Arun Jaitley on Why the Congress is in the Wrong

Congress Vice President Rahul Gandhi during the winter session of Parliament in New Delhi on Thursday. Credit: PTI Photo by Subhav Shukla

Rahul in his Labyrinth: Congress Vice President Rahul Gandhi during the winter session of Parliament in New Delhi on Thursday. Credit: PTI Photo by Subhav Shukla

The Congress Party, for the past few days, has disrupted both houses of Parliament. Its Goebbelsian propaganda is that the party’s leadership is a victim of political vendetta. What then are the facts?

A company was created for the purpose of starting a newspaper National Herald. The company was allotted prime land in several parts of the country. The land was meant to be used for the newspaper business. Today, there is no newspaper. There is only land and built up structures which are being commercially exploited.

A political party is entitled to collect funds for its political activities. For that purpose, it gets an exemption from payment of income tax. Rupees 90 crores from amongst the funds collected by the Congress Party are given to the newspaper company. Prima facie, it can be said that there a breach of the provisions of the Income Tax Act in as much as an exempted income is used for a non-exempt purpose.

The Rs 90 crore debt is then assigned to a Section 25 (not-for-profit) company (called Young Indian) for a paltry amount of Rs 50 lakhs. Tax exempted money effectively gets transferred to a real estate company. The real estate company now acquires 99% of the share-holding of the former newspaper company. Effectively, the Section 25 company substantially controlled by the leaders of the Congress Party now owns all the properties acquired for a newspaper publication, and for virtually no consideration, the Section 25 company owns all the assets. This profit will become huge taxable income in its hands.

Since 2012, as a private citizen,  Subramanian Swamy, has been alleging [the National Herald transaction involves] a breach of trust. It is the duty of every citizen to report an offence when it comes to his notice. Any citizen can set the process of criminal law into motion. A trial court issues summons on Swamy’s complaint. The accused leaders of the Congress party move the Delhi High Court for quashing, which grants them  interim protection. Eventually, the high court dismisses the petition of the accused. The accused now have two alternatives. They can either challenge the order in the Supreme Court or appear before the trial court and contest the case on merits.

The facts are clear. By a series of financial transactions, the leaders of the Congress party created a ‘chakravyuh’ for themselves. They have to find their own exit route out of the ‘chakravyuh’. They have acquired properties worth a huge amount without spending anything. They have used tax exempted income for a non-exempted purpose. They have transferred the income of a political party to a real estate company. They have created huge taxable income in favour of the real estate company.

The government, so far, has not taken any punitive action. The Enforcement Directorate has not issued any notice to them. The Income Tax authorities will follow their own procedure. The criminal court, meanwhile, has taken cognisance of the offence. The high court has agreed with the trial court. The battle has to be fought legally. But the results of legal battles are always uncertain. The Congress is, therefore, crying foul and calling it political vendetta. Is that a charge against the courts? The government has passed no order in relation to the disputed transactions. There is equality before the law. No one is above the law.

India has never accepted the diktat that the queen is not answerable to the law. Why should the Congress party and its leaders not contest the notice before the court? The government cannot help them in the matter, nor can parliament. Why then disturb parliament and prevent the legislative activity from continuing? The answer to the Congress party leadership landing up in a ‘chakravyuh’ is to fight their battle legally and not disrupt parliament. By disrupting democracy the financial web created by the Congress leaders cannot be undone.

Arun Jaitley is Union Minister for Finance and  Information and Broadcasting. This article has been reproduced from his Facebook blog.

  • ashok759

    There is much in this case for the income tax department to chew over. In the Vodafone case, transfer of underlying assets was sought to be taxed when shares in the companies owning them changed hands. Similarly, when an Indian subsidiary issues shares to its foreign owner at a discounted price, it is regarded as an income that can be taxed. Why was a loan with a nominal value of 90 crores sold for 50 lacs, unless the borrower was broke ? What if the borrower’s assets were in fact twenty to thirty times its total liabilities ? Why were fresh shares issued at par when the book value was about 2,000 times the earlier paid up capital ? Any way one looks at it, transactions between related entities have not taken place at arm’s length. There has been humongous undervaluation, one facet of money laundering. Quite apart from issues of criminality that the trial court would examine, the IT department may be justified in raising huge tax demands. To say that money has not flowed to the family reminds one of the earlier statement that no loss had been caused to government by the gifting away of blocks because the coal had not actually been mined. There is a case to answer in court.

  • abhi

    Parliament shouldn’t be dysfunctional .