2025 (7) TMI 1437 - AT - Income Tax

Political party's tax exemption under Section 13A denied for filing return after due date under Section 139(1)

Indian National Congress All India Congress Committee Versus DCIT, Central Circle-19, New Delhi

The ITAT Delhi held that a political party's exemption under section 13A is contingent upon filing its return within the 'due' date prescribed under ... Section 13A exemption claim to a political party - political parties to file return of income for availing exemption u/s 139 of the Act which includes both returns filed u/s 139(1) and 139(4) - determination of due date Whether in the instant case the return was filed on 02.02.2019 much before the last date of filing of return of return on 31.03.2019 u/s 139(4)? - whether the assessee’s impugned return dated 02.02.2019 would be held as the one filed within the “due” date or not? HELD THAT:- There would be hardly any dispute between the parties that the assessee; a political party, is granted exemption under section 13A of the Act subject to certain conditions enumerated therein; and, one of them is the third statutory proviso thereto (inserted by the Finance Act, 2017 w.e.f. 01.04.2018) that a return has to be furnished in accordance with the provisions of sub-section 139(4B) of the Act. There would be again no quarrel that section 139(4B) of the Act envisages the authorized person of such a political party to “furnish a return of such income in the prescribed form and verified in the prescribed manner” and “all the provision of this Act, shall, so far as may be, apply as if it were a return required to be furnished under sub-section (1)”. We further deem it appropriate to observe that section 139(1) of the Act in explanation 2 prescribes the “due” date for various categories of persons; all upto 31st October of the concerned assessment year, as the last day only. It is in this factual backdrop that the assessee’s endeavour before us is to invoke section 139(4) of the Act that the same enables a non-filer who had missed the above “due” date under section 139(1) of the Act to furnish it’s return very well past 31st October “before the end of the relevant assessment year or before completion of the assessment; whichever is earlier. The assessee accordingly states that the above return dated 02.02.2019 has been filed very well before either of the twin situations i.e. end of the relevant assessment year or completion of the assessment, as the case may be. All these assessee’s vehement submissions fail to evoke our concurrence. This is for the precise reason that so far as an interpretation of such an exemption provision in a fiscal statute is concerned, not only the hon’ble jurisdiction high court’s decision [2016 (3) TMI 879 - DELHI HIGH COURT] in the assessee’s case itself for assessment year 1994-95 has made it clear that section 13A has to be strictly complied with but also hon’ble apex court’s landmark decision in Commissioner Vs. Dilip Kumar & Co. [2018 (7) TMI 1826 - SUPREME COURT (LB)] has settled the issue that it is not liberal but stricter interpretation only in a taxing statute which has to be employed in an exemption claim. That being the case and in light of the fact that even section 139(4B) has stipulated filing of return within the “due” date i.e. required to be furnished u/s 139(1), we are of the considered view that the above former clause in fact restricts any further liberalism herein as clearly incorporating the expression of “due” date; and, therefore, the moment there is violation of such a “due” date, section 13A 3rd proviso gets attracted, so as to result in denial of exemption to the political party concerned. We thus conclude that the assessee’s return filed on 02.02.2019 is not within the “due” date to make it eligible for the impugned exemption. It’s further plea that we ought to go by the alleged corresponding pari materia provision in section 12A(1)(ba) hereinabove, it is manifestly clear that the legislature has incorporated the statutory expression therein as “within the time allowed under that section” i.e. section 139(1) as well as u/s 139(4) than section 13A 3rd proviso r.w.s. 139(4B) r.w.s. 139(1) and Explanation (2) applicable herein (supra). We thus reject the assessee’s instant first and foremost substantive grievance in very terms and decide the above first question framed between the parties; in the department’s favour. Whether the assessee’s impugned section 13A exemption claim violates clauses (b) and (d) of the 1st proviso thereto? - As we hold that the given the fact we have already held its above return filed on 02.02.2019 as a time barred one, the same stands rendered academic. Rejected Accordingly. Assessee seeks to assess itself on “netting” basis after claiming the corresponding expenditure - As we find that the hon’ble jurisdiction high court’s decision [2016 (3) TMI 879 - DELHI HIGH COURT] has concluded the very issue in department’s favour in para 124 thereof as under: “124. The legal position is that no deduction can be allowed with respect to the expenditure incurred by the political party for any purpose whatsoever if it fails to comply with the basic requirements of section 13A of the Act.” We thus conclude that given the fact that the assessee has been held to have violated section 13A 3rd proviso in not filing its return within the prescribed “due” date, its impugned netting claim also deserves to be declined in very terms. ISSUES: Whether a political party's income tax return filed after the due date prescribed under section 139(4B) read with section 139(1) of the Income-tax Act, 1961, is eligible for exemption under section 13A of the Act'Whether receipt of donations in cash exceeding Rs. 2,000/- violates clause (d) of the first proviso to section 13A, thereby disqualifying the political party from claiming exemption under section 13A'Whether the distinction between 'voluntary contributions' and 'donations' affects the applicability of clause (d) of the first proviso to section 13A'Whether the political party is entitled to claim deduction for expenditure incurred in attaining its aims and objects when exemption under section 13A is denied'Whether the political party's claim to assess income on a netting basis (income minus expenditure) is permissible when conditions of section 13A are not fulfilled'Whether interest and fees levied under sections 234A, 234B, 234C, and 234F of the Act are leviable in the facts and circumstances of the case? RULINGS / HOLDINGS: The return of income filed on 02.02.2019 was held to be beyond the 'due date' prescribed under section 139(4B) read with section 139(1) of the Act, and thus the political party failed to comply with the third proviso to section 13A, resulting in denial of exemption under section 13A. The Court emphasized that 'it is not liberal but stricter interpretation only in a taxing statute which has to be employed in an exemption claim.'The receipt of donations of Rs. 14,49,000/- in cash, each exceeding Rs. 2,000/-, violated clause (d) of the first proviso to section 13A, which mandates that 'no donation exceeding two thousand rupees is received by such political party otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account or through electoral bond.' This violation disqualified the political party from claiming exemption under section 13A.The Court rejected the distinction between 'voluntary contributions' and 'donations' as urged by the political party, holding that 'voluntary contributions would subsume donations' and that the terms are 'interchangeable' in the context of section 13A. The political party's own accounts and statutory reports did not differentiate between the two, reinforcing this interpretation.The claim for deduction of expenditure incurred in attaining the aims and objects of the political party was disallowed where exemption under section 13A was denied, relying on the principle that 'no deduction can be allowed with respect to the expenditure incurred by the political party for any purpose whatsoever if it fails to comply with the basic requirements of section 13A of the Act.'The political party's claim to assess income on a netting basis by offsetting expenditure against receipts was rejected, as the legal position is that 'no deduction can be allowed' if the conditions of section 13A are not fulfilled.The levy of interest under sections 234A, 234B, 234C and fees under section 234F was upheld as leviable on the facts and circumstances of the case. RATIONALE: The Court applied the statutory framework of section 13A of the Income-tax Act, 1961, including its provisos, as amended by the Finance Act, 2017, effective from 01.04.2018, which introduced the requirement that political parties must file their return of income under section 139(4B) on or before the due date prescribed under section 139.The Court relied on the defined 'due date' under Explanation 2 to section 139(1), rejecting the political party's argument that filing under section 139(4) within the assessment year sufficed, emphasizing strict compliance with the statutory due date for exemption claims.The Court interpreted clauses (b) and (d) of the first proviso to section 13A in conjunction, clarifying that donations exceeding Rs. 2,000/- must be received through specified banking channels, and that the terms 'voluntary contributions' and 'donations' are not mutually exclusive but overlapping, supported by statutory definitions and judicial precedent.Precedents from jurisdictional High Courts and the Supreme Court were applied to uphold the principle that failure to satisfy the conditions of section 13A results in inclusion of such receipts as taxable income under other heads, and disallows deductions for expenditure incurred.The Court noted that exemption under section 13A is a special provision and must be strictly construed, with non-compliance resulting in denial of exemption and related deductions.Clarifications issued by the Central Board of Direct Taxes regarding filing of returns and exemption conditions were considered, but distinguished on the basis that they pertain to trusts under section 12A and not political parties under section 13A.The Court acknowledged the legislative intent to enhance transparency in political funding and to discourage cash transactions, as reflected in the amendments and provisos to section 13A.The Court rejected the political party's reliance on accounting classifications and submissions, emphasizing the statutory definitions and conditions as determinative.No dissenting or concurring opinions were recorded; the decision reflects a doctrinal adherence to strict statutory interpretation of exemption provisions in tax law.