ELECTORAL TRUST SCHEME, 2013

[Mr. M. GOVINDARAJAN]

Section 2(22AAA) of the Income Tax Act, 1961 defines the terms ‘electoral trust’ as a trust so approved by the Board in accordance with the scheme made in this regard by the Central Government. By virtue of this section the Central Government made the scheme known as ‘Electoral Trust Scheme, 2013’ for the approval of electoral trust.

The object of the scheme is to lay down a procedure for grant of approval to an electoral trust which will receive voluntary contributions and distribute the same to the political parties.

WHO MAY BE ELECTORAL TRUST

A company registered for the purposes of section 25 of the Companies Act, 1956 (1 of 1956) satisfying all of the following conditions shall be eligible to make an application for approval as an electoral trust, namely:-

• The company shall be registered on or after 01.04.2012;
• The name of the company shall include the phrase ‘electoral trust’;
• The object of the electoral trust shall not be to earn any profit or pass any direct or indirect benefit to its members or contributors, or to any person referred ton in Section 13(3) of the Act or any person referred to in sub rule (10) of rule 17CA of the rules;
• The sole object of the electoral trust is to distribute the contributions received by it to the political party registered under Section 29A of Representation of People Act, 1951; and
• The electoral trust shall have a permanent account number.

APPROVAL PROCEDURE

         The procedure for approval of the electoral trust is as follows:

• The application shall be made in duplicate in Form A, on or before 31^st day of July of the previous year relevant to the assessment year for which the approval is sought. The following documents shall be enclosed along with Form A:
  
  • An attested copy of the certificate evidencing the registration of the company for the purposes of Section 25 of the Companies Act, 1956;
  • A certified copy of the memorandum and articles of association;
  • Complete name, permanent account number and address of the electoral trust and its members (including members of its Executive Committee, Governing Committee or Board of Directors);
  • Initial share capital of the company and its source;
  • Details of beneficiaries, if available;
  • An undertaking in the form of an affidavit stating that the receipts shall be distributed only to the political parties registered under Section 29A of the Representation of the People Act, 1951; and
  • Copy of accounts of the applicant for the last one, two or three years, as may be applicable.
  • The application shall be made to the Commissioner of Income Tax or the Director of Income Tax, as the case may be, having jurisdiction over the applicant;
  • The applicant shall also send a copy of the application to the Member (Income Tax), Central Board of Direct Taxes accompanied by the acknowledgement receipt evidencing submission of application for in duplicate to the respective authority;
  • If there is any defect in Form A, filed for the approval of electoral trust, or any document required to be attached is not attached, the respective authority shall intimate the defect to the applicant with the directions to rectify the said defects within thirty days from the date of receipt of the application form in his office;
  • The applicant shall remove the defects pointed out within a period of 15 days from the date of such intimation or with such other period which, on an application made in this behalf, may be extended. The total period for removal of defect shall not exceed 30 days;
  • If the applicant fails to remove the defect within the period allowed, the respective authority shall send his recommendation to the Member (Income Tax), Central Board of Direct Taxes for treating the application as invalid;
  • The Central Board of Direct Taxes, on receipt of the recommendation from the respective authority, if satisfied may pass an order treating the application as invalid;
  • If the application form is complete in all respects, the respective authority may make such enquiry as he may consider necessary regarding the genuineness of the electoral trust and send a report to the Member (Income Tax), Central Board of Direct Taxes for grant of approval or rejection of the application;
  • The Board may call for such documents or information from the applicant, any authority or other person as it may consider necessary and get any further inquiry conducted in this regard;
  • The Board after considering all the information in its possession and the result of enquiry conducted, if any, grant approval to the electoral trust or reject the application;
  • The approval may subject to conditions, if any, imposed by the Board, subject to which the approval shall be valid;
  • Before treating the application as invalid or rejecting the application or withdrawing the approval shall be passed by Board after giving the applicant an opportunity of being heard and recording the reasons for the same in writing;
  • The order of approval or rejection shall be passed by the Board within six months from the end of the month in which the application was received from the applicant;
  • The period of limitation of six months shall exclude the period beginning from the date of intimation of the defect by the respective authority to the date of the applicant removes such defect;
  • A copy of the order invalidating or rejecting the application or withdrawing the approval shall be sent to the applicant, the Assessing Officer and the Commissioner of Income Tax or the Director of Income Tax, as the case may be;
  • The approval shall be valid for the assessment year relevant to the financial year in which such application has been made and for a further period, not exceeding three assessment years, as may be specified in such approval;
  • The electoral trust has made adequate arrangement for recording the receipts from the contributors in accordance with Rule 17CA;
  • Any change in the shareholders, subsequent to the approval granted under the Scheme, shall be intimated to the Board within thirty days of the change.

FUNCTIONS OF ELECTORAL TRUST

Notification No. 8/2013, dated 31.01.2013 made an amendment to Income Tax Rules by inserting a new Rule 17CA which deals with the functions of electoral trust which are as discussed below:

(1)  The electoral trust may receive voluntary contributions from -

(a)  An individual who is a citizen of India;

(b)  A company which is registered in India; and

(c)  A firm or Hindu undivided family or an Association of persons or a body of individuals, resident in India.

(2)  A receipt indicating the following shall be issued by the trust immediately on receipt of any contribution indicating the following:-

(a)  Name and address of the contributor;

(b)  Permanent account number of the contributor or passport number in the case of a citizen who is not a resident;

(c)  Amount and mode of contribution including name and branch of the Bank and date of receipt of such contribution;

(d)  Name of the electoral trust;

(e)  Permanent account number of the electoral trust;

(f)  Date and number of approval by the prescribed authority; and

(g)  Name and designation of the person issuing the receipt.

(3)  The electoral trust shall not accept contributions-

(a)  From an individual who is not a citizen of India or from any foreign entity whether incorporated or not; and

(b)  From any other electoral trust which has been registered as a company under section 25 of the Companies Act, 1956 and approved as an electoral trust under the Electoral Trusts Scheme, 2013.

(4)  The electoral trust shall accept contributions only by way of an account payee cheque drawn on a bank or account payee bank draft or by electronic transfer to its bank account and shall not accept any contribution in cash.

(5)  The electoral trust shall not accept any contribution without the permanent account number of the contributor, who is a resident and the passport number in the case of a citizen of India, who is not a resident.

(6)  A political party registered under section 29A of the Representation of the People Act, 1951 shall be an eligible political party and an electoral trust shall distribute funds only to the eligible political parties.

(7)  (i) The electoral trust may, for the purposes of managing its affairs, spend up to five per cent, of the total contributions received in a year subject to an aggregate limit of rupees five hundred thousand in the first year of incorporation and rupees three hundred thousand in subsequent years;

(ii) the total contributions received in any financial year along with the surplus from any earlier financial year, if any, as reduced by the amount spent on managing its affairs, shall be the distributable contributions for the financial year;

(iii) an electoral trust shall be required to distribute the distributable contributions received in a financial year, referred to in item (ii), to the eligible political parties before the 31st day of March of the said financial year, subject to the condition that at least ninety five per cent, of the total contributions received during the financial year along with the surplus brought forward from earlier financial year, if any, are distributed.

(8)  The trust shall obtain a receipt from the eligible political party indicating the name of the political party, its permanent account number, registration number, amount of fund received from the trust, date of the receipt and name and designation of person signing such receipt.

(9)  The electoral trust shall not utilize any contributions for the direct or indirect benefit of the members or contributors, or for any of the following persons, namely:-

(a)  The members (including members of its Executive Committee, Governing Committee or Board of Directors) of the electoral trust;

(b)  Any relative of such Members;

(c)  Where such member or contributor is a Hindu undivided family, a member of that Hindu undivided family;

(d)  Any person who has made a contribution to the trust;

(e)  Any person referred in sub-section (3) of section 13 of the Act; and

(f)  Any concern in which any of the persons referred to in clauses (a), (b), (c), (d) and (e) has a substantial interest.

(10)   (i) An electoral trust shall keep and maintain such books of account and other documents in respect of its receipts, distributions and expenditure as may enable the computation of its total income in accordance with the provisions of the Act;

(ii) The electoral trust shall also maintain a list of persons from whom contributions have been received and to whom the same have been distributed, containing the name, address and permanent account number of each such person along with the details of the amount and mode of its payment including the name and branch of the bank.

(11)  Every electoral trust shall get its accounts audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and furnish the audit report in Form No. 10BC along with particulars forming part of its Annexure, to the Commissioner of Income-tax or the Director of Income-tax, as the case may be, having jurisdiction over the electoral trust, on or before the due date specified for furnishing the return of income by a company under section 139.

(12)  An electoral trust shall maintain a regular record of proceedings of all meetings and decisions taken therein.

(13)  Every electoral trust shall furnish a certified copy of list of contributors and a list of political parties, to whom sums were distributed in the manner prescribed in sub-rule (8), to the Commissioner of Income-tax or the Director of Income-tax, as the case may be, every year along with the audit report as stipulated under sub- rule (12).

CONTRIBUTIONS NOT TO BE INCLUDED IN TOTAL INCOME

Section 13B of the Income Tax Act, 1961 provides that any voluntary contributions received by an electoral trust shall not be included in the total income of the previous year of such electoral trust, if—

(a) Such electoral trust distributes to any political party, registered under section 29A of the Representation of the People Act, 1951, during the said previous year, ninety-five per cent. of the aggregate donations received by it during the said previous year along with the surplus, if any, brought forward from any earlier previous year; and

(b) Such electoral trust functions in accordance with the rules made by the Central Government.