Income Tax Tribunal Denies Congress Tax Exemption for 2018-19

Income Tax Tribunal's Ruling

On Monday, the Income Tax Appellate Tribunal rejected an appeal from the Congress party seeking tax exemption on an income of Rs 199 crore for the assessment year 2018-19.

The tribunal found that the Congress had submitted its tax returns late and breached regulations concerning cash donation limits, thus denying the claim under Section 13A of the Income Tax Act of 1961.

A bench comprising Judicial Member Satbeer Singh Godara and Accountant Member M Balaganesh stated, “The return filed on [February 2, 2019] does not meet the due date required for the exemption.”

The deadline for filing the income tax return for the year 2018-19 was December 31, 2018.

Additionally, the party's tax filing failed to disclose contributions amounting to Rs 14.4 lakh from a total of Rs 142.8 crore received that year.

Due to non-compliance with the necessary provisions for claiming exemption, the Income Tax Department issued notices to the Congress in September 2019, January 2020, and March 2020, demanding Rs 94.4 crore in taxes on an assessed income of Rs 199.1 crore for 2018-19.

The assessment order dated July 6, 2021, rejected the entire exemption claim, rendering the full amount taxable.

The Congress contested the assessment order in August 2021 and sought a stay on the recovery of the demanded amount in October 2021.

Later that month, an assessment officer dismissed the application, instructing the Congress to pay 20% of its outstanding tax liability, warning that failure to do so would result in being classified as a defaulter.

However, the Congress did not comply with the 20% payment, prompting the Income Tax Department to send a letter in January 2023, urging the party to settle its tax obligations.

The Congress subsequently challenged this decision before the Commissioner of Income Tax (Appeals), the Income Tax Appellate Tribunal, and the Delhi High Court, but was denied relief at each level.

The High Court criticized the Congress for its poor handling of the situation, suggesting that someone from the party's office had been negligent since 2021.

In April 2024, just weeks before the Lok Sabha elections, the Congress received tax notices for seven additional assessment years.

Tax Exemption for Political Parties

Are Political Parties Exempt from Income Tax?

According to Section 13A of the Income Tax Act of 1961, registered political parties can be exempt from income tax on received income if they meet specific criteria.

These criteria include maintaining a detailed account of income, recording the names and addresses of contributors who donate over Rs 20,000, and having their accounts audited by a chartered accountant.

Contributions exceeding Rs 20,000 must be accepted through cheque, demand draft, electronic clearing systems, or other approved electronic methods.

To qualify for exemption, the party's treasurer must submit a report to the Election Commission listing all donations over Rs 20,000 received in a financial year by the tax return filing deadline.

Additionally, parties must file a tax return for the preceding year.

If any of these conditions are not met, the party will be ineligible for income tax relief as per Section 13A of the Income Tax Act and Section 29C of the Representation of the People Act of 1951.