Two appeals between the Indian National Congress Committee and the Commissioner of Income Tax, New Delhi were pending before the High Court of Delhi. The Court considered these two appeals together for the reason that both involve similar issues. Indian National Congress (INC) is a political party registered under the Representation of Peoples’ Act. The central issue in these appeals involves the interpretation of the words ‘income by way of voluntary contributions received by a political party’ occurring in Section 13A of the Act.
The ITAT by its impugned order held that the accounts of the Assessee for the AY 1994-95 were incomplete and therefore, the exemption under Section 13A of the Act was not available to it. At the same time, the ITAT held that the Assessing Officer (‘AO’) could not invoke the provisions of Sections 144 and 145 of the Act to estimate the quantum of income earned by the Assessee by way of voluntary contributions. Accordingly, the matter was remanded to the AO with the direction to the AO that he should undertake afresh the exercise of computing the taxable income of the Assessee.
The AO, after thorough verification of all the books of accounts, audit reports and other submitted evidence passed an order and initiated penalty proceedings against the assessee under sections 271(1)(b) and 271(1)(c). the assessee filed an appeal before the Commissioner (Appeals), where it was held that had been proved beyond doubt that the INC had failed to discharge its statutory responsibility of filing the accounts in time which alone could have entitled it to the benefit of Section 13A of the Act. INC approached the ITAT against the order of the Commissioner (Appeals). The Tribunal also upheld the original order.
When the matter was brought before the High Court through appeals, it was held that Section 13A of the Act is not a computation section. Income by way of voluntary contributions would be excluded only subject to fulfillment of the conditions stipulated under Section 13A of the Act. Voluntary contributions are not capital receipts and the income of a political party by way of voluntary contributions would be included in the taxable income.
It was also held that the INC failed to demonstrate sufficient cause in terms of Rule 46A(1)(b) and 46A(1)(c) of the Rules. The CIT(A) was correct in holding, and the ITAT in affirming, that the INC failed to make out a case for tendering additional evidence in the form of the consolidated audited accounts at the appellate stage.
While concluding the judgment, S. Muralidhar J. added that “………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 political parties is both imperative critical to the conduct of free and fair elections. The above recommendations of the LCI should receive serious and urgent attention at the hands of the executive and the legislature if money power should not be allowed to distort the conduct of free and fair elections. This will, in turn, infuse transparency and accountability into the functioning of the political parties thereby strengthening and deepening democracy.”
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