When You Don’t Pay Your Dues…

WAS THE ACTION of the income tax (IT) authorities on Febru­ary 13, attaching ₹135 crore from Congress bank accounts and fixed deposits in lieu of tax dues politically motivated and intended to cripple the party ahead of the Lok Sabha elec­tions? Congress leaders Sonia and Rahul Gandhi and party president Mallikarjun Kharge levelled the allegation in a press conference on March 21 and said this is indeed the case. Stating that Congress bank accounts have been frozen, Rahul Gandhi said the party could do no campaign work or travel. Forget flying, party leaders could not even travel by train. “The idea that India is a democ­racy is a lie. There is no democracy in India today,” he said. Kharge said no political party paid income tax in India and asked if the Bharatiya Janata Party (BJP) or any other party had done so.

The startling claims bear closer examination. To begin with, Congress’ accounts have not been frozen. An amount of ₹135 crore has been recovered for failure to pay up an income-tax demand first raised on July 6, 2021—and which has not been struck down by any authority thereafter. Nor has Congress been able to procure a stay. Encashment of amounts was done only after the stay application was rejected by the Income Tax Appellate Tribunal (ITAT). Attaching money from accounts is a routine recovery measure which is a consequence of vio­lation of statutory provisions. Remember the movie The Pur­suit of Happyness in which the Internal Revenue Service (IRS) takes $650 from Chris Gardner’s (Will Smith) account for tax­es due? Only Congress is no struggling seller of medical de­vices and the IT action did not empty the party’s poll chest. During the hearing of Congress’ plea against the attachment of funds, the Delhi High Court noted the submission of the IT Department’s counsel Zoheb Hossain that a “bare perusal” of the party’s latest IT returns reveals a corpus of a little more than ₹650 crore, fixed assets of ₹340 crore, and cash of ₹388 crore. Enough to cover plane travel, even chartered flights, funds needed to support candidates and an advertising campaign. The high court on March 13 dismissed Congress’ plea against the ITAT order refusing to stay the IT Department’s demand, con­cluding that no financial hardship has been caused that might adversely impact the party’s electioneering. Examining events from the assessment order of July 2021 to the recovery of funds in February 2024, the court said an inference that the proceedings have been carried out in haste is not justified.

The High Court dismissed Congress’ plea against the ITAT order, refusing to stay the it department’s demand, concluding that no financial hardship has been caused that might impact the party’s electioneering

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The observations of the high court in its order are revealing. Congress had challenged the assessment demand before the Commissioner of Income Tax (Appeals) on August 6, 2021, and then sought a stay from the assessing officer (AO) on October 20, 2021. Eight days later, the AO offered Congress the option of paying ₹21 crore (20 per cent of the original ₹105 crore demand) after which no demand would be raised till disposal of the party’s appeal. “It becomes pertinent to note that the order does not appear to have been either questioned or assailed by the petitioner. It may be ad­ditionally noted that the AO clearly provided that if the petitioner fails to deposit 20%, it would be treated as an ‘assessee in default’. The petitioner repeatedly failed to comply…” The party moved a sec­ond application before the AO on January 27, 2023, but the appeal itself was dismissed by the CIT(A) on March 28, 2023. The court said after the AO’s 20 per cent direction, no step was taken or pursued by Congress for almost two years till a demand letter was issued on January 9, 2023. Having failed to abide by the conditions imposed by the AO, the party fell into a “deep slumber” and the ITAT order did not appear to be motivated by any mala fide. The court took a stern view of Congress’ inaction, stating that a defaulter can nei­ther be permitted nor expected to adopt a casual or lackadaisical approach, noting the party had sought adjournments in Sep­tember and October 2023 and again in February 2024.

In its statements to the media, Congress said BJP has looted donations received by Congress by freezing of accounts and forcible withdrawal of funds for a notice for FY 2017-18 and that a lien of ₹210 crore was marked in 11 accounts in four banks. A sum of ₹14.49 lakh received in cash by way of donations from party MPs was only a small fraction of an income of ₹199 crore. The party said the funds were received in 2017-18 but the coercive action was carried out seven years later. The party further alleged Congress has been prevented from using its deposited amounts of ₹285 crore, virtually crippling its finances. The party also pointed to a fresh notice from the IT Department regarding FY 1993-94 when the late Sitaram Kesri was party treasurer and said penal charges are being calculated 31 years after the stated year of assessment. Official sources iterated that recovery notices related to the pending demand of ₹135 crore and the party is not prohibited from operating its notices. The proceedings in the 1993-94 case, they said, are the effect of a 2016 high court order dismissing the party’s appeal for the concerned year. The ensuing political slugfest between Congress and BJP saw the opposition accuse the government of political vendetta and the latter responding by pointing to illegalities and failure to declare accounts of income in keeping with the requirements of the law.

CONGRESS’ TROUBLES BEGAN with its declara­tion of nil income for the assessment year 2018-19 being scrutinised and rejected, resulting in a de­mand of ₹105 crore. The party’s entire income of nearly ₹200 crore was held to be taxable. The reason Congress did not get the benefit of tax exemption available to political parties was because the return was filed on February 2, 2019, well beyond the extended deadline of December 31, 2018 and because it received and recorded cash donations from vari­ous persons, each exceeding ₹2,000, and in total adding up to ₹14.5 lakh in contravention of rules. Parties have to ensure com­pliance with Section 13A of the IT Act which the ITAT noted is a special provision relating to incomes of political parties. It prescribes that for a party to be eligible for exemption, it must not accept donations exceeding ₹2,000 other than by way of cheque, bank draft, electronic clearing or electoral bonds. “The phraseology of Section 13A shows that the conditions prescribed are pre-requisites for a party to claim exemption,” the ITAT said. It referred to the Delhi High Court’s observation in Congress’ 1993-94 case that said while Section 13A is benefi­cial to political parties as it exempts various items of income, it is also incumbent on parties to strictly comply all require­ments under the provision. The IT Department argued there is a statutory obligation for parties to file returns of income. The amendment in Section 13A, it said, flows from the Supreme Court’s order in the Common Cause vs Union of India case. The proviso mandating filing of return of income was introduced in the Finance Act of 2017. While it is correct that political par­ties do not need to pay income tax, they do need to file returns and retain exemption status. The Delhi High Court order of March 13 strongly underlines the point: “The legal position is that no deduction can be allowed with respect to expenditure for any purpose whatsoever if it fails to comply with the basic requirement of the Section 13A of the Act.” The requirement to file IT returns and reduction of the limit of permissible cash do­nations from ₹20,000 to ₹2,000 were intended to plug loopholes and increase accountability of the income of political parties.

The Delhi High Court has held the assessment of income for 1993-94 to be flawed on several grounds, including the auditor’s certification that the balance sheet and statement of income and expenditure as of March 31, 1994 are in agreement with books of accounts, vouchers and receipts. “This kind of an auditor’s report, to say the least, leaves much to be desired. It does not comport with the degree of seriousness with which a duly qualified audi­tor is expected to discharge his statutory obligations,” the court said. As things stand, Congress has filed writ petitions against as­sessments relating to seven years of which writs relating to three years were heard by the Delhi High Court on March 20, 2024, and the order is reserved. However, there is the matter of evidence re­covered in searches relating to the assessment years 2014-15 to 2020-21 where, according to officials, the party has not been able to respond on merits and the department is to pass reassessment orders by March 31. This might spell fresh trouble for Congress by way of new demands over and above the ₹ 135 crore attached by the IT Department. Congress lead­ers have sought to present their case as one of vindictive action by the government against a political rival and whether this strikes a chord with voters is unclear. The lack of relief from IT authorities, the tribunal or the courts so far dimin­ish the party’s claims that it has been subjected to motivated and illegal actions. Rather what stands out is slackness, bordering on neglect, about its financial affairs.

In the war of optics, Congress’ tax woes have provided BJP with another handle to attack it on the grounds that it has brought its troubles on itself and that the government has no role to play in the turn of events

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In the war of optics, Congress’ tax woes have provided BJP with yet another handle to attack the opposition party on the grounds that it has brought its troubles on itself and that the government has no role to play in the turn of events. BJP leader Ravi Shankar Prasad told the media that Rahul Gandhi was ignorant of tax laws and asked if the Congress leader was aware how many rules the party has broken. “It is true that the Income Tax Act Section 13(A) stipulates political parties do not have to pay income tax. But they do have to file their returns every year. If you do not file every year, you lose your exemption… Congress had not filed returns for As­sessment Year 2018-19. Their exemption was lost,” he said. BJP has nothing to do with the tax department’s routine procedures for the recovery of tax dues if the assessee does not comply with demand notices and fails to get relief from higher authorities or the courts.

The tax tangle, along with the arrest of Delhi Chief Minister Arvind Kejriwal, has shifted the focus from the dis­closure of election bond details, which was in any case losing traction. With the purchase and redemption of bonds failing to re­veal any evidence of government-business nexus—at least no more or less than other political parties—the anticipation of a section of activists has been belied. On the other hand, the income tax cases and corruption-related investigations threaten to further deplete the I.N.D.I.A. bloc’s credibility as the Lok Sabha polls begin on April 19.

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Rajeev Deshpande

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