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Synopsis

The Delhi High Court reserved its verdict in a case involving the Indian National Congress (INC) and the Income Tax Appellate Tribunal (ITAT).

The matter at hand revolved around the Tribunal's decision to deny the INC's request for a stay on the recovery of outstanding taxes for the assessment year 2018-19.

The bench, consisting of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav, expressed discontent over the political party’s lack of action in securing the outstanding demand from the Income Tax department.

In a bid to contest this decision, the INC had approached the high court, seeking relief against the Tribunal's refusal. The case centered on whether the INC fulfilled the conditions for exemption under Section 13A of the Income-tax Act, 1961 (IT Act), specifically regarding the timely filing of income tax returns and the nature of received funds.

The Tribunal had observed that Section 13A imposes mandatory conditions for political parties to claim exemption, including the obligation to file income tax returns by a specified deadline. It noted that the insertion of the third Proviso in Section 13A by the Finance Act, 2017, made timely filing of returns a prerequisite for exemption. The Tribunal determined that the INC's delayed filing of returns did not meet this criterion. Additionally, it found that the INC's differentiation between 'voluntary contributions' and 'donations' lacked supporting evidence, leading to a violation of clause (d) of the first Proviso to Section 13A.

During the proceedings, the court raised questions about the petitioner's proposal to suspend part of the demand subject to deposit, which the Tribunal would have considered appropriate. Advocate Zoheb Hossain representing the Income Tax department argued that the Tribunal cannot grant a stay as a routine merit before considering the case's merits. He further highlighted the Tribunal's view that the party lacked a prima facie case, citing reliance on the party's filed return.

The Income Tax Department emphasized that they had sent three reminders to the party since 2021. Advocate Zoheb Hossain asserted that if a 13A entity fails to comply with the mandatory requirements outlined in clauses (a) to (d), whole amount could be recovered. They argued that no stay application was submitted along with the appeal before the ITAT, and the demand was considered nullified under the presumption that it didn't exist, despite its existence from 2021. Lastly, the revenue department noted that they had recovered 65.94 crores out of the outstanding amount of 135.06 crores (including interest).

Senior Advocate Vivek Tankha argued that although political parties are typically exempt from taxes, they have not been granted this exemption. They stressed that if the exemption had been granted, their tax liability would not have exceeded 70 lakhs. Furthermore, they highlighted concerns about funding national elections despite reporting over 200 crores in income after spending 180 crores.

In contrast, the revenue department stated that the INC possesses significant assets, including 657 crores in fixed assets and 388 crores in cash, suggesting no financial hardship. They asserted that the party cannot claim financial difficulties to avoid rightfully imposed taxes, especially since they did not plead financial hardship. Senior Advocate Vivek Tankha further argued that the suspension of 120 accounts has made it challenging to fund national elections, despite having a bank balance of 1307.3 crores.

The court queried Advocate Zoheb Hossain regarding the petitioner's offer to suspend some part of the demand subject to deposit, which the tribunal would consider appropriate.

Court noted that the tribunal finalized the three raised issues and permitted the Congress to approach the tribunal anew to secure 20% of the demanded amount by depositing it. Furthermore, the Court referenced an Office Memorandum dated July 31, 2017, stating that while 20% is not mandatory, it is applicable to pending appeals before the CIT(A).

Court also expressed displeasure over the National Congress seeking adjournment from September 2023. However, the Congress prayed for protection until their appeal is pending.

Case Title: Indian National Congress v Deputy Commissioner Of Income Tax