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PETITIONER: COMMON CAUSEA REGISTERED SOCIETY

       Vs.

RESPONDENT: UNION OF INDIA & ORS.

DATE OF JUDGMENT:       04/04/1996

BENCH: KULDIP SINGH (J) BENCH: KULDIP SINGH (J) FAIZAN UDDIN (J)

CITATION:  JT 1996 (3)   706        1996 SCALE  (3)258

ACT:

HEADNOTE:

JUDGMENT:                  THE 4TH DAY OF APRIL, 1996 Present:      Hon’ble Mr.Justice Kuldip Singh      Hon’ble Mr.Justice Faizan Uddin D.P.Gupta,  Solicitor   General,  Kapil  Sibal,  D.D.Thakur, Hardev  Singh,   Jitendra  Sharma,  H  N.Selve,  G.L.Sanghi, Sr.Advs.,     P.Parmeswaran,      B.B.Ahuja,     S.N.Terdol, A.M.Khanwilkars,    Ms.Madhu     Moolchandani,    Ms.G.Dara, Ms.Minakshi Vij.  B.K.Pal, Maninder  Singh,  Rakesh  Prasad, R.B.Misra,  Kamlendra   Misra,  Sudhanshu,   A.V.Rangam,  A. Ranganadhan,  Rakesh   K.Sharma,   Goodwill   Indeevar,   V. Krishnamurthy, T.H.Rish  Kumur, P.R.  Kovilan,  P.K.Manohar, Dr.Roxane Swamy,  Bharat  Sangal,  Ashok  Mathur  Brijhender Chahar and  Vivek Gambhir, Advs. with them for the appearing parties. H.D.Shurie, in-person. for the Petitioner.                       J U D G M E N T The following Judgment of the Court was delivered: COMMON CAUSE A REGISTERED SOCIETY V. UNION OF INDIA & OTHERS                       J U D G M E N T Kuldip Singh, J      Common cause - a society registered under the Societies Registration Act,  1860 which  takes up  various matters  of general public  interest/importance for  redress before  the courts -  through its  Director Mr.  H.D. Shourie, has filed this public  interest  petition  under  Article  32  of  the Constitution of  India. The primary contention raised in the petition  is   that  the  cumulative  effect  of  the  three statutory provisions,  namely Section  293A of the Companies Act 1956, Section 13A of the Income-tax Act 1961 and Section 77 of  the Representation  of People  Act 1950  is, to bring transparency in  the election-funding.  People of India must know the  source of  expenditure incurred  by the  political

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parties and by the candidates in the process of election. It is contended  that the mandatory provisions of law are being violated by  the political parties with impunity. During the elections crores  of  rupees  are  spent  by  the  political parties without indicating the source of the money so spent. According to  Mr. Shourie  the elections in this country are fought with  the help  of money-power which is gathered from black-sources. Once  elected to  power, it  becomes easy  to collect tons  of black-money  which is  used  for  retaining power and for re-election,, The vicious circle, according to Mr. Shourie, has totally polluted the basic democracy in the country.      Section 293A  of the Companies Act, 1956 (the Companies Act) is as under:      "293A. (1) Notwithstanding anything      contained in  any other  provisions      of  this   Act  (a)  no  Government      company; and      (b) no other company which has been      in existence  for less  than  three      financial years.      shall  contribute   any  amount  or      amounts, directly or indirectly,      (i) to any political party; or      (ii) for  any political  purpose to      any person.      (2) A  company, not being a company      referred  to   in  clause   (a)  or      clause(b) of  sub-section (1),  may      contribute any  amount or  amounts,      directly or indirectly      (a) to any political party; or      (b) for  any political  purpose  to      any person:      Provided that  the. amount  or,  as      the case  may be,  the aggregate of      the  amounts   which  may   be   so      contributed by  a  company  in  any      financial  year  shall  not  exceed      five percent  of  its  average  net      profits  determined  in  accordance      with the provisions of sections 349      and   350    during    the    three      immediately   preceding   financial      years.      Provided  further   that  no   such      contribution shall  be  made  by  a      company   unless    a    resolution      authorizing  the   making  of  such      contribution is passed at a meeting      of the  Board of Directors and such      resolution shall,  subject  to  the      other provisions  of this  sections      be deemed  to be  justification  in      law  for   the   making   and   the      acceptance  of   the   contribution      authorized by it.      Explanation: Where  a portion  of a      financial year of the company falls      before  the   commencement  of  the      Companies  (Amendment)  Act,  1985,      and  a  portion  falls  after  such      commencement,  the  latter  portion      shall be  deemed to  be a financial      year within  the meaning,  and  for

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    the purpose, of this sub-section      (3)................................      (4) Every company shall disclose in      its profit  and  loss  account  any      amount or amounts contributed by it      to any  person during the financial      year to which that account relates,      giving  particulars  of  the  total      amount contributed  and the name of      the party  or person to which or to      whom   such    amount   has    been      contributed." Section 13A of the Income-tax Act, 1961 (the Income-tax Act) is reproduced hereunder:      "13A. Any  income  of  a  political      party which is chargeable under the      head ’Income  from house  property’      or ’Income  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:      Provided that           (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      ten 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.      Explanation......................." Section 77  of the  Representation of Peoples Act, 1950 (the RP Act) is in the following term:      "77. Account  of election  expenses      and maximum  thereof. -  (1)  Every      candidate  at  an  election  shall,      either  by   himself  or   by   his      election agent, keep a separate and      correct account  of all expenditure      in  connection  with  the  election      incurred or authorized by him or by      his  election  agent  between  [the      date   on   which   he   has   been      nominated]   and    the   date   of      declaration of  the result thereof,      both dates inclusive.      [Explanation 1. Notwithstanding any      judgment, order  or decision of any      court   to    the   contrary,   any      expenditure incurred  or authorized      in connection  with the election of      a candidate by a political party or      by any other association or body of

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    persons or by any individual (other      than the  candidate or his election      agent) shall  not be  deemed to be,      and shall  not ever  be  deemed  to      have    been,     expenditure    in      connection   with    the   election      incurred  or   authorized  by   the      candidates or by his election agent      for  the   purposes  of  this  sub-      section.’      It  is  averred  in  the  petition  that  most  of  the political parties in the country - registered and recognized by the  Election Commission  - have,  for many  years,  been flouting the  provisions of  the Income  Tax Act  so much so that they  have not  been maintaining  accounts as  required under Section  13A of  the  Income  Tax  Act.  Most  of  the political parties  have not been filing returns of income in violation of  the mandatory  provisions of law. According to The petitioner  it is  a matter  of  common  knowledge  that political parties  receive large  amounts of money by way of donations/contributions from  companies on  a quid  pro  quo basis. The  companies invest  to seek favours when the party is in power. Neither the companies nor the political parties show the contributions/donations in their account-books. The donations  and   contributions  received  by  the  political parties are  obviously out-of-  account and in the nature of black money  which would not figure in the balance sheets of the companies concerned. There is, thus, patent violation of Section 293A  of the  Companies Act  and Section  13A of the Income Tax Act.      The Union  of India  has filed  counter affidavit dated October 7, 1995. Supplementary affidavit has also been filed on February  13, 1996.  We may  at this  stage indicate  the position regarding  filing  of  returns  of  income  by  the political parties  as disclosed by the Union of India in the two counter affidavits.      All India  Forward Block  did not  file any  return  of income. The  department served  notices under Section 142(1) of the Income Tax Act on the party on September 21, 1995 and November 30,  1995. The  party  has  not  filed  any  return despite notices.      Bhartiya Janta  Party did  not  file  any  return  till December 28,  1995 when in response to the notice issued by. the Income  Tax Department  on December  4, 1995,  the party filed return  of income for the assessment year 1995-96. The party  also   furnished  information   as  required  by  the department for  the accounting  period ending March 31, 1993 and March  31, 1994. According to the department the returns of income filed by the party suffered from infirmities as it did not include accounts of the State units.      The Communist Party of India and the Communist Party of India (Marxist)  have been  filing their  returns of  income regularly.      The Indian National Congress did not file any return of income.  The  income  tax  department  issued  notice  dated December 3,  1995 and  letters dated  November 30,  1995 and January 17,  1996. Shri  Sita Ram  Kesri, Treasurer  of  the party, has  filed  an  affidavit  dated  February  16,  1996 stating  that   the  returns   of  income  relating  to  the assessment years  1993-94, 1994-95  and  1995-96  have  been filed on December 14, 1995.      The Janta Dal did not file any return of income for all these years.  Despite notices  issued by  the department  on September 21, 1995 and January 17, 1996 the return of income has not been filed.

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    The Janta Party (JP) and the Revolution Socialist Party have not been filing return of income.      All India  Anna Dravida  Munnetra Kazagam  (AIADMK) has filed return  of income  for the assessment years 1979-80 to 1986-87. The  party has  not filed  the return  for the year 1987-88 to  1995-96, however, the party has filed on January 10, 1996  a list of donations of Rs. 10,000 or more received during the  period relevant  to the assessment years 1988-89 to 1995-96.      Dravida Munnetra Kazhagam (DMK) has filed the return of income from  197-80  till  1995-96.  Some  of  the  returns, however, are not valid and some were filed belatedly.      Section 13A of the Income Tax Act was introduced by way of amendment  which came  into force  on April  1, 1979. The political parties were required to file return of income for every assessment  year  from  1979-80  onwards.  Except  the Communist Party  of India,  the  Communist  Party  of  India (Marxist), the  DMK and the AIADMK, no other has been filing return of  income as required under law. Notices were issued to the  political parties some time in the year 1990 calling for returns  of income  for the assessment years 1986-87 and onwards. There  is nothing  on the  record to  show, why the income tax department did not issue notices to the political parties for  the period  prior  to  1986-87.  The  political parties have  failed to  file returns for all the years from April  1,   1979  till   the  assessment  year  1990-91  and thereafter till-date.  The reason  given  by  the  Union  of India, in  the counter  affidavit, for not taking any action against the parties is as under:      "I submit  that most  of the  State      and   national    level   political      parties have  not been filing their      returns of  income,  and  statutory      notices  issued   have   not   been      complied with  as mentioned  above.      In  some   cases,   in   reply   to      statutory  notices  issued  by  the      Assessing Officer,  some  political      parties took  a stand  that they do      not have any income which is liable      to be  taxed and  their sources  of      income are  only  those  which  are      specifically  exempted  by  section      13A of the Income Tax Act and that,      therefore, they are not required to      file returns  of their  income.  In      cases where  notices were issued as      stated above,  since there  was  no      definite information  available  to      the  Assessing  Officers  that  the      parties were  having incomes  above      taxable   limits    as   per    the      provisions of  the Income  Tax Act,      the proceedings  initiated by issue      of statutory  notices were  dropped      with the  observation that  in case      any information or additional facts      come   to   the   notice   to   the      Authorities concerned, action under      Section, 147  of the Income Tax Act      would be taken.      It is  obvious that  there has  been total in-action on the part  of the Government to enforce the provisions of the Income Tax  Act relating to the filing of a return of income by a  political party.  The provisions  of  Section  134  of

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Income-tax Act  read with  Section 293A of the Companies Act clearly indicate  the legislative scheme the object of which is to  ensure that  there is  transparency in the process of fund-collecting and  incurring expenditure ’by the political parties. The  requirement of maintaining audited accounts by the political  parties is  mandatory and  has to be strictly enforced. It  was obligatory  for the income tax authorities to have  strictly enforced  the statutory  provisions of the Income Tax  Act. We  may refer  to Sections 139 (48), 142(1) and 276 CC of the income tax which are relevant:      139.(4B)  The     chief   executive      officer  (whether     such    chief      executive officer   is  known    as      Secretary    or  by    any    other      designation) of    every  political      party shall,   if  the total income      in respect  of which  the political      party  is   assessable  (the  total      income  for   this  purpose   being      computed  under  this  Act  without      giving effect  to the provisions of      section 13A)  exceeds  the  maximum      amount which  is not  chargeable to      income-tax,  furnish  a  return  of      such income of the previous year in      the prescribed form and verified in      the prescribed  manner and  setting      forth such other particulars as may      be   prescribed    and   all    the      provisions of  this Act,  shall, so      fan as  may be, apply as if it were      a return  required to  be furnished      under subsection (1).]      Inquiry before assessment.      142. (1)  For the purpose of making      an assessment  under this  Acc, the      [Assessing] Officer  may  serve  on      any person  who has  made a  return      under section 139 [or in whose case      the time  allowed under sub-section      (1) of  that section for furnishing      the return  has  expired  a  notice      requiring him,  on  a  date  to  be      therein specified,           [(i) where such person has not      made  a  return  [within  the  time      allowed under  sub-section  (1)  of      section 139] to furnish a return of      his income  or the  income  of  any      other person in respect of which he      is assessable  under this  Act,  in      the prescribed form and verified in      the prescribed  manner and  setting      forth such other particulars as may      be prescribed, or]           [(ii)]to produce,  or cause to      be  produced,   such  accounts   or      documents   as    the   [Assessing]      Officer may require, or           [(iii)]to furnish  in  writing      and  verified   in  the  prescribed      manner information in such form and      on   such    points   or    matters      (including  a   statement  of   all      assets  and   liabilities  of   the

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    assessee, whether  included in  the      accounts or not) as the [Assessing]      Officer may require: Provided that-           (a) the  previous approval  of      the [Deputy]  Commissioner shall be      obtained   before   requiring   the      assessee to  furnish a statement of      all  assets   and  liabilities  not      included in the accounts;           (b)  the  [Assessing]  Officer      shall not require the production of      any accounts  relating to  a period      more than  three years prior to the      previous year.      Failure  to   furnish  returns   of      income 276CC, If a person willfully      fails to  furnish in  due time. the      return  of   income  which   he  is      required    to    furnish    under.      subsection (1) of section 139 or by      notice given  under [clause  (i) of      sub-section (1)  of section 142] or      section   148,    he    shall    be      punishable,           (i) in a case where the amount      of  tax,   which  would  have  been      evaded if  the failure had not been      discovered,  exceeds   one  hundred      thousand  rupees,   with   rigorous      imprisonment for a term which shall      not be  less than  six  months  but      which may extend to seven years and      with fine;           (ii) in  any other case , with      imprisonment of  a term which shall      not be  less than  three months but      which may extend to three years and      with fine:      Provided that a person shall not be      proceeded   against    under   this      section for  failure to  furnish in      due time the return of income under      subsection (1) of section 139           (i) for  any  assessment  year      commencing prior  to the 1st day of      April, 1975; or           (ii) for  any assessment  year      of commencing  on or  after the 1st      day of April, 1975, if           (a) the return is furnished by      him  before   the  expiry   of  the      assessment year; or           (b) the  tax payable by him on      the  total   income  determined  on      regular assessment,  as reduced  by      the advance  tax, if any, paid, and      any tax  deducted at  source,  does      not exceed three thousand rupees.]"      The political   parties,  therefore,   are   under    a statutory obligation  to furnish a return of income for each assessment year.  To be  eligible for exemption from income- tax they  have to  maintain   audited accounts   and  comply with  the  other conditions envisaged  under Section  13A of the   Income-tax Act.  Admittedly most  of the  parties have done neither.  It is  not a  matter where  the parties  have

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overlooked   to file  a return  of  income by  accident once or twice.  The political parties have in patent violation of law - neither maintained audited accounts nor paid tax since 1979-80. -  Subsection 4B  of Section  139 of the Income Tax Act makes it obligatory for the Chief  Executive Officer  of every   political  party  to furnish a  return of income for each year  in accordance  with the   provisions    of    the Income   Tax   Act.   Section   142(1) provides for  inquiry before   assessment. It  it not disputed that notices  under Section 142(1) were issued by the income tax authorities  to the   defaulting   political  parties  but despite that  the returns  of income  have not been filed by the said  parties Failure   to furnish  a return  of income  has been  made  a criminal offence  punishable under  Section 276  CC  of  the Income Tax   Act.  It    leaves  no  leeway.  The  mandatory provisions of  the law  have to  be enforced.  It is  common knowledge  that  there  is  ostentatious  use  of  money  by political parties  in the elections to further the prospects of candidates  set up  by them.  Display of  huge - cut-outs etc. of  political leaders  on road-sides, crossings, street corners, etc.  and setting  up of  arches, gates, hoardings, etc.  at  prominent  places  and  printing  of  posters  and pamphlets are  some of  the ways  in  which  money-power  is displayed  by   the  parties.   In  many  cases  large-scale advertisements are  also given  in newspapers  by  political parties.      The General  Elections -  to decide  who rules over 850 million  Indians   -  are   staged  every  5/6  years  since independence. It  is an  enormous  exercise  and  a  mammoth venture in  terms of  money spent. Hundreds and thousands of vehicles of various kinds are pressed on to the roads in the 543 parliamentary  constituencies on  behalf of thousands of aspirants to  power, many  days before the general elections are actually held. Millions of leaflets and many millions of posters are  printed and  distributed or pasted all over the country. Banners  by the  lakhs are  hoisted. Flags  go  up, walls  are  painted,  and  hundreds  of  thousands  of  loud speakers play-out  the  loud  exhortations  and  extravagant promises. VIPs  and VVIPs  come and  go,  some  of  them  in helicopters and  air-taxis. The  political parties  in their quest for power spend mora than one thousand crore of rupees on the  General  Election  (Parliament  alone),  yet  nobody accounts for  the bulk of the money so spent and there is no accountability anywhere.  Nobody discloses the source of the money. There are no proper accounts and no audit. From where does the  money come nobody knows. In a democracy where rule of law  prevails this  type of naked display of black money, by violating  the mandatory  provisions of  law,  cannot  be permitted.      Mr. R.V.  Pandit -  a writer, and an economic analyst - has intervened in this petition. Along with his intervention application, he  has annexed  an article  written by him and published in  the "imprint"  of September, 1988. In the said article, he highlights the corruption in this country in the following words:      "I maintain a Savings Bank account;      and from  this account drew crossed      Account Payee  cheques  of  varying      sums  of   money  towards  election      expenses of candidates I felt would      serve the  public cause. Armed with      my Bank Pass Book, I have discussed      the  question   of  elections   and      corruption    with    almost    all      important  office   holders   since

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    Jawaharlal   Nehru.    From   these      discussions,  I   have  drawn   the      conclusion  that  most  politicians      are not  interested in honest money      funding for elections. Honest money      entails   accountability.    Honest      money  restricts   Pending   within      legally  sanctioned  limits  (which      are ridiculously low). Honest money      leaves   little   scope   for   the      candidate to  steal  from  election      funds.  Honest   money  funding  is      limiting.  While   the  politicians      want  money   for  election,   more      importantly, they  want  money  for      themselves -  to spend to hoard, to      get rich. And this they can do only      if the source of money is black The      corruption in  quest  of  political      office and  the corruption  in  the      mechanics of  survival in power has      thoroughly vitiated  our lives  and      our  times.   It  has  sullied  our      institutions The corrupt politician      groomed  to   become  the   corrupt      minister, and, in turns the corrupt      minister set  about seducing    the      bureaucrat THINK OF ANY problem our      society or  the country  is  facing      today, analysis  it, and  you  will      inevitably conclude,  and  rightly,      that corruption  is at  the root of      the  problem.   Prices  are   high.      Corruption is the cause. Quality is      bad. Corruption is the cause. Roads      are pockmarked.  Corruption is  the      cause.  Nobody  does  a  good  job.      Corruption is  the cause. Hospitals      kill.  Corruption   is  the  cause.      Power-failures   put    homes    in      darkness,      businesses      into      bankruptcy.   Corruption   is   the      cause.    Cloth    is    expensive.      Corruption is  the  cause.  Bridges      collapse   Corruption is the cause.      Educational standards  have fallen.      Corruption is the cause. We have no      law and  order. Corruption  is  the      cause. People  die from  poisoning,      through   food,    through   drink,      through  medicines.  Corruption  is      the cause. The list is endless. The      very foundation  of our  nation, of      our society, is now threatened. And      corruption is the cause."      According to  Mr. Pandit  the above quoted scenario has not improved,  it  has  rather  become  worse.  The  General Elections bring  into motion  the democratic  polity in  the country. When  the elections  are  fought  with  unaccounted money the  persons elected  in  the  process  can  think  of nothing except  getting rich  by amassing  black money. They retain power  with the  help of  black money  and  while  in office collect  more and  more to spend the same in the next election to  retain the  seat of power. Unless the statutory provisions meant to being transparency in the functioning of

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the democracy are strictly enforced and the election-funding is made transparent, the vicious circle cannot be broken and the corruption cannot be eliminated from the country.      We have  no hesitation  in holding  that the  political parties who  have not  been filing  returns  of  income  for several years  have violated  the  statutory  provisions  of Incomes Tax Act. The income tax authorities have been wholly re-miss in  the performance  of their statutory duties under law. It was mandatory for the income tax authorities to have put in motion the statutory machinery against the defaulting political parties.  The  reasons  for  not  doing  so  -  as disclosed in  the counter affidavits - are wholly extraneous and unjustified. The political parties are not above law and are bound to follow the same.      A political party which is not maintaining, audited and authentic accounts  and is  not filing  the return of income before the  income tax  authorities cannot justifiably plead that it  has  incurred  or  authorized  any  expenditure  in connection with  the election  of  a  party  candidate.  The expenditure "incurred  or authorized  in connection with the election of  a candidate  by a  political party" can only be the expenditure  which has a transparent source. Explanation 1 to  Section  77  of  the  Income-tax  Act  does  not  give protection to the expenditure which comes from an unknown or black source.  Bulk of income of a political party by way of contributions/donations is  from companies.  Section 293A of the   Companies   Act   makes   it   mandatory   that   such contributions/donations are  made in a transparent manner as provided under  the said  section. Similarly, Section 13A of the Income-tax  Act lays  down that  all income derived from contributions/donations is exempt from income tax, only if a political party  satisfies that  (i) it  keeps and maintains such books  of accounts  and other documents as would enable the  assessing   officer  to   properly  deduce  its  income therefrom; (ii)  it keeps  and maintains  a record  of  each voluntary contribution  in excess  of Rs.10,000  and of  the names  and   addresses  of   persons  who   have  made  such contributions; and (iii) the accounts of political party are audited  by   a  chartered  accountant  or  other  qualified accountant. Sub-section  4B has been inserted in Section 139 of the Income Tax Act by Taxation Laws (amendment) Act, 1978 under which  every political  party is obliged to file every year a  return of total income voluntarily. The total income for this  purpose is to be computed without giving effect to the provisions of Section 13A of the Income Tax Act. If such total  income  exceeds  the  maximum  amount  which  is  not chargeable to  tax, the  liability of the political party to file return  of  income  voluntarily  arises.  It  is  thus, obvious that  Section 293A  of the  Companies Act  read with Section 13A  and other  provisions of the Income Tax Act are with an  avowed  object  of  bringing  transparency  in  the accounts and  expenditure of  the political  parties.  If  a political  party   deliberately  chooses   to   violate   or circumvent  these  mandatory  provisions  of  law  and  goes through the  election process  with the  help of  black  and unaccounted money  the said  party,  ordinarily,  cannot  be permitted  to   say  that  it  has  incurred  or  authorized expenditure  in   connection  with   the  election   of  its candidates in  terms of  Explanation I  to Section 77 of the R.P. Act.      Adverting to  Section 77  of the  Income Tax  Act,  Mr. Kapil Sibal, learned counsel for the Election Commission has contended that the expenditure incurred by a political party in terms  of Explanation I to Section 77 of the RP Act shall be presumed  to be  authorized by  the candidate himself but

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the said  presumption would  be rebuttable. The onus lies on the candidate  to prove  that the  expenditure was  in  fact incurred/authorised by  the party and it was not incurred by the candidate  himself. We  see considerable  force  in  the contention of  the learned  counsel. There can be no dispute that the  expenditure incurred  by a candidate himself would squarely fall  under Section  77(1) of the RP Act. There can also be no dispute with the proposition that the expenditure actually incurred  and spent  by   a  political    party  in connection with  the  election  of  a  candidate  cannot  be treated to  be the expenditure under Section  77(1)  of  the Act.   The   questions  however,  for determination is  what rule of evidence is to be followed to attract the provisions of Explanation  I to  Section 77  of the  RP Act?  The  said Explanation   is   in  the  nature  of  an exception to sub- Section I  of Section  77. A  candidate in  the election who wants to   take  the benefit  of Explanation 1 to Section 77 of the   RP  Act   - in   any proceedings before the Court - must prove  that the  said expenditure  was in fact incurred by   the   political   party   and   not   by    him.    Any expenditure in  connection with  the election of a candidate which according  to him  has been  incurred by his political party shall  be presumed  to have  been  authorized  by  the candidate or  his election  agent. But  the  presumption  is rebuttable. The  candidate shall  have to show that the said expenditure was  in fact  incurred by  a political party and not  by   him.  The   candidate  shall  have  to  rebut  the presumption by  the evidentiary  - standard as applicable to rebuttable presumptions  under the law of evidence. An entry in the  books of  account of a political party maintained in accordance with  Section 13A  of the  Income Tax Act showing that the  party has  incurred expenditure in connection with the Section  of a  candidate may  by itself be sufficient to rebut the  presumption. On the other hand, the ipse-dixit of the candidate  or writing  at the  bottom of  the  pamphlet, poster, cut-out,  hoarding, wall painting, advertisement and newspaper etc.  that the  same were  issued by the political party  may   not  by  itself  be  sufficient  to  rebut  the presumption.  We,   therefore,  hold  that  the  expenditure (including  that   for  which   the  candidate   is  seeking protection under  Explanation I  to Section 77 of RP Act) in connection with  the  election  of  a  candidate  -  to  the knowledge of  the candidate  or his  election agent shall be presumed to  have been  authorized by  the candidate  or his election agent.  It shall, however, be open to the candidate to rebut  the presumption in accordance with law and to show that part  of the  expenditure or  whole of  it was  in fact incurred by  the political  party to which he belongs or any other association  or body  of persons  or by  an individual (other  than   the  candidate  or  his  election  agent).  A constitution bench  of this  Court in  Dr. O.  Nalla  Thampy Terah vs.  Union of  India and  others 1985  (Supp) SCC  189 speaking through Chandrachud, C.J. interpreted Explanation I to Section 77 as under :      "While we  are on this question, we      would like  to point out that if an      expenditure which  purports to have      been incurred,  for example,  by  a      political party,  has in  fact been      incurred by  the candidate  or  his      election agent,  Explanation 1 will      not be attracted. It is only if the      expenditure is  in fact incurred or      authorized by  a political party or      any other  association or  body  of

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    persons, or by an individual (other      than the  candidate or his election      agent) that  the  Explanation  will      come  into   play.  The   candidate      cannot place  his own  funds in the      power or  possession of a political      party, or  a trade  union  or  some      other  person  and  plead  for  the      protection of  Explanation  1.  The      reason is that, in such a case, the      incurring  of  the  expenditure  by      those others,  is a mere facade. In      truth    and     substance,     the      expenditure  is   incurred  by  the      candidate  himself   because,   the      money is  his. What  matter for the      purpose of  Explanation  1  is  not      whose hand  it is  that spends  the      money. The  essence of  the  matter      is, whose  money it  is. It is only      if  the   money   expended   by   a      political party,  for  example,  is      not laid  at its  disposal  by  the      candidate  or  his  election  agent      that Explanation  1 would apply. In      other words,  it must  be shown, in      order   that    source    of    the      expenditure incurred  was  not  the      candidate or  his  election  agent.      What is  important  is  to  realise      that Explanation  1 doss not create      a  fiction.   It  deals   with  the      realities of  political situations.      It  does   not  provide   that  the      expenditure  in  fact  incurred  or      authorized by  a candidate  or  his      election agent, shall not be deemed      to be  incurred  or  authorized  by      them, if  the amount is defrayed by      a political  party. That  would  be      tantamount to  creating a  fiction.      The object of the Explanation is to      ensure   that    the    expenditure      incurred,   for   example,   by   a      political party  on its  own,  that      is,   without   using   the   funds      provided by  the candidate  or  his      election agent  shall not be deemed      to  be   expenditure  incurred   or      authorized by  the candidate or his      election agent.  If the expenditure      is incurred  from out  of the funds      provided by  the candidate  or  his      election agent  Section  77(1)  and      pot Explanation 1 would apply."                      (emphasis supplied)      Before parting  with the point under discussion we make it clear  that any  expenditure incurred  or authorized by a political party  in respect of general propaganda or for the propagation  of   its  election   manifesto  shall   not  be considered an  expenditure to be incurred in connection with the election  of the  candidate/candidates belonging  to the said party.      The second  contention of  Mr.Sibal is based on Article 324 of  the Constitution of India. The said Article provides

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that the  superintendence, directions  and  control  of  the preparation of  the electoral  rolls for, and the conduct of elections to  parliament and  to the  legislature  of  every state shall  be vested in the Election Commission. According to Mr.Sibal  the entire  gamut  of  election  is  under  the supervision and  control of  the  Election  Commission.  The commission can  issue suitable  directions to  maintain  the purity of  election and  in particular to bring transparency in the process of election. According to Mr.Sibal the purity of  election  is  fundamental  to  democracy.  ’the  precise contention of  Mr.Sibal is  that contemporaneous  details  - during the  period when  the process  of election is on - of the expenditure  incurred by a political party in connection with the  election of its candidates can be asked for by the Commission and should be filed by the political party before the Commission. We are inclined to agree with Mr.Sibal. This Court in  Mohinder Singh  Gill and  Another  Vs.  The  Chief Election Commissioner, New Delhi and Others (1978) 1 SCC 405 speaking through  Krishna Iyer, J interpreted Article 324 as under:           We decide  two questions under      the relevant article, not arguendo,      but as  substantive  pronouncements      on the subject. they are:      (a)  What,   in  its  comprehensive      connotation, does  the ’conduct’ of      elections mean or, for that matter,      the ’superintendence, direction and      control’ of elections?      (b) Since the text of the provision      is  silent   about  hearing  before      acting, is it permissible to import      into Article  324(1) an  obligation      to  act   in  accord  with  natural      justice?           Article 324, which we have set      out earlier  is a plenary provision      vesting  the  whole  responsibility      for national  and  State  elections      and,   therefore,   the   necessary      powers to  discharge that function.      It is  true that Article 324 has to      be  read   in  the   light  of  the      constitutional scheme  and the 1950      Act and  the 1951  Act. Sri  Rao is      right to the extent he insists that      if competent legislation is enacted      as visualized  in Article  327  the      Commission cannot shake itself free      from  the   enacted  prescriptions.      After  all   as  Mathew,   J.   has      observed in  Indira Gandhi  (supra)      (p.523) (SCC p. 136, paras 335-6):           In the  opinion of some of the      judges constituting the majority in      Bharati’s cases  Rule of  Law is  a      basic structure of the Constitution      apart from democracy           The rule of law postulates the      pervasiveness of  the spirit of law      throughout  the   whole  range   of      government   in    the   sense   of      excluding arbitrary official action      in any sphere.      And the supremacy of valid law over

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    the Commission  argues  itself-  No      one is  an imperium  in imperio  in      our  constitutional  order.  It  is      reasonable   to   hold   that   the      Commissioner cannot  defy  the  law      armed by Article 324. Likewise, his      functions are  subject to the norms      of  fairness   and  he  cannot  Act      arbitrarily.  Unchecked   power  is      alien to our system.           Even so,  situations may arise      which enacted  law has not provided      for .  Legislators are not prophets      but pragmatists  So it  is that the      Constitution has made comprehensive      provision in  Article 324  to  take      care of  surprise situations-  that      power itself  has to  be exercised,      not mindlessly  nor mala  fide, not      arbitrarily nor with partiality but      in keeping  with the  guidelines of      the rule of law and not stultifying      the Presidential  notification  nor      existing legislation.  more is  not      necessary  to   specify:  less   is      insufficient   to   leave   unsaid.      Article 324,  in our view, operates      in   areas   left   unoccupied   by      legislation    and     the    words      ’superintendence,   direction   and      control, as well as ’conduct of all      elections’ are  the broadest terms.      Myriad maybes,  too  mystic  to  be      precisely presaged,  may  call  for      prompt action  to reach the goal of      free and fair election. It has been      argued  that  this  will  create  a      constitutional  despot  beyond  the      pale    of     accountability;    a      Frankenstein’s    monster  who  may      system  into  elected  despotism  -      instances of such phenomena are the      tears  of   history.  To  that  the      retort may  be  that  the  judicial      branch, at  the appropriate  stage,      with the  potency of  its benignant      power  and   within   the   leading      strings of  ’legal guidelines,  can      call the  bluff, quash  the  action      and bring  order into  the process.      Whether  we   make  a   triumph  or      travesty of  democracy  depends  on      the man  as much  as on  the  Great      National Parchment. Secondly,  when      a   high   functionary   like   the      Commissioner is  vested  with  wide      powers the  law expects  him to act      fairly and  legally. Article 324 is      geared  to  the  accomplishment  of      free     and     fair     elections      expeditiously. moreover, as held in      Virendra and Harishankar discretion      vested in a high functionary may he      reasonably  trusted   to  be   used      properly, not  perversely. If it is

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    misused  certainly  the  Court  has      power to  strike down the act. This      is well  established and  does  not      need further case law confirmation.      Moreover it  is useful  to remember      the warning of Chandrachud, J :           But the  electorate  lives  in      the hope  that a  sacred power will      not so flagrantly be abused and the      moving finger  of history  warns of      the  consequences  that  inevitably      flow  when   absolute   power   has      corrupted absolutely.  The fear  of      perversion is no test of power.           The  learned  Addl.  Solicitor      General  brought   to  our   notice      rulings of  this Court  and of  the      High Courts  which have  held  that      Article 324  was  a  plenary  power      which enabled the Commission to act      even in  the  absence  of  specific      legislation though  not contrary to      valid   legislation.   Ordering   a      repoll  for  a  whole  constituency      under compulsion  of  circumstances      may be  directed for the conduct of      elections  and   can  be  saved  by      Article 324  - provided  it is bona      fide necessary  for the vindication      of  the   free   verdict   of   the      electorate and  the abandonment  of      the previous  poll was  because  it      failed to  achieve that goal. While      we repel Sri Rao’s broadside attack      on article  324 as confined to what      the Act  has conferred,  we concede      that  even  Article  324  does  not      exalt the  Commission  into  a  law      unto itself.  Broad authority  does      not  bar   scrutiny  into  specific      validity of the particular order.           Our conclusion on this limb of      the contention  is that Article 324      is wide  enough to  supplement  the      powers under  the Act  as here  but      subject to  the several  conditions      on its exercise we have set out."      Superintendence  and   control  over   the  conduct  of election by  the Election Commission include the scrutiny of all expenses  incurred by  a political party, a candidate or any  other   association  or  body  of  persons  or  by  any individual in  the course  of the  election. The  expression "Conduct of  election" is  wide enough  to  include  in  its sweep, the power to issue directions - in the process of the conduct of  an election  - to  the effect that the political parties shall  submit to  the Election  Commission, for  its scrutiny,  the   details  of  the  expenditure  incurred  or authorized by  the parties n connection with the election of their respective candidates.      We are  informed that  the Election commission of India has from  time to  time issued  instructions which have been published in  the compendium  of instructions  on Conduct of Elections (1996). The Election Commission would be justified in asking a political party to file before it the account of expenditure insured  or authorized  by a  political party in

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connection with  the election  of its  candidates during the course of general election/election.      We, therefore, hold and direct as under : 1.  That   the  political  parties  are  under  a  statutory obligation to  file return  of income  is  respect  of  each assessment year  in accordance  with the  provisions of  the Income Tax  Act, The  political parties referred to by us in the judgment  - who  have not  been filing returns of income for several  years have  prima facie  violated the statutory provisions of  the Income  Tax Act as indicated by us in the judgment. 2. That  the Income-tax  authorities have been wholly remiss in the  performance of their statutory duties under law. The said authorities  have for  a long  period  failed  to  take appropriate action against the defaulter political parties. 3.  The   Secretary,  Ministry  of  Finance,  Department  of Revenue,   the   government   of   India   shall   have   an investigation/inquiry  conducted   against   each   of   the defaulter political parties and initiate necessary action in accordance with  law including  penal action  under  Section 276CC of the Income Tax Act. 4.  The   Secretary,  Ministry  of  Finance,  Department  of Revenue, Government of India shall appoint an inquiring body to find  out why  and in  what circumstances  the  mandatory provisions of  the Income Tax Act regarding filing of return of income  by the  political parties  were not enforced. Any officer/officers found responsible and remiss in the inquiry be suitably dealt with in accordance with the rules. 5. A political party which is not maintaining, audited and  authenticated, accounts  and has  not filed the return  of   income  for   the  relevant   period,   cannot, ordinarily, be  permitted to  say that  it has  incurred  or authorized expenditure  in connection  with the  election of its candidates  in terms  of Explanation  1 to Section 77 of the RP Act. 6. That  the expenditure,  (including  that  for  which  the candidate is seeking protection under Explanation to Section 77 of  the RP  Act) in  connection with  the election  of  a candidate -  to  the  knowledge  of  the  candidate  or  his election agent  - shall  be presumed to have been authorized by the  candidate or  his election agent. It shall, however, be open  to  the  candidate  to  rebut  the  presumption  in accordance with law and to show that part of the expenditure or whole  of it  was in fact incurred by the political party to which  he belongs  or by any other association or body of persons or by an individual (other than the candidate or his election agent).  Only when  the  candidate  discharges  the burden and  rebuts the  presumption he  would be entitled to the benefit of Explanation 1 to Section 77 of the RP Act. 7. The  expression "conduct  of election"  in Article 324 of the Constitution  of India  is wide enough to include in its sweep, the  power of  the Election  Commission to issue - in the process  of the conduct of elections - directions to the effect that  the  political  parties  shall  submit  to  the Commission for  its scrutiny, the details of the expenditure incurred  or   authorized  by   the  political   parties  in connection with the election of their respective candidates.      The writ  petition is  allowed with  costs in the above terms. We  quantify the costs as Rs.20,000 to be paid by the Union of India.