Setback for Congress: IT tribunal refuses to grant exemption on income tax on ₹199 crore donations

In a shocker for the grand old Congress party, the Income Tax Appellate Tribunal (ITAT) has refused to grant exemption on income tax on donations worth ₹199 crore. The ITAT dismissed the Congress' appeal against a tax demand for the year 2017-18. 

The grand old party opposed the I-T department's notice, which asked it to pay tax on income of around ₹199 crore. Congress claimed that the money came from donations and should be exempted from tax. 

The party, however, failed to file its tax returns by the due date. The  Income Tax tribunal upheld the decision of tax authorities and ruled the party must income tax on the donations it received during the financial year 2017-18.

Congress' claim was also rejected due to violations of cash donation limits, establishing strict compliance requirements for political parties seeking tax benefits.

The Congress party filed its income tax return on February 2, 2019 and declared nil income after claiming an exemption of ₹199.15 crore under Section 13A of the Income Tax Act. The ITR, however, was filed after the extended due date of December 31, 2018, for assessment year 2018-19, as prescribed under Section 139. 

In September 2019, the Assessing Officer found out during scrutiny that the party accepted ₹14.49 lakh in cash donations, well beyond the ₹2,000 per donor limit. This violates Section 13A(d), which mandates such donations should be received via banking channels after the Finance Act 2017 amendment. 

The assessment ruling issued on July 6, 2021, completely rejected the exemption, making the entire amount taxable, even though the Congress claimed total earnings of Rs 199.15 crore versus Rs 197.43 crore in expenses, leaving a surplus of Rs 1.71 crore.

Congress filed a complaint with the Income Tax Appellate Tribunal (ITAT) after the Commissioner of Income Tax (Appeals) upheld this ruling on March 28, 2023. The IT tribunal denied temporary relief in 2024 and dismissed the party's appeal in its most recent decision.

According to the IT tribunal, exemption clauses need to be properly read. It concluded that, in contrast to charity trusts, which are granted more flexibility under Section 12A, political parties must file returns by the deadline specified in Section 139(4B), as opposed to Section 139(1).

Additionally, the tribunal dismissed Congress's claim that Section 139(4) should permit late filing. The panel also discovered a blatant violation of Section 13A(d), which forbids cash contributions of more than Rs 2,000.

Finally, the alternative request made by Congress to provide expenditure deductions from gross receipts was likewise denied. The tribunal pointed to a 2016 Delhi High Court decision in a related matter involving the party, noting that such relief is prohibited by Section 13A's third proviso.