Should I-T babus or voters decide the fate of the Congress?

It can be nobody's case that I-T Department must not do its job. However, blindly following bureaucratic rules cannot be allowed to tamper with democratic processes on the eve of the general election

After the Congress party received an income tax (I-T) demand of Rs 1700 crore, its leader Rahul Gandhi promised that "when the government changes," the party would take exemplary action against those who have destroyed democracy. The big uncertainty is whether the Congress party will survive to deliver on this promise. 

If the I-T Department's demands of penalty plus interest are not met, the Congress's properties across India are likely to be attached. The party claims its bank accounts have already been emptied and effectively frozen. The new income tax demands will effectively have wound up the Congress' operations nationwide. 

Barely four weeks before the election, the Congress party, like Finance Minister Nirmala Sitaraman, will be bereft of the "kind of funds" required to contest elections. However, unlike her for the Congress, it will not be a voluntary cop-out. 

Political parties enjoy income tax exemptions under Section 13A of the IT Act. If a political party is registered under Section 29A of the Representation of Peoples Act, then Section 13A provides a 100 per cent exemption on its income from property, other sources, capital gains, and voluntary contributions, subject to conditions. 

These conditions are: donations in cash can only be less than Rs 2,000 each, and donations above that, by recordable banking instruments, donations above Rs. 20,000 must be recorded along with the donor's name and address in account books so that the assessing officer can deduce the party's income. All donations have to be reported to the Election Commission of India before the due date of filing I-T returns, and a chartered accountant should audit the accounts. 

Failing any of these conditions, a political party loses Section 13A exemptions, and its entire income becomes taxable like a resident individual.

In the case of the Congress, the first condition was violated in a curious way. During raids on several of its state leaders from 2017 onwards, large amounts of cash were recovered. For example, on August 5, 2017, in raids in 60 locations linked to Congress leader D K Shiv Kumar, income tax officials detected more than Rs 300 crore of "undisclosed income." Another set of raids in 52 locations linked to then Madhya Pradesh Chief Minister Kamalnath revealed large amounts of cash and evidence of hawala transactions.

What is curious is that most Congress leaders from whom undeclared cash was recovered claimed to the I-T authorities that the money belonged to the Congress party. 

Since these sums were not reflected in the party's accounts, the I-T authorities withdrew the Section 13A tax exemption from the Congress. The party was, therefore, assessed as a partnership firm. This meant confiscating unaccounted cash and imposition of an equal penalty. The amount kept rising because of interest on the penalty while the Congress appealed the assessment.

This is how the Congress party's income tax liabilities mounted. The full picture of its estimated I-T liability has yet to unfold—of the three likely I-T demands on the Congress, only two have been served. 

The first relates to the assessment year 1994-95, in which a demand of Rs 53 crore was made after 30 years. The I-T Department argues that they had alerted the party of its reassessed tax filed in 1997, but the party approached I-T appellate tribunals and the courts. The High Court's judgement came in 2016, favouring the I-T Department.

The second case relates to the assessment year 2018-19. The Congress delayed filing its I-T returns by 33 days. It accepted donations of Rs 14.49 lakh in cash and claimed exemption on a total income of Rs.199 crore. Because of the unaccounted cash component, the I-T Department determined that the party's income did not qualify for exemption under Section 13A and served a demand of Rs 105 crore in penalty and interest in 2021. To stave off full recovery, the party was asked to pay 20 per cent of the demand – Rs 21 crore – but it paid only Rs 78 lakh and went into appeal. It lost the appeal in both the income tax appellate tribunal and the High Court. The I-T Department then forcibly withdrew Rs 135 crore from the accounts of the Congress.

This is what led Rahul Gandhi to accuse the Income Tax Department of double standards. He said while the Congress was being penalised for' a violation of Rs 14 lakh', the income tax authorities were ignoring a similar 'Rs 42 crore violation' by the BJP, which should have entailed a penalty of Rs. 4,600 crore.

The third income tax case against the Congress concerns the reopening of assessment for the years 2014-15 to 2020-21. For all six years, the Congress party has filed writs in the High Court questioning the I-T re-assessment. On March 26, the Delhi High Court dismissed the writ relating to the assessment years 2017-18 to 2020-21. This led the I-T Department to demand Rs.1700 crore in penalty and interest on the party.

The second instalment of the demand is likely to come for the assessment years 2014-15 to 2016-17 within this week. If it is about half or less of the demand for the four years (2017-18 to 2020-21), then the Congress party may be asked to pay nearly Rs 2500 crore as I-T dues. This will impose financial bankruptcy on the party, pushing it virtually out of the electoral contest. 

Strangely, all this is happening under a ruling dispensation that claims that winning the upcoming election will be a breeze. 

It can be nobody's case that the I-T Department must not do its job. However, at the same time, blindly following bureaucratic rules cannot be allowed to tamper with democratic processes in such a destructive manner on the eve of the general election. Only the voters of India should decide the fate of a political party in the hustings. No one, not even the I-T Department, should be allowed to skew the electoral contest.