The deplorable levels of Indian politics rife with allegations and counter allegations stooped to new lows after the advent of Demonetization scheme. A valiant move aimed at opening the front against the holders of black money and eliminating the parallel economy which has deleterious effects on the Indian economy was trivialized by the Opposition. Soon, certain political speculators joined hands with news traders and left no stone unturned to malign one of the boldest moves taken in the history of Independent India. From describing the move as a ‘scam’ without any explanation to capitalizing on deaths, a section of the political spectrum continuously acted as manufacturer of myths and fake stories.
One of such allegations hurled by the opposition was that Modi Government had exempted political parties from any taxation on the old notes. Certain media houses also went on to claim that such a rule had been in fact enacted giving a leeway to the political parties from the demonetization scheme. The Indian National Congress which is infamous for misusing billions of public money soon went all out and claimed that if the Modi Government had enacted a rule to tax contributions to political parties; it would have in fact concurred and given up all such exemptions. The effect of such reports was to give an impression that the current dispensation has in a mala fide manner ensured that the black money supposedly stashed in the coffers of political houses finds a way out. In this article we analyse the provisions which actually exempt political parties from any taxes and why the Modi Government could not have legally made any rules to bypass such provisions and why the political parties cannot be used for converting black money into white money.
Section 13A, Income Tax Act:
The controversy had started with the clarification by the Finance Secretary Ashok Lawasa that the government will not examine demonetised notes deposited in the bank accounts of political parties. What was a mere clarification was construed to be a new rule enacted in the discretion of the Modi Government. But the reality is that the political parties in this country are exempted by virtue of Section 13A of the Income Tax Act, 1961 which was inserted way back in 1978 itself by way of an Amendment in the Act by the Parliament. For comprehensive understanding of the same the said provision is reproduced hereunder.
13A. Special provision relating to incomes of political parties. – Any income of a political party which is chargeable under the head “Income from house property” or “Income from other sources” or “Capital gains” 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:
(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 twenty 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 :
Provided further that if the treasurer of such political party or any other person authorised by that political party in this behalf fails to submit a report under sub-section (3) of section 29C of the Representation of the People Act, 1951 (43 of 1951) for a financial year, no exemption under this section shall be available for that political party for such financial year.
Explanation.—For the purposes of this section, “political party” means a political party registered under section 29A of the Representation of the People Act, 1951 (43 of 1951).
The provision reproduced above also explains why the political parties cannot be used as means for converting black money into white money because even though the political parties are exempted from taxation on voluntary contribution but still they are required to maintain books regarding their sources of income and are also required to file Income Tax returns periodically. Thus, the political parties cannot out of thin air open up the channels of legitimizing black money in the garb of tax exemption.
Why the Modi Government could not modify the tax exemption provisions for Political Parties?
After the Modi Government had clarified as to why the parties cannot be taxed, the Opposition and their media agents furthered a new argument questioning the Government that if it could demonetize the existing currency then why it did not take away the exemption given to the political parties. Well, the reason is plain and simple there is a vast difference between the two propositions. While there is no statutory provision prohibiting demonetization of existing currency, there is a legislative provision prohibiting taxation on voluntary contributions to the political parties.
It is a cardinal principle of Administrative Law that even though an Act can confer and delegate rule making power upon the executive in order to supplement the statutory provisions but the executive cannot exercise the power conferred by the Act to enact such rules which are contrary to the provisions of the enabling Act or for that matter the provisions of any other law for the time being in force. Thus, any rule made by the Government contrary to Section 13A of the IT Act, 1961 would have been null and void and thus of no effect.
There is no doubt about the fact that the exemption to the political parties is by no stretch of imagination a reasonable one but it is also true that it was passed by the support of most of those parties which are sitting in Opposition and holding PM Modi responsible for it today.
The provision no matter how unreasonable it may be cannot be done away with executive action and requires an amendment by the Parliament to plug a loophole in the taxation system of our Nation which under the current scenario cannot take place without the consensus or at least the consent of majority of the political outfits.