Gujarath: It was indeed a money rain.

Poonam Madam, the BJP MP from Jamnagar, Gujarat, managed to get a whopping Rs 3 crore in 30 seconds at a Bhagwat Katha function in Verawal where she danced for a few minutes.

The MP has blithely explained it as donations made with fervor by the locals in keeping with the time-honored local traditions. She went on record saying the money would be used for constructing girls’ hostel and cow shelter.
Time was when politicians would organise political rallies in their pocket burroughs where their fawning acolytes would make a show of people of the area loosening their purse strings in favor of their leaders. The income tax department knew it was an effective money laundering exercise, with one’s own black money being vested with the color of donation but could do precious little.

Such orchestrated donations happened in an era where there was neither tax on the donor nor on the done. Things have changed from 2007, with the income tax law now taxing gifts as the income of the recipient if it exceeds Rs 50,000 in a financial year.

But this does not mean the end of the charade which can go on in a new form – the beneficiary being a political party and not the politician.

Political parties are exempted from disclosing the names of donors making a donation of not more than Rs 20,000. Small wonder the mainstream political parties report lion’s share of their donations under this convenient and self-serving category?

Regional one-man parties too lose no sleep over this seminal change in the income tax law, with there being no difference between the party and its founder.

In other words, the party comes handy in the money laundering exercise for the one owning the one-man controlled party. The CBDT has been making no secret of its dismay over mushrooming political parties.

Where does this leave Poonam Madam and her fund mobilisation exercise? Admittedly, the money did not rain for her party the BJP. It was, on the other hand, for charitable purposes.

Section 115BBC says if a charitable trust (it is presumed Poonam Madam would have constituted one) receives anonymous donations in excess of Rs 1 lac or 5% of its total donations whichever is higher, then on such excess tax will have to be paid by the charitable trust at the rate of 30%, the maximum marginal rate of tax.

This is to prevent the mischief of charitable trusts being used as a tax sanctuary or shelter by influential persons wielding control over such trusts. Charitable trusts enjoy tax exemption in this country.

A wily person can persuade it to play ball with him – accept donations from me but do not kindly disclose my name. Later on the trust would expend the money as directed by the anonymous donor taking advantage of the long rope given to trusts in utilising their funds.

In the case on hand, to be sure, there is no wily anonymous donor. Irrespective of if she was laundering her black money or the community was donating liberally (all of them in Rs 10 notes by a curious coincidence), the bottom line would be the same – anonymous donations attracting 30% tax as described above.

It remains to be seen if the tax authorities invoke section 115BBC. The holy cow status accorded to political parties and charitable trusts has come for strident criticism by the commentariat.

Section 115BBC was introduced to mollify them. One hopes the tax administration cracks the whip. Since the money rained in full public view, Poonam Madam should not be allowed to deconstruct the story if only to duck the impact of the tax regime obtaining for anonymous donations which she must be tempted to do in hindsight.

She should not be allowed to produce donors with names and addresses as an afterthought now that the true impact of tax provisions has dawned on her.