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Bringing political donations to book
June, 28th 2008

Notwithstanding the welcome alignment of income-tax law and company law governing political donations, companies in India are not enthused in making upfront political donations.

Till this alignment was brought about by the Election and Other Related Laws (Amendment) Act, 2003, what the company law proposed was disposed by the income-tax law while Section 293A of the former allowed and continues to allow the board of d irectors of companies to make political donations up to 5 per cent of their profits reckoned in the manner specified, the income-tax law threw spanner in the wheels of transparent political donations.

Section 37(2B) of the Income-Tax Act, 1961 disallowed and even now disallows advertisements in souvenirs, brochures, etc., of political parties as expenditure deductible while computing the business income of companies or, for that matter, anyone at all.

And courts, by and large, disallowed political donations undisguised as advertisements on the ground that they had no nexus with carrying on of business, a sine qua non to make the grade under the omnibus but demanding Section 37(1).
Corporate specific

Section 80GGB introduced in 2003 is corporate-specific. It says any contribution made to a political party would be deductible from an Indian companys gross total income (GTI). Curiously, the section, while setting store by Section 293A of the Companies Act as far as the definition of contribute goes, does not impose any quantitative restriction.

The bottomline therefore is while a company would fall foul of the company law if it breaches the 5 per cent norm, it can get away under the income-tax law and the claim of entire contribution would be allowed in computing its taxable income.

It is another matter though that companies are still not enthused about making political donations upfront because predominately of the fear of reprisal by political parties not figuring high on the favoured list of companies.

The requirement under Section 293A, of disclosure of the names of political parties together with the quantum of donations to each of them, sets the wheels of retribution in motion. And no company wants to incur the wrath of vengeful politicians.

The 2003 amendment, welcome as it is, has left behind an anomaly while upfront political donations make the income-tax grade those guised as advertisements still invite the axe under Section 37B.

Black money

One wonders whether any useful purpose would be served by this hair-splitting, though, as alluded to earlier, political donations in this country continue to be made covertly.

Companies generate black money and feed the insatiable appetite of political parties with political donations made out of black money thus generated. They dare not make them upfront for the fear of ruffling the feathers of political parties not begetting their munificence.

In the event, the newly won right under the Right to Information Act to compel political parties to disclose the names of donors is nothing to crow about given the fact that no law including the RTI Act reaches out to black money.

Will RTI Act help?

How can the RTI authorities ordain disclosure of a donation not recorded in the books of a political party? And if political parties go ahead and disclose the names of companies giving them donations secure in the knowledge that in any case voluntary contributions received by them are tax-free, they are most likely to face acute embarrassment and trouble the companies thus exposed would simply disown these donations secure in the knowledge that they have left no telltale marks besides ticking off such intrepid parties from their short favoured list.

A lasting solution to this vexed problem could be to mandate political parties to accept only donations made transparently through banking channels. This pious exhortation however is likely to be followed in breach than in compliance. For, which political party would like to choke off its substantial source of funding by flagging down the gravy train?

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