NEW DELHI: Political parties will continue to enjoy income
exemption for the funds they collect as the Supreme
ruled on Wednesday that there is no illegality in the
exception made to keep parties out of the tax net. The decision
puts to rest the debate over whether the exemption was an unfair
privilege granted to political parties. The apex court said the
matter was one of executive determination and parties needed
money to propagate their beliefs.
A bench of Chief Justice J S
Khehar and D Y Chandrachud dismissed a public interest
litigation challenging the constitutional validity of Section
13A of the Income Tax Act which grants exemption to political
The issue had gained salience in the context of PM Narendra
Modi's push for reforms in political funding.
Prime Minister Narendra Modi had
linked the push to the anti-black money objectives of the
demonetisation of Rs 500 and Rs 1,000 currency notes. The SC
also turned down the plea to make it mandatory for political
parties to declare the source of all money received. But as
Modi's recent speeches indicate, this is an area that is likely
to be reviewed soon.
While the government seems ready to consider lowering the
current limit of Rs 20,000 for anonymous donations, there is no
indication that it is could consider reviewing the tax
exemption. There is a move to de-register parties that have
been inactive and are suspected to be using their status
largely to launder unaccounted and illegal money.
Section 13A of the IT Act says any income of a registered
political party which is chargeable under the head "income"
from house property or 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.
Challenging this provision, advocate M L Sharma contended
exempting political parties from paying tax is illegal,
unconstitutional and against national interest. He alleged that
there are 1,848 registered political parties and they misused the
law to hold unaccounted money. "Political parties are supposed to
be main chest of the black money in the country.
Till date no investigation, search, enquiry has been conducted
against any one of the political parties as they are in power to
control all investigation systems. It is admitted fact that all
the political parties are holding black money under the garb of
political funding," he said in his plea.
The bench, however, was not convinced and said political parties
need to generate fund from public to propagate their ideologies.
There is nothing arbitrary or unconstitutional about the
provision and it was for the government of the day to decide who
to grant exemption and the court should not interfere with the
policy. "This is a matter of executive determination. How can we
decide? When the tax regime was introduced, the government chose
on how and what income was to be taxed. It also decided who
should be exempted," the bench said. The petitioner, however,
insisted that the term "political party" was not recognised in
the Constitution. The bench replied that not everything needs to
be mentioned in the Constitution and even the term Hindu
undivided family is not in the Constitution but is recognised
under tax law.
"It is for the government to decide whom to exempt under income
tax law," the court said. In respect of voluntary contribution,
the parties are to maintain record of name and address of donors
only in case when the contribution is in excess of Rs 20,000.