Q: There is a recent decision of the Tribunal reported in Dy.CIT v. Ms.Mayawati (2010) 7 Taxmann.com 45 (Delhi-ITAT), which spares liability on gifts received from the admirers of a politician on the ground, that there is no quid pro quo in such gifts, which is sine qua non for taxation of such receipts. As a matter of public interest, I felt intrigued by the law on the subject for which there should be a clarity in the light of both accounted and unaccounted wealth of the politicians. Your comments please.
A: Politics could be a profession as long since decided in CET v. P.V.G. Raju (1975) 101 ITR 465 (SC). An interesting passage for this conclusion in the words of Justice V.R. Krishna Iyer reads as under:
“There can hardly be any doubt that it is either, or both. Harold Laski treated politics as a science and wrote his well-known book on the Grammar of Politics, but the art of politics at a practical level has also been the subject of comment and has been praised and denounced on the basis that it is a profession. To Gandhiji it is sacred as religion. In Lincoln it rises to noble heights of statesmanship. Lenin, Nehru and a galaxy of other great visionaries and makers and moulders of the modern world have dedicated themselves to politics as a profession. Of course, in its vulgar and vicious manifestations, this occupation has been regarded by literary giants like Dr. Johnson as " the last refuge of a scoundrel ". Robert Louis Stevenson has used barbed words : " Politics is perhaps the only profession for which no preparation is thought necessary (Familiar Studies of Man and Books, " Yoshida-Torajiro "). George Benard Shaw uses stinging language in Major Barbara : " He knows nothing ; and he thinks he knows everything. That points clearly to a political career. " It is thus clear, without reference to the wealth of case-law relied on by the High Court, that politics has been a profession and, indeed, under modern conditions in India, perhaps the most popular and uninhibited occupation with its perils, of course. Law cannot take leave of realities and, therefore, section 5(a) must bear the construction that politics is a profession or occupation.”
In fact, much reasoning is not required on this issue, since income tax law would deal with receipts of not only profession, but also of vocation or any occupation on par with business income even as pointed out by the Supreme Court in P.Krishna Menon v. CIT (1959) 35 ITR 48 (SC), where the assessee, a retired civil servant, engaged in teaching Vedanta as an occupation, was held assessable on voluntary donations received by him.
Gifts offered to the assessee in the case cited in the query were taxed as from non-relatives under section 56(2)(v) of the Act, but after excluding gifts below Rs. 25,000 each exempted by the provision as it stood between 1{+s}{+t} September 2004 to 31{+s}{+t} March 2006. The assessee in the light of the ruling law for the two years A.Y. 2005-2006 and A.Y. 2006-2007 under consideration, offered for tax 1.20 and 1.28 crores out of total gifts of 3.85 and 21.62 crores, claiming balance to be exempt as each such gift received by her fell below the limit of Rs. 25,000. The authorities, however, inferred the entire amount to be taxable as professional income from which the exception for smaller receipts is not available.
The Tribunal, while conceding revenue’s contention that professional income of a politician is taxable under section 28, so that section 56(2)(v) need not be applied, found that not all gifts were received by the assessee in her role as a politician. Notwithstanding the fact, that the assessee was a Member of Parliament, President of a Party and later Chief Minister of a State, she was personally admired by her admirers as “Bahenji”, so that not all receipts could be characterised as from political profession. The Tribunal referred to a number of decisions, where personal gifts as distinct from receipts of a profession, vocation or occupation were inferred and found not taxable as, for example, in C.P. Chitrarasu v. CIT (1986) 160 ITR 534 (Mad). The decision has to depend upon the facts of each case. Rejecting Revenue’s contention that recipient’s political stature would indicate expected returns for gifts, the Tribunal pointed out that in donors’ affidavits, there was no reference to any “direct, indirect or promised favour”. There was also no evidence of influence or inducements, so as to attribute political character to the receipts. If the gifts were personal gifts, so as to be excluded, from the purview of section 28, it would fall to be assessed as gifts from non-relatives, so that the claim that gifts below Rs.25,000 each still required examination. Revenue’s objection on grounds of genuineness, based solely on bulk issue of D.Ds and notarised affidavits were held by the Tribunal to be not sufficient to controvert assessee’s claim.
If there had been quid pro quo , the issue, whether such gifts are taxable or not would not have arisen at all. It is settled law, that voluntary payments received in the course of profession, vocation or occupation could be taxable as found in Krishna Menon’s case (supra). At any rate, the decision of the Tribunal may not be the last word on the subject, if the inference of the Tribunal is questioned as perverse and/ or inconsistent with the facts and the law.
There has been further development in law in that, the exemption of individual gift upto Rs.25,000 is replaced by the exemption limited to aggregate amount of Rs.50,000 for gifts from 1{+s}{+t} April 2006 vide Taxation Laws (Amendment) Act, 2006, so that the issue would become largely academic for later years after this amendment.
