Chief election commissioner N Gopalaswami had met prime minister Manmohan Singh in 2006 and later wrote to him about the widespread practice of using political donations for income-tax exemption.
The commission’s secretary informed the Central Board of Direct Taxes (CBDT) about the issue. In fact, the commission named the Rashtriya Vikas Party (RVP) and Parmarth Party, which DNA investigated, in its official communication to the CBDT.
The Election Commission does not have powers to deregister a political party and a proposed amendment to the Representation of Peoples Act (RPA), 1951, is in cold storage. Gopalaswami indicated that some parties are misusing provisions of that act and the Income Tax Act, 2003. An amendment was made in 2003 to the RPA and the Income Tax Act, by which contributions by individuals and companies to political parties have been given exemption from I-T to the benefit of the contributor and recipient.
“Recently, the EC came across many cases of little-known unrecognised political parties receiving donations running into lakhs, many times in cash, from individuals and companies,” the CEC’s letter said.
“The EC has reason to believe that there could be something more than what meets the eye in these donations… You may perhaps like to have the matter examined by the finance ministry and the CBDT for possible malpractice.”
The EC’s letter to the CBDT pointed out that reports of contributions “submitted to the EC by some political parties seem to indicate the possibility of gross misuse of the provisions of tax exemption in respect of contributions to political parties. Copies of the contribution reports submitted by two registered unrecognised political parties [Parmarth and RVP] for two years are enclosed herewith, for reference and scrutiny.”
The letter said, “It would be seen that one particular firm is shown to have contributed Rs2 crore (in three transactions to RVP in 2005). There is also a contribution of Rs40 lakh, in cash, by one company. There are also several cases of contributions running into lakhs, in cash and cheques.
“The EC desires that contribution reports of the two parties are scrutinised and appropriate follow-up action, as deemed necessary, may be taken in the matter.”
The EC has been pushing for electoral reforms to make parties more accountable and to keep out those who want to exploit I-T exemptions. It had suggested that under section 29A of the RPA, another clause may be introduced authorising the EC to issue orders regulating registration and deregistration of political parties. But the proposal is yet to get past Parliament.
Political parties are registered with the EC under the provisions of section 29A of the RPA. A small group of persons can register a political party by making a simple declaration under section 29A(5) and claim I-T exemption for donations to their party. This has resulted in the proliferation of non-serious parties, the commission believes.
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