New Delhi: The Delhi high court has tightened norms for political parties accepting cash donations without submitting their books for scrutiny. The move is being seen as a major boost for more transparency in political funding, plugging a vulnerability in law which could be exploited to mask illicit contributions.
The verdict, upholding an order of the Income Tax Appellate Tribunal imposing tax on voluntary contributions of Rs 25 crore received by the Congress in 1994-95 for which it failed to provide an audited account or proof of the donors, seeks to plug a loophole in campaign finance.
Political parties showed huge chunks of income as contributions from small donors for which they would not provide details, taking advantage of the absence of a rule which clearly required them to do so.
However, Jutices Murlidhar and Bakhru were unambiguous that such contributions, if not accounted for or audited, would fall into the category of "income from other sources" and, therefore, liable to be taxed.
The judges reflected upon the significance of their ruling as they called the case "symbolic of the general lack of transparency and accountability of political parties in this country". They said that lawmakers should recognise that most of the public funds spent by parties to fight elections are "unaccounted" and recommended tightening of rules to "infuse transparency and accountability".
The bench also observed that expenditure incurred by a political party for attaining aims cannot be allowed as a deduction unless a party is able to demonstrate that the deductions were justified.
Dismissing Congress's plea for exemption from paying income tax for the assessment year (AY) 1994-95, the HC bench further said: "Considering that political parties are an essential part of our democracy and are dealing in large sums of public money, much of which is unaccounted, the proper auditing of the accounts of the parties is both imperative and critical to the conduct of free and fair elections." Political parties are increasingly attributing a chunk of their coffers to what they describe as funds from unidentified donors. Advocacy group Association for Democratic Reforms, citing I-T returns, has claimed that majority of the funding for Congress, BJP, NCP and BSP came from anonymous sources.
Congress collected over Rs 978 crore through sale of coupons in the five years till 2008-09, for which it has not provided any contributors' list.In comparison, contributions collected by the party with donors' names accounted for a mere Rs 85 crore during the same period. The BSP received more than Rs 200 crore through cash donations in just two years (2007-08 and 2008-09).