The Income Tax Appellate Tribunal on Monday dismissed an appeal by the Congress seeking tax exemption on an income of Rs 199 crore for the assessment year 2018-’19, Live Law reported.

The tribunal rejected the party’s claim under Section 13A of the 1961 Income Tax Act, observing that the Congress had filed its tax returns late and violated rules related to cash donation limits.

A bench of Judicial Member Satbeer Singh Godara and Accountant Member M Balaganesh ruled: “The assessee’s return filed on [February 2, 2019] is not within the ‘due’ date to make it eligible for the impugned exemption.”

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

Its tax tiling for the year also did not provide details about contributions worth Rs 14.4 lakh out of the total donations worth Rs 142.8 crore it had received that year.

Due to its non-compliance with the provisions to claim exemption, the Income Tax Department had issued notices to the Congress in September 2019, January 2020 and March 2020, demanding a tax of Rs 94.4 crore on an assessed income of Rs 199.1 crores for 2018-’19.

The assessment order dated July 6, 2021, had denied the entire exemption claim, making the full receipt amount taxable.

The Congress challenged the assessment order in August 2021 and applied for a stay on the recovery of the amount demanded by the Income Tax Department in October 2021.

Later that month, an assessment officer disposed of the application, directing the Congress to pay 20% of its outstanding tax liability, failing which it would be treated as a defaulter.

However, the Congress did not pay the 20% tax amount, leading the Income Tax Department to issue a letter in January 2023 to the Congress requiring the party to deposit and liquidate its tax liability.

The Congress challenged this before the Commissioner of Income Tax (Appeals), the Income Tax Appellate Tribunal and the Delhi High Court, being denied relief at every forum.

The High Court had criticised the Congress for “badly” handling the matter and said that somebody from the Congress’ office “went off to sleep” from 2021.

In April 2024, less than three weeks before polling began in the Lok Sabha elections, the Congress received tax notices for seven other assessment years.

Are political parties exempt from income tax?

Under Section 13A of the 1961 Income Tax Act, registered political parties will be exempt from paying tax on the income they receive provided they fulfil certain conditions.

The party must maintain a book of accounts recording its income. It must maintain a record of the names and addresses of each person who contributes a sum over Rs 20,000 to it. The party’s accounts must be audited by a chartered accountant.

It must only accept contributions over Rs 20,000 via cheque, demand draft, electronic clearing system or other prescribed electronic modes.

To claim an exemption, the treasurer of the party must submit a report listing all donations over Rs 20,000 received by the party in a financial year to the Election Commission by the due date for filing income tax returns.

The provision also requires parties to file a tax return for the previous year.

If any of these conditions are not satisfied, the party will not be able to claim income tax relief, according to Section 13A of the Income Tax Act and Section 29C of the 1951 Representation of the People Act.

Also read: Why is the Congress facing a Rs 3,567-crore demand from the Income Tax department?