Shell Companies Current Affairs - 2019

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Election Commission of India on Electoral Bonds

In an affidavit filed before the Supreme Court, the Election Commission of India has made the following observations:

  • Electoral bonds, contrary to government claims, wreck transparency in political funding.
  • Electoral bonds coupled with the removal of the cap on foreign funding invites foreign corporate powers to impact Indian politics.
  • Electoral bonds would cause a “serious impact” on transparency in the funding of political parties.

The Election Commission of India further criticises amendments made to various key statutes through the two consecutive Finance Acts of 2016 and 2017.

What were the amendments made?

The Finance Act of 2017 amends various laws, including the Representation of the People Act of 1951, the Income Tax Act and the Companies Act. The Finance Act of 2016 makes changes in the Foreign Contribution (Regulation) Act of 2010.

The amendment to Representation of the People Act allows political parties to skip recording donations received by them through electoral bonds in their contribution reports to the ECI.

The amendments introduced to the Income Tax Act allow anonymous donations. Donors to political parties are not required to provide their names, address or PAN if they have contributed less than Rs. 20,000. The Election Commission notes that many political parties have been reporting a major portion of the donations received as being less than the prescribed limit of Rs. 20,000.

The Finance Act of 2016 allowed donations to be received from foreign companies having a majority stake in Indian companies.

Observations by Election Commission

The Election Commission of India called these measures as a retrograde step and the ECI has no way to ascertain whether the donations were received illegally by the political party from government companies or foreign sources.

The Election commission also expressed concerns that these amendments would pump in black money for political funding through shell companies and allow unchecked foreign funding of political parties in India which could lead to Indian politics being influenced by foreign companies.

Govt relaxes norms for Start-ups

The government has relaxed the norms under the definition of Start-Ups. The changes brought in are:

  • The investment limit of angel investors to seek exemption under the Income Tax Act, 1961 has been increased to Rs 25 crore from 10 Crore.
  • An entity shall be considered a start-up up to 10 years from its date of incorporation/registration instead of the previous period of 7 years.
  • An entity would be considered as a startup up to a turnover of Rs 100 crore as against the earlier limit of Rs 25 crore.

Exemptions Proposed

  • A start-up cannot invest in a building or land unless it is for its business or used by it for purposes of renting or held by it as stock-in-trade.
  • A start-up cannot offer loans or advances, other than those where lending money is part of its business.
  • A start-up cannot make any capital contribution to any other entity or invest in shares, car, any vehicle or mode of transport that costs more than Rs 10 lakh.

These exemptions were brought in to allay the fears of CBDT that start-ups could be used for money laundering or receive investment from shell companies for tax evasion.

The relaxations are in line with the government’s vision to promote the culture of entrepreneurship and ease of doing business in India.