India Inc will not have to disclose the names of political parties to which it makes financial contributions for election-related expenses, provided such funds are routed through an ?electoral trust company?, the corporate affairs ministry has clarified. Also, companies will get tax rebate on these contributions if their respective electoral trust companies got registered with the Registrar of Companies (RoC) before November 30.
A senior official said: ?The central government has already directed RoCs that the companies incorporated with the name containing the expression ?electoral trust? shall be exempted from the provisions of section 182 of the Companies Act, 2013.?
According to Lalit Kumar, partner in law firm J Sagar Associates, Section 293A of the Companies Act, 1956 (or clause 182 under Companies Act, 2013) deals with conditions and restrictions on making political contributions by Indian companies. ?MCA has clarified now that electoral trust companies are exempted from Section 182 since their sole purpose is onward distribution of funds.?
Kumar of JSA said that MCA has also clarified that if the contribution by a company has been made to an electoral trust (and not to a political party), it will be sufficient for the company to give the name of the electoral trust and not of the party for the purpose of balance sheet-related transactions.
As a result, corporate India has made a beeline for setting up electoral trust companies with RoC. Sources in RoC said over 30 such applications have been received before November 30 from various corporates and are under consideration.
Some of the entities whose registration has been approved with various RoCs includes Janhit Electoral Trust, Satya Electoral Trust, Samaj Electoral Trust and Pratinidhi Electoral Trust, among others. While the Janhit Electoral Trust is related to the Vedanta group, it was registered in August itself. In November, the Maharashtra RoC approved the People?s Electoral Trust belonging to the Reliance group while the Satya Electoral Trust of Bharti group got its approval from Delhi?s RoC in October.
According to a senior official, such exemptions will encourage transparency in the funding of political parties by companies. ?India Inc can also claim tax rebate on these contributions under Section 13B of the Income Tax Act, 1961,? the official said.
Section 13B provides that any voluntary contributions received by an electoral trust company will not be included in the total income of an electoral trust if such trust distributes 95% of the aggregate donations (during a financial year) to any registered political party. But all such contributions will need to be paid through cheque and contributions made by foreign entities are not allowed.
In September the CBDT had allowed all electoral trust entities to file their applications for tax rebate up to November 30 in respect of assessment year 2014-15.
As per the Electoral Trusts Scheme issued by the finance ministry earlier this year, India Inc is allowed to register a Section 25 company under the Companies Act, 1956 (or Section 8 under the Companies Act, 2013) having name including the phrase ?electoral trust? to apply for tax rebate provided this entity?s sole object is the distribution of all contributions received by it to any political party registered under Section 29A of the Representation of People Act, 1951.
