ITAT Rejects Congress Party’s Claim for Tax Exemption on ₹199 Crore Income for AY 2018–19

Delay in filing income-tax return and receipt of cash donations above ₹2,000 rendered entire income taxable under Section 13A.

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By Karan Bir Singh Sidhu

Retired IAS officer and former Special Chief Secretary, Punjab. He writes at the intersection of the taxation of political parties, statutory conditions precedent for 100% exemption under fiscal law, the rule of law, and the independence of quasi-judicial tribunals.

ITAT Rejects Congress Party’s Claim for Tax Exemption on ₹199 Crore Income for AY 2018–19

In a major setback to the Indian National Congress, the Income Tax Appellate Tribunal (ITAT), in a detailed order dated July 21, 2025, rejected the party’s claim for tax exemption on income of ₹199.15 crore for the assessment year 2018–19. The tribunal held that the Congress had failed to satisfy key statutory conditions prescribed under Section 13A of the Income-tax Act, which allows complete tax exemption to recognised political parties only upon strict procedural compliance. The delay in filing the income-tax return beyond the prescribed deadline, coupled with the receipt of cash donations exceeding the ₹2,000-per-donor limit, resulted in the entire income being rendered taxable.

Procedural Lapse— delay in filing return— Proves Costly

At the heart of the tribunal’s ruling was a fundamental procedural lapse—the Congress Party filed its income-tax return late. The due date for submission was 31 December 2018, but the party submitted its return only on 2 February 2019. Under the law, timely filing of returns is a non-negotiable prerequisite for claiming exemption under Section 13A. The tribunal concluded that this delay, by itself, rendered the party ineligible for the exemption, regardless of other facts on record.

Cash Donations in Violation of Limits

Further weakening its case, the party had received cash donations totalling ₹14.49 lakh, with many individual contributions exceeding the statutory limit of ₹2,000. Since 2017, the law mandates that political donations above ₹2,000 must be made via account-payee cheques or digital means. The tribunal held that this violation further disqualified the party from availing of the tax benefit.

No Room for Relaxation

The tribunal dismissed Congress's plea for a liberal interpretation of the exemption clause. It cited legal precedents that emphasise strict compliance in cases involving tax relief. Exemptions, being exceptions to the general rule of taxation, must be narrowly construed. The tribunal observed that once a statutory condition is breached, no discretionary relief can be granted.

Deduction for Expenses Also Denied

As an alternative plea, Congress requested that its expenditures—totalling ₹197.43 crore—be allowed as deductions even if the exemption was denied. This argument too was rejected. The tribunal reasoned that the party could not selectively claim deductions once it had lost the benefit of Section 13A. Granting such a request would effectively nullify the consequence of non-compliance and defeat the legislative intent.

National Herald Case and ED Investigation

The ITAT ruling adds to a growing list of legal and financial challenges facing the Congress, including the ongoing money laundering case in the National Herald matter. The Enforcement Directorate (ED) has now completed its investigation and has submitted a criminal complaint before the Special PMLA Court in New Delhi. The matter is currently under consideration, for the framing of charges. This ED action stems from a parallel private criminal complaint filed by Dr. Subramanian Swamy, which alleged misappropriation and criminal breach of trust in the takeover of Associated Journals Ltd. by Young Indian Pvt. Ltd.— ostensibly a not-for profit company controlled by senior Congress leaders, with overwhelming stake in the hands of the Gandhi family. That private complaint, still pending in a magisterial court, formed the predicate offense that enabled the ED to initiate its proceedings under the Prevention of Money Laundering Act.

Political and Financial Implications

This ruling comes at a time when the Congress Party is already facing mounting financial scrutiny. With other tax demands and penalties exceeding ₹500 crore in past years, the current ruling adds to its financial woes. The judgment is particularly significant as it precedes the run-up to the elections in Bihar in November this year, potentially impacting the party’s campaign planning and resource mobilisation.

A Broader Message to Political Parties

While the decision directly affects Congress, its implications resonate across the political spectrum. The ITAT’s firm stance on procedural compliance sends a strong message to all political parties: tax exemptions come with non-negotiable responsibilities. Any deviation—be it delayed filings or violations of donation norms—can lead to substantial liabilities.

Next Legal Steps

Congress still has the option to challenge the ruling before the Delhi High Court on questions of law. However, the tribunal’s detailed reasoning has narrowed the scope for successful appeal. Unless an appellate court intervenes, the Revenue Department can proceed with recovery of the dues along with applicable interest.

In essence, the Tribunal’s ruling reaffirms that political entities, while enjoying huge privileges under the tax code, must strictly adhere to the conditions laid down by law. Any lapse—no matter how minor—can carry a hefty price. The principle of proportionality does not, in the opinion of the ITAT, apply.