Political donation, personal spending

S. MURLIDHARAN | Updated on November 25, 2017 Published on October 30, 2011

The Income-tax Act and Representation of People Act must be dovetailed and the authorities there under must act in tandem.

The Delhi Income tax Tribunal has bought the disingenuous argument by the JMM MPs that the amount they got from the Congress party or their agents on the eve of the crucial floor test way back in 1993 was not the unconscionable and shocking cash-for-vote but a benign and harmless donation to their party. Touché! The decision would shock everyone who knew how the guileless legislators lost no time in scurrying to the nearest bank (Punjab National Bank, Nauroji Nagar, New Delhi) and deposited the proceeds of what appears to every sensible mind as crime but which passed muster in our country, thanks to an indulgent if not bizarre interpretation of the constitutional immunity conferred to legislators for their acts done on the floor of the house.

Taxable or not

Be that as it may, the question for examination under the income tax law was whether the amounts received by the MPs were taxable or not. The legal position is that income tax lax is not concerned about the taint of illegality or immorality. That being the case, the taxman could not have been accused of overreach. The assessing officer naturally put his shovel into the unearned income but it beats one to know that at the Tribunal proceedings the party donation tune held sway. It stands to reason how donation meant for party could be deposited into the personal accounts of their functionaries. It is possible that the guileless legislators developed cold feet and post haste transferred the money to party's account once the heat turned on them but that does not absolve them of the tax liability given the time-honored tax position that application of income and diversion of income by overriding title are two different things.

Money laundering

The Central Board of Direct Taxes (CBDT),not long ago, had voiced its apprehension that the mushrooming growth of political parties in this country testifies to the fact that political parties like trusts have become an excellent money laundering vehicles. And the facile expression donation is the detergent. Complete exemption to political donations from out of one's otherwise taxable income completes the heady mix. To be sure, the accounts of political parties are required to be audited but that hasn't dampened the gung-ho spirits of money launderers a wee bit.

There are umpteen number of cases how politicos have laundered their ill-gotten wealth in a jiffy with a singular nonchalance by enacting an elaborate charade — call a political rally where a fawning minion would present the neta with a purse. In an era where there was no tax on gifts, the brazen act passed muster as tax-free gift.

Now that the income tax law has been amended to tax gifts beyond a specified threshold as income, one is bound to change tack taking inspiration from the JMM MPs and vest the purse received in a political rally as collective donation for a political party. To be sure, donations in excess of the specified threshold must be received by cheque but the wily politicos would say without batting an eyelid that the huge cash received is nothing but an aggregation of trickles. The snowballing effect. How convenient!Those averring that state funding of election is not a panacea to the nation's rogue financial system are forgetting that election funding is at the core of the issue and the starting point of the rot.

If political parties are supported by the state, they would have no excuse for hobnobbing with tax evaders and antisocial elements and giving them sanctuary and looking askance at their shenanigans while in power. True, the role of black money in elections cannot be fully eliminated even if there is state funding but the point is political parties' account would not be available for money laundering purposes as it is now when donation ceases to be the main source of funds for them. That would make the task of nabbing the guilty that much more easy.

While on the subject of politicians, it must be pointed out that the Income-tax Act and Representation of People Act must be dovetailed and the authorities there under must act in tandem. A declaration by an MP of Rs 500 crore of assets for example in the face of a declaration of a measly Rs 100 crore on the eve of the previous election five years ago should excite the suspicion of the income tax officer.

(The author is a Delhi-based chartered accountant.)

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Published on October 30, 2011
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