2024 (3) TMI 821 - AT - Income Tax

Stay of recovery proceedings initiated under Section 226(3) - Political Party claiming exemption u/s 13A as appliable to Trusts, denied - Special provision relating to incomes of political parties - Denial of the exemption claimed by the assessee u/s 13A - reasons for the denial are violation of the third Proviso to Section 13A and violation of clause (d) of the first Proviso to Section 13A - HELD THAT - Section 13A of the Act is a special provision relating to incomes of Political Parties. It prescribes that any income of a Political Party under the head income from house property , income from other sources or capital gains or income by way of voluntary contributions received from any person shall not be included in the total income of such Political Party if it fulfils the conditions prescribed thereof. In the instant case, the pre-requisites for the assessee-Political Party to exclude its voluntary contributions received and other incomes from the total income is subject to the fulfillment of the conditions prescribed therein. The scope and nature of the conditions prescribed in Section 13A of the Act has been a subject-matter of consideration by the Hon'ble Delhi High Court in assessee s own case 2016 (3) TMI 879 - DELHI HIGH COURT relevant discussion in the judgment of the Hon ble High Court compliance with the conditions prescribed in Section 13A of the Act is mandatory for a Political Party in order to be eligible for the claim of exemption under Section 13A of the Act.Assessee s case for exemption u/s 13A has to be examined in the aforesaid light. The first case by the Assessing Officer is qua the third Proviso to Section 13A - The compliance with the third Proviso can be understood as being two-fold. First, that a Political Party is required to furnish its return of income in accordance with the provisions of sub-section (4B) of Section 139; and, second that such return is to be furnished on or before the due date under that Section . So far as the first essential is concerned, the same has been complied with inasmuch as there is no dispute that assessee has filed its return of income; in order to examine the second essential of the Proviso, one has to decipher the meaning of due date for furnishing of return as envisaged in the third Proviso to Section 13A of the Act. For this purpose, we may go to sub-section (1) of Section 139, which requires an assessee to furnish its return of income on or before the due date . Explanation 2 thereof enumerates the due date applicable to the different category of assessees, and, insofar as the due date applicable in the instant case is concerned, there is no dispute between the parties that the same is 31st December, 2018 (since extended from 30th September, 2018). Ostensibly, the return of income has been filed on 2nd February, 2019, which is beyond the due date. Consequently, there is an apparent non-compliance with the requirements of the third Proviso to Section 13A of the Act. The third Proviso, as reproduced by us in the earlier part of this order, was inserted in Section 13A by the Finance Act, 2017 with effect from 1st April, 2018. As per the Memorandum explaining the provisions introduced in the Parliament, it was noted that Political Parties were required to file their return of income in terms of Section 139(4B) of the Act; So, however, the filing of the return was not a condition precedent for availing exemption under Section 13A of the Act. The Proviso was introduced to make it mandatory for a Political Party seeking exemption under Section 13A of the Act to furnish its return of income for the relevant year on or before the due date under section 139. As Senior Counsel submitted that since Section 139(4B) of the Act provides that all the provisions of this Act shall apply to a return filed by a political party as if it were a return furnished under subsection (1) of Section 139 , therefore, it would encompass sub-section (4) of Section 139 of the Act also. In our view, the said argument is quite misplaced as it would negate the purpose for which the third Proviso has been inserted by the Finance Act, 2017. Moreover, the third Proviso contains the expression the due date under section 139 and a plain reading of the provisions shows that the due date for the purpose of Section 139 is defined in terms of Explanation 2 below Section 139(1) of the Act and that such due date is not controlled by the provisions of sub-section (4) of Section 139, which merely permits filing of belated returns. As per the CBDT, the trusts who have filed return under Section 139(4) of the Act need not be refused the exemption for the reason that the return of income filed was not within the due date of filing of the return. It has been canvassed by the learned Senior Counsel that the two provisions being pari materia, similar reasoning should govern the understanding of the condition prescribed in the third Proviso to Section 13A of the Act with regard to the due date of furnishing of the return. In our view, the plea of the assessee to seek treatment on par with Trusts, is misplaced having regard to the pronouncement of Hon'ble Delhi High Court in assessee s own case. It is incongruent for a Political Party to canvass that inspite of accepting Donations in cash exceeding Rupees two thousand each, clause (d) is not violated merely because it has maintained the details as per clause (b) of the first Proviso. Each of the conditions laid down in clauses (a), (b), (c) and (d) of the first Proviso are to be mandatorily complied with in order to claim exemption under Section 13A of the Act, as per the ratio of the judgment of the Hon'ble Delhi High Court in the case of the assessee (supra). In the present case, the detail of Rs. 14,49,000/- clearly show that each contribution is in cash in excess of Rs. 2,000/-, thereby reflecting clear violation of clause (d) of the first Proviso. At this point, we are conscious of the statement made by the learned Senior Counsel at Bar that out of the sum of Rs. 14,49,000/-, a sum of Rs. 3,00,000/- has been received by transfer through RTGS. However, even after considering the same, violation of clause (d) to the first Proviso is palpable qua the balance of the amount. As component of Donations received in cash in excess of Rs. 2,000/- each was merely 0.1% of the total contribution received and, therefore, the same should not invite wholesale denial of exemption under Section 13A - In our view, the said plea is manifestly contrary to the understanding placed by the Hon ble High Court on the provisions of Section 13A of the Act. In fact, the following discussion by the Hon ble High Court does not leave us in any doubt that once the mandatory requirements contained in Section 13A of the Act is violated, there is no discretion with the income tax authorities to give any relaxation in allowing the exemption. Therefore, the Revenue is justified in relying on the findings of the Assessing Officer to the effect that the assessee has complied with the provisions of clause (b) but still violated the provisions of clause (d) of first proviso to section 13A of the Act which clearly prohibit receipt of donation in excess of Rs. 2,000/- in cash . On the basis of the aforesaid discussion, and having regard to the legal position and the material on record, it is reasonable to conclude that the income tax authorities have not made any error in denying the exemption claimed by the assessee under Section 13A of the Act due to violation of clause (d) of the first Proviso as well as third Proviso to Section 13A of the Act. Consequently, in our view, the Applicant has been unable to make out a strong prima facie case against the interpretation of Section 13A of the Act as adopted by the Revenue to deny the exemption, so far it is relevant for the purposes of examining the merits of the present Application. Expenditure of a political party - Once the income by way of voluntary contributions is not excludible from total income on account of denial of exemption under Section 13A of the Act, the same is liable to be treated as income from other sources . Thereafter, the question of allowability of expenditure incurred by a Political Party for attaining its aims and objects was declined by the Hon'ble Delhi High Court. Recovery proceedings - The chronology of events, which have been canvassed before us starting from the passing of the assessment order on 6th July, 2021 and ulminating with the issuance of notice under section 226(3) of the Act on 13th February, 2024, in our view, does not justify an inference that the recovery proceedings have been done in an undue haste. We do not find that the recovery notice under Section 226(3) of the Act issued by the Assessing Officer on 13th February, 2024 is lacking in bona fides, so as to require us to intervene. It was an accepted practice at the level of the Tribunal that taxpayer is entitled to a stay on the recovery proceedings on payment of 20% of the demand during the pendency of the Appeal before the Tribunal. The aforesaid argument, in our view, is too general and does not merit acceptance. Moreover, as we have already discussed in the earlier paragraphs, each Application for stay has to be decided on its own facts and circumstances, and there can be no generalized approach.

Summary

Issues Involved:
1. Denial of exemption under Section 13A of the Income-tax Act, 1961.
2. Alleged malice in the timing of recovery proceedings.
3. Compliance with the third Proviso to Section 13A.
4. Violation of clause (d) of the first Proviso to Section 13A.
5. Computation of income without allowing expenditure.

Summary:

Denial of Exemption under Section 13A:
The Applicant, a Political Party, was assessed at an income of Rs. 1,99,15,26,560/- for the Assessment year 2018-19, resulting in a demand of Rs. 105,17,29,635/-. The Assessing Officer denied the exemption under Section 13A of the Income-tax Act, 1961, due to two reasons: the return of income was filed beyond the prescribed time limit, and the party received cash donations exceeding Rs. 2,000/- each.

Alleged Malice in Recovery Proceedings:
The Applicant argued that the initiation of recovery proceedings under Section 226(3) of the Act was timed to hinder their participation in the forthcoming Parliamentary Elections. The Revenue countered, asserting that the actions were in accordance with the law and the Applicant had not approached the Court with clean hands.

Compliance with the Third Proviso to Section 13A:
The Applicant contended that the return filed on 2nd February, 2019, should be considered valid under Section 139(4) of the Act. However, the Tribunal noted that the third Proviso to Section 13A mandates that the return must be filed on or before the due date under Section 139(1), which was 31st December, 2018. Since the return was filed beyond this date, there was non-compliance with the third Proviso.

Violation of Clause (d) of the First Proviso to Section 13A:
The Applicant received Rs. 14,49,000/- in cash from various persons, each exceeding Rs. 2,000/-, which was treated as a violation of clause (d) of the first Proviso to Section 13A. The Applicant argued that these were voluntary contributions and not donations, but the Tribunal found no distinction in the account books between the two. Thus, the receipt of cash donations in excess of Rs. 2,000/- each was a clear violation.

Computation of Income Without Allowing Expenditure:
The Applicant argued that the computation of income was unjust as it did not allow for the expenditure incurred for attaining the aims and objects of the Political Party. The Tribunal referred to the Hon'ble Delhi High Court's decision, which stated that no deduction for expenditure is allowable if the basic requirements of Section 13A are not fulfilled.

Conclusion:
The Tribunal concluded that the Applicant did not make out a strong prima facie case against the Revenue's interpretation of Section 13A. The Stay Application was dismissed, and the Tribunal found no merit in the Applicant's arguments regarding hardship due to the timing of recovery proceedings. The observations made were for the purpose of deciding the Stay Application and would not affect the merits of the pending Appeal.