In a landmark judgment, the Delhi High Court has ruled that political parties should satisfy the requirement of the Income Tax Act, 1961, for maintaining properly audited accounts of income received through voluntary contributions. If this is not done, a party cannot claim exemption form paying income tax on these contributions.

Disposing of an appeal filed by the Indian National Congress for exemption from income tax for the assessment year 1994-95, a Division Bench of the High Court said on Wednesday that proper auditing of accounts of political parties was imperative and critical for free and fair elections, as they dealt in large sums of public money. This would also infuse transparency and accountability into functioning of parties, said the court.

The Bench, comprising Justice S. Muralidhar and Justice Vibhu Bakhru, said the Income Tax Appellate Tribunal was correct in its decision to deny exemption to the Congress party under Section 13-A of the Income Tax Act.

Under Section 13-A, income by way of voluntary contributions to a political party is not taxed. This exemption can only be availed if the party in question maintains a book of accounts with respect to these contributions. In contributions of Rs.10,000 or more, the donor’s name and address will have to be recorded.

In its 71-page judgment, the court observed that most of the public funds spent by political parties to fight elections were unaccounted and called for a slew of legislative measures to check the influence of such money on the electoral process.

The Congress party had challenged an Income Tax Appellate Tribunal's order which had held that the accounts of the assessee for 1994-95 were incomplete and therefore, the exemption under the Act was not available to it.

The Bench held that the Indian National Congress was not entitled to this exemption, as it had failed to maintain properly audited accounts for the year. “The voluntary contributions received by the INC during the assessment year in question have to be treated as income from other sources,” said the court. #casansaar (Source - The Hindu)