Holding

Political parties must file income‑tax returns, maintain audited accounts, and disclose election‑related expenditures, and the Election Commission, under Article 324, may compel such disclosures; non‑compliance violates Sections 13A, 293A of the Companies Act and the Income‑Tax Act, warranting inquiry and penal action.

Summary

The Supreme Court entertained a public‑interest writ filed by Common Cause seeking enforcement of statutory provisions that require political parties to disclose their sources of funding and maintain audited accounts. The Court examined the obligations under Section 293A of the Companies Act, 1956, Sections 13A, 139(48), 142(1) and 276CC of the Income‑Tax Act, 1961 and Section 77 (Explanation I) of the Representation of People Act, 1950, and held that parties failing to file returns or maintain accounts are in violation of law. It also ruled that the Election Commission, under Article 324 of the Constitution, has the power to direct parties to submit details of election‑related expenditure. The Court found the income‑tax authorities remiss for not taking action against defaulting parties and ordered an inquiry and possible penal action. Consequently, the writ petition was allowed, directing compliance and imposing costs on the Union of India.

Issues considered

The statutory obligation of political parties to file income‑tax returns and maintain audited accounts under the Income‑Tax Act and Companies Act.
Whether the Election Commission can, under Article 324, compel political parties to disclose election‑related expenditures.
The evidentiary burden and applicability of Explanation I to Section 77 of the Representation of People Act concerning party‑incurred expenses.
The liability of income‑tax authorities for inaction against parties violating Sections 13A and 293A.
The permissibility of ordering an inquiry and penal action under Section 276CC of the Income‑Tax Act.

Legislation cited

Companies Act, 1956s. 293A
Constitution of Indias. Article 324
Income Tax Act, 1961s. 139(48), s. 139(4B), s. 13A, s. 142(1), s. 276CC

Subjects

election fundingpolitical partiestransparencyincome tax complianceCompanies ActRepresentation of People ActElection CommissionArticle 324public interest litigationaccountability

Judgment

A COMMON CAUSE-A REGISTERED SOCIETY
v.
UNION OF INDIA & ORS.

APRIL 4, 1996

B (KULDIP SINGH AND FAIZAN UDDIN, JJ.J

Companies Act, 1956 : Section 293A read with Section 13A, Income
Tax Act, 1961-Section 77, Representation of People Act, 1950 : Election
funding-Need for transparency-Mandatory provisions of law-ViolaJion of
C by political parties-Prevention of

Income Tax Act, 1961 : Sections 13A, 139(48), 142(1) & 276CC:
Election funding-Role of money powei-Curbing of-Statutory obligations of
political parties-Need for strict enforcement.

D Represrntation of People Act, 1950 : Section 77(1), Explanation
I-Benefit of-Election expenditure incun·ed or authorised by candidate and
his political party-Accountability f01--0nus of proof on the candidate.

Constitution of India, 1950 : Article 324 : Election Commissio1t-Su-
E perintendence and control of conduct of election-Includes power to direct
political parties to submit details of election expenditure.

Section 293A(l) of the Companies Act, 1956 bars government com-
panies, and other companies in existence for less than three financial
years, from contributing any amount to any political party. Sub-section (2)
F restricts such contribution fron1 eligible co1npanies in any financial yt:ar
to five per cant of its average net profits by a resolution of the Board of
Directors. Sub-section (4) mandates disclosure of such donation in their
profit and loss account.

Section 13A of the Income Tax Act, 1961, requires a political party
G to keep proper books of accounts, maintain record of each voluntary
contribution in excess of Rs. 10,000 and to get its accounts audited to be
eligible for exemption from income tax. Section 139(48) makes it •
obligatory for the Chief Executive Otncer of every political party to furnish
a return of income for each year. Section 142(1) provides for enquiry before
H assessment. Failure to furnish a return of income has been made a
1208
COMMON CAUSE v. U.0.L 1209

criminal offence punishable under section 276CC of the Act. A
Section 77(1) of the Representation of the People Act, 1950 requires
every candidate at an election, either by himself or by his electi<in agent,
to keep a separate and correct account of all expenditure in connection
with the election incurred or authorised by him or by his election agent.
Explanation I thereto excepts from the provisions of sub-section (1) any B
expenditure incurred or authorised in connection with the election of a
candidate by a political party or by any other association or body of
persons or by any individual, other than the candidate.

Article 324 of the Constitution of India vests in the Election Com- C
mission the superintendence, direction and control of the preparation of
the electoral rolls for, and the conduct of elections to, Parliament and to
the legislature of every State.

It was submitted for the petitioner Common Cause Society that the
cumulative effect of the three statutory provisions, section 293A of the D
Companies Act, section 13A of the Income Tax Act and section 77 of the
Representation of People Act is to bring transparency in the election
funding, that these mandatory provisions of law are being violated by the
political parties with impunity, that the elections in the country are being
fought with the help of money power which is gathered from black sources, E
that once elected to power it becomes easy to collect tons of black money
which is used for retaining power and re- election, that this vicious circle
has totally polluted the basic democracy in country, that neither the
political parties nor the 'companies show the contributions/donations in
their account books in patent violation of law, that the political parties
have not been filing returns of income as ret1uired and that the income tax F
department did not issue notices to the political parties from 1979 till-date.
.
The intervener submitted that the corruption in quest of political
office and tlie corruption in the mechanics of survival in power had
thoroughly vitiated our lives and our times and sullied our institutions so
much so that the corruption was the root cause of all the problems faced G
by the society and the country, and that unless the statutory provisions
meant to bring transparency in the functioning of 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. H
1210 SUPREME COURT REPORTS (1996) 3 S.C.R.

A It was submitted for the Election Commission that the expenditure
incurred by a political party in terms of Explanation I to section 77 of the
R.P. Act shall be presumed to be authorised by the candidate himself' but
the said presumption would be rebuttable, that the onus lies on the
candidate Iii prove that the expenditure was in fact incurred/authorised by
the party and it was not incurred by the candidate himself', that the entire
B gamut of election is under the supervision and control of the Election
Commission by virtue of Article 324 of the Constitution, that the Commis-
sion can direct the political parties to file details of expenditure incurred
by them on the election of their candidates.

C Allowing the writ petition, the Court

HELO: 1.1. The political parties in their quest for power spend more
than one thousand crore rupees on the General Election (Parliament
alone), yet nobody accounts for the bulk of the money so spent and there
D is no accountability anywhere. Nobody discloses the source of the money.
From where does the money come nobody knows. In a democracy where
rule of law prevails this type of naked display of black money cannot be
permitted. [1221-G-H]

1.2. Bulk of income of a political party by way of contributions/dona-
E tlons 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. Section 13A of the Income Tax
Act excepts such donations/contributions from the total income of the
political party provided it maintains audited accounts and meets other
F conditions envisaged tlu~rein. Sub~section 48 of section 139 of the Income
Tax Act obli~es every political party to tile each year a return of total
income voluntarily. Section 142(1) of' that Act provides for in<1uiry before
assessment. Failure to furnish a return of income is punishable under
section 276CC of the Act. It leaves no leeway. The mandatory provisions
of the law have lo be enforced. [1223-G-H; 1221-A-B]
G
1.3. The political parties are thus under a statutory obligation lo file
return of income in respect of each assessn1ent year in accordance with the
provisions of the Income Tax Act. The political parties who have not been
filing returns of income for several years have pli111a facie violated the
H statutory provisions of the Income Tax Act. [1230-A-B)
COMMON CAUSEv. U.O.I. 1211

1.4. To be eligible for exemption from income tax the political parties A
have to maintain audited accounts and comply with other requirements of
section 13A of the Income Tax Act. They have neither maintained to
audited accounts nor paid tax since 1979-80. [1220-G]

2. The income tax authorities have been wholly remiss in the perfor-
mance of their statutory duties under the law. The said authorities have B
for a long period failed to take appropriate action against the defaulter
political parties. It was mandatory for them to have put in motion the
statutory machinery against such parties. The reasons disclosed for not
doing so are wholly extraneous and unjustified. The political parties are
not above law and are bound to follow the same. [1223-C-D] C

3. The Secretary, Ministry of Finance, Department of Revenue,
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. [1230-D] D

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 E
enforced. Any officer/officers found responsible and remiss in the inquiry
be suitably dealt with in accordance with the law. [1230-E]

5.1. Explanation I to section 77 of the R.P. Act is in the nature of an
exception to sub-section (1) of section 77. A candidate in the election who
wants to take the benefit of the said Explanation in any proceeding before F
the Court must prove that the expenditure was in fact incurred by the
political party and not by him. [1224·G·H]

S.i. The expenditure (including that for which the candidate is seek·
ing protection under Explanation I to section 77 of the R.P. Act) in connec·
tion with the election of a candidate, to the knowledge of the candidate or G
his election agent • shall be presumed to have been authorised 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 H
1212 SUPREME COURT REP OR TS [1996] 3 S.C.R.

A individual (other than the candidate) or his election agent. 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 election of a candidate may by itsell' be sufficient to
rebut the presumption. Only when the candidate discharges the burden and
rebuts the presumption he would be entitled to the benefit of Explanation
B I to section 77 of the R.P. Act. [1225-D-E; B-C]

Dr. P. Na/la Ihampy Terah v. Union of India & OtJ., [1985] Supp.
sec 189 referred to.
C 5.3. Any expenditure incurred or authorised by a political party in
respect of general propaganda or for the preparation of its election
manifesto shall not be considered an expenditure to be incurred in con-
nection with the election of the candidate/candidates belonging to the said
party. [1226-F]

D 5.4. A political party which is not maintaining audited and authentic
accounts and in not filing the return of income before the income tax
authorities cannot be permitted to say that it has incurred or authorised
expenditure in connection with the election of its candidates in terms of
Explanation I to section 77 of the R.P. Act. The expenditure "incurred or
authorised in connection with the election of a candidate by a political
E party'' can only be the expenditure which has a transparent source.
(1230-F-H]
6. The expression "conduct of election" in Article 324 of the Constitu-
tion of India is wide enough to include in its sweep, the power of the
Election Commissioner to iss.ue, in the process of the conduct of elections,
F directions to the effect that the political parties shall submit to the
Commission for its scrutiny, the details of the expenditure incurred or '
authorised by the political parties in connection with the election of their
respective candidates. (1231-B-C)

G Mohinder Singh Gill & Anr. v. 17ie Chief Election Commissioner, New
Delhi & Ors., (1978] I SCC 405, referred to.

CIVIL EXTRA ORDINARY JURISDICTION: Writ Petition (C)
No. 24 of 1995.

H (Under Article 32 of the Constitution of India.)
"
I

COMMON CAUSEv. U.O.I. [KULDIP SINGH, J.] 1213

D.P. Gupta, Solicitor General, Kapil Sibal, D.D. Thakur, Hardev A
Singh, .Titendra Sharma, H.N. Salve, G.L. Sanghi, P. Parmeswaran, B.B.
Ahuja, S.N. Terdol, A.M. Khanwilkar, Ms. Madhu Moolchaudani, 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. Harish B
Kumar, P.R. Kovilan, P.K. Manohar, Dr. Roxana Swamy, Bharat Sangal,
Ashok Mathur, Brijender Chahar and Vivek Gambhir, for the appearing
parties.

H.D. Shourie, in-person for the Petitioner.
c
The Judgment of the Court was delivered by

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 D
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 1961 and Section 77 of the Representation of People Act 1950
is, to bring transparency in the election-funding. People of India must know E
the source of expenditure incurred by the political 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. F
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.
G
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 - H
1214 SUPREME COURT REPORTS [1996] 3 S.C.R.

A (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, -
B
(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
c 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 :
D
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.
E
Provided further that no such contributing shall be made by a
company unless a resolution authorising the making of such con-
tribution is passed at a meeting of the Board of Directors and such
resolution shall, subject to the other provisions of this section, be
deemed to be justification in law for the making and the acceptance
F
of the contribution authorised 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
G portion shall be deemed to be a financial year within the meaning,
and for the purpose, of this sub-section :

(3) ......................................................... ..

(4) Every company shall disclose in its profit and loss account any
H amount or amounts contributed by it to any person during the
COMMON CAUSE v. U.O.I. [KULDIP SINGH, J.] 1215

Financial year to which that account relates, giving particulars of A
the total amount contributed an_d 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) 1s
reproduced hereunder :
B
"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 : C

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; D

(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
E
(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 ................." F

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) G
Every candidate at an election shall, either by himself or by his
election agent, keep a separate and correct account of all expen-
diture in connection with the election incurred authorised 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
1lates inclusive. H
1216 SUPREME COURT REPORTS [1996) 3 S.C.R.

A (Explanation l. - Notwithstanding any judgment, order or decision
of any court to the contrary, any .expenditure incurred or
authorised in connection with the election of a candidate by
political party or by any other association or body of 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
B been, expenditure in connection with the election incurred or
authorised 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
C country - registered and recognised by the Election Commission - have, for
many year, 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
D political parties receive large amounts of money by way of donations/con-
tributions from companies on a quid pro quo basis. The companies invest
to seek favour 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
E 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 S.ection 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.
F 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.

G All India Forward Block did not filed any return of Income. The
department served notices under Section 14'2(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
H when in response to the notice issued by the Income Tax Department on
COMMON CAUSEv. U.O.L [KULDIP SINGH, J.] 1217

DP,cember 4, 1995, the party filed return of income for the assessment year A
1995-96. The party also furnished information as required by the depart-
ment 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 B
(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, C
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 J anta Dal did not file any return of income for all these years.
Despite notices issued by the department on September 21, 1995 and D
January 17, 1996 the return of income has not been filed.

The Janta Party (JP) and the Revolutionary Socialist Party have not
been filing returns of income.

All India Anna Dravida Munnetra Kazagam (AIADMK) has filed E
returns of income for the assessment years 1979-80 to 1986-87. The party
has not filed the returns for the years 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.
F
Dravida Munnetra Kazhagam (DMK) has filed the returns of income
from 1979-80 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 G
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 party has
been filing returns of inc0me as required under law. Notices were issued
to the political parties some time in the year 1990 calling for returns of H
1218 SUPREME COURT REPORTS [1996] 3 S.C.R.

A 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 notice 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
B 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
c 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 taiced and their sources of income are
only those which are specifically exempted by section l3A of the
Income Taic Act and that, therefore, they are not required to file
returns of their income. In cases where notices were issued as
D stated above, since there was no definite information available to
the Assessing officers that the parties were having incomes above
taicable limits as per the provisions of the Income Taic Act, the
proceedings initiated by issue of statutory notices were dropped
with the observation that in case any information or additional facts
E come to the notice to the authorities concerned, action under
Section 147 of the Income Taic 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 taic Act relating to the
filing of a return of income by political party. The provisions of Section
F 13A of Income Taic 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 expen-
diture by the political parties. The requirement of maintaining audited
accounts by the political parties is mandatory and has to be strictly en-
G forced. It was obligatory for the income taic authorities to have strictly
enforced the statutory provisions of the Income Taic Act. We may refer to
Sections l39(4B), 142(1) and 276 CC of the income taic which are
relevant:

139.(4B) The chief executive officer (whether such chief executive
H officer is known as Secretary or by any other designation) of every
COMMON CAUSE v. U.O.I. (KULDIP SINGH, J.] 1219

political party shall, if the total income in respect of which the A
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 charge-
able to income-tax, furnish a return of such income of the previous
year in the prescribed form and verified in the prescribed manner B
and setting forth such other particulars as may be prescribed and
all the provisions of this Act, shall, so far as may be, apply as if it
were a return required to be furnished under sub-section (1).)

lllquiry before assessment.

142. (1) For the purpose of making an assessment under this Act, C
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, -
D
[(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] E
(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 F
a statement of all assets and liabilities of the assessee, whether
included in the account or not) as the (Assessing) Officer may
require : Provided that -

(a) the previous approval of the (Deputy) Commissioner shall G
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. H
A
1220 SUPREME COURT REPORTS (1996)3 s.cf
Failure to fwnish retums of income 216CC. If a person wilfully fails
'
to furnish in due time the return of income which he is required
to furnish under sub-section (1) of section 139 or by notice given ~
under (clause (i) of sub-section (1) section 142) or section 148, he
shall be punishable, -

B (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;
c (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
D section for failure to furnish in due time the return of income under
sub-section (1) of section 139 -

(i) for any assessment year commencing prior to the 1st day of
April, '1975; or

E (ii) for any assessment year 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

F (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
G 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 purties have done neither. It is not a matter where
the parties have overlooked to file a retm:n of income by accident once or
H twice. The political parties have - in patent violation of law - neither
COMMON CAUSE v. U.O.I. (KULDIP SINGH, J.] 1221

maintained ~ndited accounts nor paid tax since 19:79-80. Sub-section 4B of · A
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 is not disputed that
notices under section 142(1) were issued by the income tax authorities to B
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 C
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 pamphlet.<; are some of the ways in which money-power is displayed by
the parties. In many cases large-scale advertisements are also given in D
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 par- E
liamentary constituencies on behalf of thousands of aspirants to power,
many days before the general elections are actually held. Millions of leaflets
and many 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 F
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 more 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 G
the money come nobody knows. In a democracy where rule of law prevails
this types 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 H
.1222 SUPREME COURT REPORTS [1996] 3 S.C.R.

A 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
B crossed Account Payees cheques of varying sums of money towards
election expenses of candidates I felt would serve the public cause.
Armed with my Bank Pass Book, J have discussed the question of
elections and corruption with almost all important office holders
since Jawaharlal Nehru. From these discussions, I have drawn the
c conclusion that most politicians are not interested in honest money
funding for elections. Honest moni:;y entails accountability Honest
money restricts spending 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
D 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 institu-
tions ............. The corrupt politician creemed to become the corrupt
E
minister, and, in turn, the corrupt minister set about seducing the
bureaucrat.. ..............THINK OF ANY problem our society or the
country is facing today, analyse 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
F 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. Corrup-
tion is the cause. Bridges collapse Corruption is the cause. Educa-
tional standards have fallen. Corruption is the cause. We have no
G 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."

H According to Mr. Pandit the above quoted scenario has not im-
COMMON CAUSE v. U.0.1. (KULDIP SINGH, J.) 1223

proved, it has rather become worse. The General Elections bring into A
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 B
statutory provisions meant to bring transparency in the functioning of 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 C
not been filing returns of income for several years have violated the
statutory provisions of Income 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 D
not doing so - as disclosed in the counter affidavit - 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 E
authorities cannot justifiably plead that it has incurred or authorised any
expenditure in connection with the election of a party candidate. The
expenditure "incurred or authorised 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 docs F
not give protection to the expenditure which comes from an unknown or
black source. Bulk of income of a political party by way of contribu-
tions/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 con- G
tributions/donations is exempt form income lax, 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 H
1224 SUPREME COURT REPORTS (1996] 3 S.C.R.

A 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 48 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 volun-
tarily. The total income for this purpose is to be computed without giving
B 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 with an avowed object of
C bringing transparency in the accounts and expenditure of the political
parties. if a political party deliberately chooses to violate of 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 authorised expenditure
D 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
E Section 77 of the R.P. Act shall be presumed to be authorised by the
candidate himself but the said presumption would be rebuttable. The onus
lies on the candidate to power that the expenditure was in fact in-
curred/authorised by the party and it was not incurred by the candidate
himself. We see considerable force in the contention of the learned coun-
F sel. There can be no dispute Lhat Lhe expenditure incurred by a candidate
himself would squarely fall under Section 77(1) of the R.P. 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 question, however for determination is what rule of evidence
G is to be followed to attract the provisions of Explanation I to Section 77 of
the R.P. 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 I to Section 77 of the R.P. Act - in any
proceedings before the Court - must prove that the said expenditure was
H in fact incurred by the political party and not by him. Any expenditure in
COMMON CAUSE v. U.O.l. (KULDIP SINGH, J.] 1225

connection with the election of a candidate which according to him has A
been incurred by his political party shall be presumed to have been
authorised 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 B
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 expendi-
ture in connection with the election 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, hoard- C
ing, 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 R.P. Act) in connection with the election of a candidate - to the D
knowledge of the candidate or his election agent - shall be presumed to
have been authorised 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 E
election agent. A constitution bench of this Court in Dr. P. Nalla Thampy
Terah V. Union of India and Others, [1985] Supp sec 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 F
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 I will not be attracted. It is only if
the expeQditure is in fact incurred or authorised.by a political party
or any other association or body of persons, or by an individual
(other than the candidate or his election agent) that the Explana- G
tion 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 I.
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 H
1226 SUPREME COURT REPORTS [1996] 3 S.C.R.

A expenditure is incurred by the candidate himself because, the
money is his. What matters for the pwpose of Explanation I is not
whosr: hand it is that spends the money. 17ie essence of the matter
is, whose money it is. It i:; only if the money expended by a political
pmty, for example, is not laid at its disposal by the candidate or his
election agent that Explanation I would apply. In other words, it must
B be shown, in order that Explanation I may apply, that the source of
the apenditure incun·ed was not the candidate or his election agent.
What is important is to realise that Explanation I does not create
a fiction. It deals with the realities of political situations. It does
not provide that the expenditure in fact incurred or authorised by
c a candidate or his election agent, shall not be deemed to be
incurred or authorised 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 in-
curred, for example by a political party on its o,wn, that is, without
using the funds provided by the candidate or his election agent
D
shall not be deemed to be expenditure incurred or authorised 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 not Explanation 1 would apply."

E (emphasis supplied)

Before parting with the point under discussion we make it clear that
any expenditure incurred or authorised by a political party in respect of
general propaganda or for the propagation of its election manifesto shall
F 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 that the superintendence,
directions and control of the preparation of the electoral rolls for, and the
G 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
H election. According to Mr. Sibal the purity of election is fundamental to
.~·

COMMON CAUSEv. U.O.I. [KULDIP SINGH,J.] 1227

democracy. The precise contention of Mr. Sibal is that contemporaneous A
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 v. Tlte Chief B
Election Commissioner, New Delhi and Other, (1978) 1 SCC 405 speaking
through Krishna Iyer, J interpreted Article 324 as under :

"We decide two questions under the relevant article, not ar-
guendo, but as substantive pronouncements on the subject. They
are: c
(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 D
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 functjon. It E
is true that Article 324 has to be read in the light of the constitu-
tional 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
visualised in Article 327 the Commission cannot shake itself free
from the enacted prescriptions. After all, as Mathew, J. has ob- F
served 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 case, Rule of Law is a basic structure of the Constitu-
tion apart from democracy.
G
The rule of law postulates the pervasiveness of the spirit of law
throughout the whole range of government in the sense of exclud-
ing arbitrary official action in any sphere.

And the supremacy of valid law over the Commission argues itself.
No one is an imperium in imperio in our constitutional -Order. It· H
1228 SUPREME COURT REPORTS [1996) 3 S.C.R.

A 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 Jaw has not
B 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
c 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
D 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 manipulate the
system into elected despotism - instances of such phenomena are
the tears of history. To that the retort may be that the judicial
E 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 or democracy depends on
the man as s·uch on the Great National Parchment. Secondly, when
a high functionary like the Commissioner is vested with wide
F
powers the law expects him to act fairly and legally. Article 324 is
geared to the accomplishment of free and fair elections ex-
peditiously. Moreover, as held in Virendra and Harishankar dis-
cretion vested in a high functionary may be reasonably trusted to
be used properly, not perversely. If it is misused certainly the Court
G 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
H not so flagrantly be abused and the moving finger of history warns
4·

COMMON CAUSE v. U.0.1. [KULDIP SINGH, J.] 1229

of the conseqences that inevitably flow when absolute power has A
corrupted absolutely. The fear of perversion is no test power.

The learned Addi. 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 con- B
trary to valid legislation. Ordering a repoll for a whole constituency
under compulsion of circumstances may be directed for the con-
duct 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 C
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 into itself. Broad authority does not bar scrutiny into
specific validity of the particular order.
D
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
E
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 vide enough to include in its sweep, the power to issue direc-
tions - in the process of the conduct of an election - to the effect that the F
• political parties shall submit to the Election Commission, for its scrutiny,
the details of the expenditure incurred or authorised by the parties in
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 compen- G
dium of instructions on Conduct of Elections (1996). The Election Com-
mission would be justified in asking a political party to file before it the
account of e?qJenditure incurred or authorised by a political party in
connection with the election of its candidates during the course of general
election/election. H
1230 SUPREME COURT REPORTS [1996) 3 S.C.R.

A W~, therefore, hold and direct as under :

1. That the political parties are under a statutory obligation to file
return of income in 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
B years have p1ima f acie 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
C 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
D 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
E 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 authenti-
F cated; accounts and has not filed the return of income for the relevant
period, cannot, ordinarily, be permitted to say that it has incurred or
authorised expenditure in connection with the election of its candidates in
terms of Explanation 1 to Section 77 of the R.P. Act.

6. That the expenditure, (including that for which the candidate is
G seeking protection under Explanation I to Section 77 of the R.P. 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 authorised
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
H that part of the expenditure or whole of it was in fact incurred by the
COMMON CAUSEv. U.O.I. [KULDIP SINGH, J.] 1231

political party to which he belongs or. by any other association or body of A
persons or by an individual (other than the candidate or his election agent).
"' Only when the candidate discharges the burden and rebuts the presump-
tion he would be entitled to the benefit of Explanation l to Section 77 of
the R.P. Act.

7. The expression "conduct of election" in Article 324 of the Constitu- B
lion 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
authorised by the political parties in connection with the election of their C
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.

P.S.S. Petition allowed.