SC issues notice to Centre, EC, 12 political parties over PIL against tax exemption on anonymous cash donations below Rs 2,000

The Supreme Court on Monday issued notices to the Centre, the Election Commission and 12 political parties on a PIL challenging the validity of an Income Tax Act provision that allowed political parties to receive “anonymous” cash donations below Rs 2,000.

“Thus, with the advent of UPI revolution in the country, permitting exemption of income received by way of contribution in cash below Rs 2,000 under Section 13A(d) of the Income Tax Act, 1961, can no more be justified and is manifestly arbitrary and has no nexus to the object of maintaining transparency in the funding of political parties,” the PIL submitted.

A Bench of Justice Vikram Nath and Justice Sandeep Mehta asked the Centre, the Central Board of Direct Taxes, the EC, BJP, Congress and 10 other political parties to respond to the PIL and posted the matter for hearing after four weeks.

The order came after senior counsel Vijay Hansaria pointed out that the matter related to transparency in political funding and that it concerned all political parties across the country.

Filed by one Khem Singh Bhati, the PIL urged the top court to declare clause (d) of Section 13A of the Income Tax Act, 1961 unconstitutional and direct the poll panel to scrutinise Form 24A contribution reports of all recognised political parties at the national and state level and to require them to deposit the amount received by way of contributions for which address and/or PAN had not been furnished.

Section 13A of the Act deals with the special provision relating to the incomes of political parties. Under this provision, income of a political party received by way of interest on securities, income from house property or income from other sources and any income by way of voluntary contributions are exempted from the computation of total income, the PIL stated.

Besides BJP and Congress, the PIL has also made Aam Aadmi Party, BSP, CPI(M), National People’s Party, Biju Janata Dal, DMK, JD(U), JMM, Samajwadi Party, and TMC respondents in the case.

Underlining that lack of transparency undermined the purity of the election process, the PIL submitted that it deprived voters of the crucial knowledge about the source of political funding, including the donors and their motives, preventing them from making a rational, intelligent and fully informed decision while casting their vote.

The PIL sought a direction to the poll panel to prescribe as a condition for registration of a political party and allotment of the election symbol that no amount can be received in cash by any political party.

Referring to the top court’s 2024 verdict scrapping the electoral bonds scheme, the petitioner submitted that political parties must disclose names and all other particulars of persons paying any amount to it.

It said the EC should be directed to issue notices to the defaulting political parties under the Election Symbol Order, 1968, as to why the reserved symbol shall not be suspended or withdrawn for failure to submit Form 24A contribution reports with full particulars within a prescribed period.

It has also sought a direction to the Central Board of Direct Taxes (CBDT) to scrutinise the income tax returns and audit reports filed by political parties under Sections 142 and 143 of the Income Tax Act for the last five years.

The plea said that the CBDT should be directed to initiate appropriate proceedings for the levy of tax, penalty and prosecution for failure to comply with the requirements of Section 13A of the Income Tax Act read with Section 29C of the Representation of the People Act, 1951.