Circa 1996, when the Tatas first floated their electoral trust for funding political parties, a model that was adapted from Germany, it was seen as an idea that was way ahead of its time. Around 18 years down the line, and as the country gears up for the 16th Lok Sabha elections, corporate India is making a beeline for setting up electoral trusts, with the Registrar of Companies (RoC) witnessing as many as 14 such entities till date. As per data from the ministry of corporate affairs (MCA), six of them were registered in just over two months?January and February this year.
Tatas apart, behemoths such as Reliance, the Mahindras and the Birlas are some of the players contributing funds to various political parties. Some of the entities whose registrations have been approved with various RoCs include Janhit Electoral Trust, Satya Electoral Trust, Samaj Electoral Trust Association and People?s Electoral Trust. While the Janhit Electoral Trust is related to the Anil Agarwal-led Vedanta group, the Samaj Electoral Trust Association was set up by the KK Birla group. In November 2013, 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 last year.
Some of the other registered trusts include Progressive Electoral Trust (Tata group), General Electoral Trust (Aditya Birla Group), Paribartan Electoral Trust (MP Birla Group), Reformative Electoral Trust of India, Mahindra Electoral Trust Company, Gauri Welfare Association ?Electoral Trust? and Pratinidhi Electoral Trust.
?In 1996, Tata Sons had set up an ?electoral trust? under the provisions of the Bombay Public Trusts Act, 1950. The trust was set up to create a transparent, non-discriminatory and non-discretionary vehicle, which would enable making contributions to political parties in a well-regulated, efficient and organised manner,? said a Tata group spokesperson, adding: ?The group set up a new trust called the Progressive Electoral Trust (PET) in view of a notification issued by the central government in January 2013.?
As per the Electoral Trusts Scheme issued by the finance ministry earlier in 2013, India Inc is allowed to register a Section 25 company under the Companies Act, 1956 (or Section 8 under the Companies Act, 2013) with a name that includes the phrase ?electoral trust? to apply for tax rebate, provided this entity?s sole objective is the distribution of all contributions received by it to any political party registered under Section 29A of the Representation of People Act, 1951.
Flow of funds
The registration spree comes close on the heels of the MCA clarifying that India Inc will not have to disclose the names of the political parties to which it makes financial contributions for election-related expenses, provided such funds are routed through an ?electoral trust company?. Also, companies will get tax rebate on these contributions if their respective electoral trust companies got registered with the RoC before November 30, 2013 . In September last year, the Central Board of Direct Taxes (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.
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.?
As per Lalit Kumar, partner in law firm J Sagar Associates, Section 293A of the Companies Act, 1956 (or Section 182 under the Companies Act, 2013) deals with conditions and restrictions on making political contributions by Indian companies. ?MCA has clarified that electoral trust companies are exempted from Section 182 since their sole purpose is onward distribution of funds,? he added.
Kumar of JSA said 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.
Election funding for political parties has always been a topic of discussion and there have been demands from various quarters to make the process more transparent. According to a senior MCA 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 added.
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.
?The disbursement of distribution funds to political parties will be done in two phases. In the first phase, 50% of the funds will be disbursed before the elections to political parties on the basis of the seats held by them in Parliament. In the second phase, the balance 50% of the funds will be disbursed, post elections, to political parties on the basis of the number of seats secured by them in the election,? said the Tata group spokesperson.
Money matters
Electoral trusts play an important role in the funding of national and regional political parties, which use funds received through this avenue for their election campaigns. As per a recent report by the Association for Democratic Reforms (ADR), an Indian civil society group vying for transparency in Indian politics, various sectors of business houses in the eight-year period between FY 2004-05 and 2011-12 donated a total of R378.89 crore, constituting 87% of the total contribution from known sources of political parties. The BJP got the largest chunk: R192.47 crore, followed by the Congress, with R172.25 crore.
According to ADR, political parties are required to submit details of donors who have made donations above R20,000 in a financial year to the Election Commission of India every year. Parties provide details like the name, address, PAN, mode of payment and amount contributed by each donor who has made a donation above R20,000.
Talking about the criteria for selection of political parties, the Tata group spokesperson said: ?Political parties would qualify for funding only if they have at least 3% of the total number of seats in Lok Sabha. In case of state elections, parties would qualify only if they have at least 10% of the total number of seats in the legislative assembly. Such parties should also be registered under the Representation of the People Act, 1951. Individual/independent candidates are not eligible.?
As per the ADR report, up to 40.80% of total donations to the Congress were from trusts and groups of companies followed by the manufacturing sector, which contributed 21.37% of the total donations to the party. Similarly, BJP received 30.23% of its total donations from the manufacturing sector followed by 28.92% from trusts and groups of companies.
Further, General Electoral Trust was the topmost donor to both the Congress and BJP, donating R3,641 lakh and R2,657 lakh, respectively, between FY 2004-05 and 2011-12. The Aditya Birla Group trust also made donations to regional political parties to the tune of R200 lakh to Rashtriya Janata Dal, R150 lakh to Samajwadi Party and R200 lakh to Shiv Sena during the same period.
Talking about the entity, Julio Rebeiro, chairman, General Electoral Trust, and former Mumbai police commissioner, said: ?Kumar Mangalam Birla (chairman of the Aditya Birla Group) did not like the age-old practice of giving donations to political parties in cash. So about 10 years ago, it was decided that a trust be formed and all donations to political parties be done through cheques and in a transparent manner. There is no income tax exemptions claimed on these donations and they are treated as expenditures by the group companies.?
