Mint Explainer: Loss-making firms' political donations in focus post SC ruling

livemint.com:

Mint delves into the nuances of the Supreme Court's ruling, its impact on the political contributions of loss-making companies, and the broader ramifications on corporate-political party dynamics. While there is no clear legal definition, the determination of a loss-making company can be inferred from Schedule III of the Companies Act, 2013.

Typically, a company reporting a loss in its profit and loss statement for any reporting period falls under the category of a "loss-making company." This indicates that its operating expenses exceed its revenue. According to Srisatya Mohanty, principal associate at law firm Aquilaw, "An easier way to identify a loss-making company is to check if the earnings before interest, taxes, depreciation and amortization (Ebitda) is negative for the given financial year." Contrary to speculation, the Supreme Court has not outrightly banned political contributions by loss-making companies.

Instead, it has deemed specific amendments to Section 182 of the Companies Act, 2013, which removed the distinction between a profit- and loss-making company, as unconstitutional. The ruling said about the distinction between between loss- and profit-making companies for the purpose of political contributions, "The underlying principle of this distinction is that it is more plausible that loss-making companies will contribute to political parties with a quid pro quo, and not for the purpose of income tax benefits." Earlier, companies could only donate a certain percentage of their profits to political parties before the amendments, but that was done away with by way of the amendments.