sub-section 4B has been inserted in Section 139
of the Income Tax Act by Taxation Laws (amendment) Act, 1978
under which every political party is obliged to file every
year a return of total income voluntarily. The total income
for this purpose is to be computed without giving effect to
the provisions of Section 13A of the Income Tax Act. If such
total income exceeds the maximum amount which is not
chargeable to tax, the liability of the political party to
file return of income voluntarily arises. It is thus,
obvious that Section 293A of the Companies Act read with
Section 13A and other provisions of the Income Tax Act are
with an avowed object of bringing transparency in the
accounts and expenditure of the political parties. If a
political party deliberately chooses to violate or
circumvent these mandatory provisions of law and goes
through the election process with the help of black and
unaccounted money the said party, ordinarily, cannot be
permitted to say that it has incurred or authorized
expenditure in connection with the election of its
candidates in terms of Explanation I to Section 77 of the
R.P. Act.
Adverting to Section 77 of the Income Tax Act, Mr.
Kapil Sibal, learned counsel for the Election Commission has
contended that the expenditure incurred by a political party
in terms of Explanation I to Section 77 of the RP Act shall
be presumed to be authorized by the candidate himself but
the said presumption would be rebuttable. The onus lies on
the candidate to prove that the expenditure was in fact
incurred/authorised by the party and it was not incurred by
the candidate himself. We see considerable force in the
contention of the learned counsel. There can be no dispute
that the expenditure incurred by a candidate himself would
squarely fall under Section 77(1) of the RP Act. There can
also be no dispute with the proposition that the expenditure
actually incurred and spent by a political party in
connection with the election of a candidate cannot be
treated to be the expenditure under Section 77(1) of the
Act. The questions however, for determination is what
rule of evidence is to be followed to attract the provisions
of Explanation I to Section 77 of the RP Act? The said
Explanation is in the nature of an exception to sub-
Section I of Section 77. A candidate in the election who
wants to take the benefit of Explanation 1 to Section 77
of the RP Act – in any proceedings before the Court –
must prove that the said expenditure was in fact incurred
by the political party and not by him. Any
expenditure in connection with the election of a candidate
which according to him has been incurred by his political
party shall be presumed to have been authorized by the
candidate or his election agent. But the presumption is
rebuttable. The candidate shall have to show that the said
expenditure was in fact incurred by a political party and
not by him. The candidate shall have to rebut the
presumption by the evidentiary – standard as applicable to
rebuttable presumptions under the law of evidence. An entry
in the books of account of a political party maintained in
accordance with Section 13A of the Income Tax Act showing
that the party has incurred expenditure in connection with
the Section of a candidate may by itself be sufficient to
rebut the presumption. On the other hand, the ipse-dixit of
the candidate or writing at the bottom of the pamphlet,
poster, cut-out, hoarding, wall painting, advertisement and
newspaper etc. that the same were issued by the political
party may not by itself be sufficient to rebut the
presumption. We, therefore, hold that the expenditure
(including that for which the candidate is seeking
protection under Explanation I to Section 77 of RP Act) in
connection with the election of a candidate – to the
knowledge of the candidate or his election agent shall be
presumed to have been authorized by the candidate or his
election agent. It shall, however, be open to the candidate
to rebut the presumption in accordance with law and to show
that part of the expenditure or whole of it was in fact
incurred by the political party to which he belongs or any
other association or body of persons or by an individual
(other than the candidate or his election agent). A
constitution bench of this Court in Dr. O. Nalla Thampy
Terah vs. Union of India and others 1985 (Supp) SCC 189
speaking through Chandrachud, C.J. interpreted Explanation I
to Section 77 as under :
“While we are on this question, we
would like to point out that if an
expenditure which purports to have
been incurred, for example, by a
political party, has in fact been
incurred by the candidate or his
election agent, Explanation 1 will
not be attracted. It is only if the
expenditure is in fact incurred or
authorized by a political party or
any other association or body of
persons, or by an individual (other
than the candidate or his election
agent) that the Explanation will
come into play. The candidate
cannot place his own funds in the
power or possession of a political
party, or a trade union or some
other person and plead for the
protection of Explanation 1. The
reason is that, in such a case, the
incurring of the expenditure by
those others, is a mere facade. In
truth and substance, the
expenditure is incurred by the
candidate himself because, the
money is his. What matter for the
purpose of Explanation 1 is not
whose hand it is that spends the
money. The essence of the matter
is, whose money it is. It is only
if the money expended by a
political party, for example, is
not laid at its disposal by the
candidate or his election agent
that Explanation 1 would apply. In
other words, it must be shown, in
order that source of the
expenditure incurred was not the
candidate or his election agent.
What is important is to realise
that Explanation 1 doss not create
a fiction. It deals with the
realities of political situations.
It does not provide that the
expenditure in fact incurred or
authorized by a candidate or his
election agent, shall not be deemed
to be incurred or authorized by
them, if the amount is defrayed by
a political party. That would be
tantamount to creating a fiction.
The object of the Explanation is to
ensure that the expenditure
incurred, for example, by a
political party on its own, that
is, without using the funds
provided by the candidate or his
election agent shall not be deemed
to be expenditure incurred or
authorized by the candidate or his
election agent. If the expenditure
is incurred from out of the funds
provided by the candidate or his
election agent Section 77(1) and
pot Explanation 1 would apply.”
(emphasis supplied)
Before parting with the point under discussion we make
it clear that any expenditure incurred or authorized by a
political party in respect of general propaganda or for the
propagation of its election manifesto shall not be
considered an expenditure to be incurred in connection with
the election of the candidate/candidates belonging to the
said party.
The second contention of Mr.Sibal is based on Article
324 of the Constitution of India. The said Article provides
that the superintendence, directions and control of the
preparation of the electoral rolls for, and the conduct of
elections to parliament and to the legislature of every
state shall be vested in the Election Commission. According
to Mr.Sibal the entire gamut of election is under the
supervision and control of the Election Commission. The
commission can issue suitable directions to maintain the
purity of election and in particular to bring transparency
in the process of election. According to Mr.Sibal the purity
of election is fundamental to democracy. ‘the precise
contention of Mr.Sibal is that contemporaneous details –
during the period when the process of election is on – of
the expenditure incurred by a political party in connection
with the election of its candidates can be asked for by the
Commission and should be filed by the political party before
the Commission. We are inclined to agree with Mr.Sibal. This
Court in Mohinder Singh Gill and Another Vs. The Chief
Election Commissioner, New Delhi and Others (1978) 1 SCC 405
speaking through Krishna Iyer, J interpreted Article 324 as
under:
We decide two questions under
the relevant article, not arguendo,
but as substantive pronouncements
on the subject. they are:
(a) What, in its comprehensive
connotation, does the ‘conduct’ of
elections mean or, for that matter,
the ‘superintendence, direction and
control’ of elections?
(b) Since the text of the provision
is silent about hearing before
acting, is it permissible to import
into Article 324(1) an obligation
to act in accord with natural
justice?
Article 324, which we have set
out earlier is a plenary provision
vesting the whole responsibility
for national and State elections
and, therefore, the necessary
powers to discharge that function.
It is true that Article 324 has to
be read in the light of the
constitutional scheme and the 1950
Act and the 1951 Act. Sri Rao is
right to the extent he insists that
if competent legislation is enacted
as visualized in Article 327 the
Commission cannot shake itself free
from the enacted prescriptions.
After all as Mathew, J. has
observed in Indira Gandhi (supra)
(p.523) (SCC p. 136, paras 335-6):
In the opinion of some of the
judges constituting the majority in
Bharati’s cases Rule of Law is a
basic structure of the Constitution
apart from democracy
The rule of law postulates the
pervasiveness of the spirit of law
throughout the whole range of
government in the sense of
excluding arbitrary official action
in any sphere.
And the supremacy of valid law over
the Commission argues itself- No
one is an imperium in imperio in
our constitutional order. It is
reasonable to hold that the
Commissioner cannot defy the law
armed by Article 324. Likewise, his
functions are subject to the norms
of fairness and he cannot Act
arbitrarily. Unchecked power is
alien to our system.
Even so, situations may arise
which enacted law has not provided
for . Legislators are not prophets
but pragmatists So it is that the
Constitution has made comprehensive
provision in Article 324 to take
care of surprise situations- that
power itself has to be exercised,
not mindlessly nor mala fide, not
arbitrarily nor with partiality but
in keeping with the guidelines of
the rule of law and not stultifying
the Presidential notification nor
existing legislation. more is not
necessary to specify: less is
insufficient to leave unsaid.
Article 324, in our view, operates
in areas left unoccupied by
legislation and the words
‘superintendence, direction and
control, as well as ‘conduct of all
elections’ are the broadest terms.
Myriad maybes, too mystic to be
precisely presaged, may call for
prompt action to reach the goal of
free and fair election. It has been
argued that this will create a
constitutional despot beyond the
pale of accountability; a
Frankenstein’s monster who may
system into elected despotism –
instances of such phenomena are the
tears of history. To that the
retort may be that the judicial
branch, at the appropriate stage,
with the potency of its benignant
power and within the leading
strings of ‘legal guidelines, can
call the bluff, quash the action
and bring order into the process.
Whether we make a triumph or
travesty of democracy depends on
the man as much as on the Great
National Parchment. Secondly, when
a high functionary like the
Commissioner is vested with wide
powers the law expects him to act
fairly and legally. Article 324 is
geared to the accomplishment of
free and fair elections
expeditiously. moreover, as held in
Virendra and Harishankar discretion
vested in a high functionary may he
reasonably trusted to be used
properly, not perversely. If it is
misused certainly the Court has
power to strike down the act. This
is well established and does not
need further case law confirmation.
Moreover it is useful to remember
the warning of Chandrachud, J :
But the electorate lives in
the hope that a sacred power will
not so flagrantly be abused and the
moving finger of history warns of
the consequences that inevitably
flow when absolute power has
corrupted absolutely. The fear of
perversion is no test of power.
The learned Addl. Solicitor
General brought to our notice
rulings of this Court and of the
High Courts which have held that
Article 324 was a plenary power
which enabled the Commission to act
even in the absence of specific
legislation though not contrary to
valid legislation. Ordering a
repoll for a whole constituency
under compulsion of circumstances
may be directed for the conduct of
elections and can be saved by
Article 324 – provided it is bona
fide necessary for the vindication
of the free verdict of the
electorate and the abandonment of
the previous poll was because it
failed to achieve that goal. While
we repel Sri Rao’s broadside attack
on article 324 as confined to what
the Act has conferred, we concede
that even Article 324 does not
exalt the Commission into a law
unto itself. Broad authority does
not bar scrutiny into specific
validity of the particular order.
Our conclusion on this limb of
the contention is that Article 324
is wide enough to supplement the
powers under the Act as here but
subject to the several conditions
on its exercise we have set out.”
Superintendence and control over the conduct of
election by the Election Commission include the scrutiny of
all expenses incurred by a political party, a candidate or
any other association or body of persons or by any
individual in the course of the election. The expression
“Conduct of election” is wide enough to include in its
sweep, the power to issue directions – in the process of the
conduct of an election – to the effect that the political
parties shall submit to the Election Commission, for its
scrutiny, the details of the expenditure incurred or
authorized by the parties n connection with the election of
their respective candidates.
We are informed that the Election commission of India
has from time to time issued instructions which have been
published in the compendium of instructions on Conduct of
Elections (1996). The Election Commission would be justified
in asking a political party to file before it the account of
expenditure insured or authorized by a political party in
connection with the election of its candidates during the
course of general election/election.
We, therefore, hold and direct as under :
1. That the political parties are under a statutory
obligation to file return of income is respect of each
assessment year in accordance with the provisions of the
Income Tax Act, The political parties referred to by us in
the judgment – who have not been filing returns of income
for several years have prima facie violated the statutory
provisions of the Income Tax Act as indicated by us in the
judgment.
2. That the Income-tax authorities have been wholly remiss
in the performance of their statutory duties under law. The
said authorities have for a long period failed to take
appropriate action against the defaulter political parties.
3. The Secretary, Ministry of Finance, Department of
Revenue, the government of India shall have an
investigation/inquiry conducted against each of the
defaulter political parties and initiate necessary action in
accordance with law including penal action under Section
276CC of the Income Tax Act.
4. The Secretary, Ministry of Finance, Department of
Revenue, Government of India shall appoint an inquiring body
to find out why and in what circumstances the mandatory
provisions of the Income Tax Act regarding filing of return
of income by the political parties were not enforced. Any
officer/officers found responsible and remiss in the inquiry
be suitably dealt with in accordance with the rules.
5. A political party which is not maintaining,
audited and authenticated, accounts and has not filed the
return of income for the relevant period, cannot,
ordinarily, be permitted to say that it has incurred or
authorized expenditure in connection with the election of
its candidates in terms of Explanation 1 to Section 77 of
the RP Act.
6. That the expenditure, (including that for which the
candidate is seeking protection under Explanation to Section
77 of the RP Act) in connection with the election of a
candidate – to the knowledge of the candidate or his
election agent – shall be presumed to have been authorized
by the candidate or his election agent. It shall, however,
be open to the candidate to rebut the presumption in
accordance with law and to show that part of the expenditure
or whole of it was in fact incurred by the political party
to which he belongs or by any other association or body of
persons or by an individual (other than the candidate or his
election agent). Only when the candidate discharges the
burden and rebuts the presumption he would be entitled to
the benefit of Explanation 1 to Section 77 of the RP Act.
7. The expression “conduct of election” in Article 324 of
the Constitution of India is wide enough to include in its
sweep, the power of the Election Commission to issue – in
the process of the conduct of elections – directions to the
effect that the political parties shall submit to the
Commission for its scrutiny, the details of the expenditure
incurred or authorized by the political parties in
connection with the election of their respective candidates.
The writ petition is allowed with costs in the above
terms. We quantify the costs as Rs.20,000 to be paid by the
Union of India.

 

 

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