Jayanta Bandyopadhyay 21 August 2024

Group company and related party

We are an unlisted Public Limited Company (Family run business), where Directors are also Trustee of IT recognised Exempt Gratuity Trust Fund. Monthly contributions go to LIC and on retirement, we claim money and disburse thru company set ups at Assam Gardens as well as directly to employees. Should we declare Gratuity Trust Fund as related party? If so, what is the underlying rules/section?

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Rama chary Rachakonda (Secunderabad/Telangana state Highcourt practice watsapp no.9989324294 ) 21 August 2024

Yes, you should declare the Gratuity Trust Fund as a related party. Here's why: 1. *Definition of Related Party*: As per Section 2(76) of the Companies Act, 2013, a related party includes a trust or entity in which a director has a significant influence or control. 2. *Director's role as Trustee*: Since the directors are also trustees of the Gratuity Trust Fund, they have a significant influence/control over the trust. 3. *Company's contributions to the trust*: The company's monthly contributions to the trust create a financial relationship between the company and the trust. 4. *Disbursement of funds*: The company's involvement in disbursing funds to employees through the trust further establishes a related-party relationship. Underlying rules/sections: 1. *Companies Act, 2013*: Section 2(76), Section 188 (Related Party Transactions) 2. *Accounting Standards*: AS-18 (Related Party Disclosures) To ensure transparency and compliance, you should: 1. *Disclose the relationship*: In the company's financial statements and reports, clearly disclose the relationship between the company and the Gratuity Trust Fund. 2. *Obtain approval*: Get necessary approvals from the Board of Directors and/or shareholders for the related-party transactions. 3. *Maintain records*: Keep detailed records of all transactions with the trust, including contributions, disbursements,

Jayanta Bandyopadhyay 21 August 2024

Respected Sir,

Many thanks

Since Trust Funds (recognised under Rule 4(1) of Part C of the Fourth Schedule of The Income Tax Act, 1961 (ITA)) are governed by Statutes and Trustees do not have any independent say- contribution directly goes to LIC, who manages funds and disburses amount only after submission of retirement related papers, Directors cum Trustees do not have much say in the administration of Trust Fund. They simply act as intermediary in between during transit period. Even LIC disburses amount to a dedicated account of Trust Fund and not Company's account. Only contribution amount goes from company's account.

Still-if Directors appoint other Shareholders ( after all , all belong to one nuclear family) as Trustees, could we escape " Related party tag".

Kindly guide.