Case Law Details
Ericsson India Global Services Private Ltd. Vs DCIT (ITAT Delhi)
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2015-16. The principal issues involved deduction under Section 80G in respect of Corporate Social Responsibility (CSR) donations, applicability of a lower Dividend Distribution Tax (DDT) rate under a Double Taxation Avoidance Agreement (DTAA), and deduction of Education Cess and Secondary & Higher Education Cess.
The assessee, engaged in providing services relating to operation and support of networks and development and delivery of software-based solutions for the telecommunication industry, had incurred expenditure of ₹3.4 crore towards CSR activities. While computing taxable income, the assessee disallowed the CSR expenditure in view of Section 37(1) of the Income-tax Act. However, it claimed deduction under Section 80G on the basis that the institutions receiving the donations were eligible institutions registered under Section 80G. The assessee contended that it was entitled to deduction of 50% of the amount donated as provided under Section 80G.
The Assessing Officer rejected the claim. The first appellate authority also upheld the disallowance, observing that CSR expenditure is incurred mandatorily under the Companies Act and therefore lacks the voluntary character normally associated with donations. According to the appellate authority, deduction under Section 80G is available only in respect of voluntary donations and not mandatory CSR expenditure.
Before the Tribunal, the assessee argued that the donee institutions were registered under Section 80G and that there was no provision in Section 80G prohibiting deduction merely because the payment formed part of CSR obligations. Reliance was placed on judicial precedents supporting the proposition that CSR-related contributions can qualify for deduction under Section 80G if the statutory conditions are satisfied.
The Tribunal observed that Explanation 2 to Section 37(1), inserted by the Finance Act, 2014 with effect from 01.04.2015, specifically prohibits deduction of CSR expenditure as business expenditure. However, no corresponding restriction was introduced in Section 80G. It held that the primary requirement under Section 80G is that the recipient institution must be approved under that provision. Once that condition is fulfilled, the donor becomes eligible for deduction subject to compliance with the statutory requirements. The Tribunal relied on earlier decisions holding that there is no restriction in the Act preventing a donation made as part of CSR obligations from being considered for deduction under Section 80G. Accordingly, it directed the Assessing Officer to allow the deduction under Section 80G after verifying that the recipient institutions were registered under Section 80G and that all other conditions were satisfied. The ground was allowed for statistical purposes.
The assessee also challenged the denial of a lower rate of Dividend Distribution Tax under the applicable DTAA instead of the rate prescribed under Section 115-O of the Act. The Tribunal noted that the issue was covered against the assessee by the Special Bench decision in DCIT v. Total Oil India (P.) Ltd. Respectfully following that decision, the Tribunal rejected the claim. The related consequential ground was also dismissed.
Another issue concerned deduction of Education Cess and Secondary & Higher Education Cess levied on income tax. The Tribunal held that, in view of the amendment to Section 40(a)(ii) by the Finance Act, 2022 with retrospective effect from 01.04.2005, Education Cess and Secondary & Higher Education Cess partake the character of income tax and are therefore not allowable as deductions. Reliance was placed on the Supreme Court decision in JCIT v. Chambal Fertilisers and Chemicals Ltd. Accordingly, the claim was rejected.
The ground relating to levy of interest under Sections 234A, 234B and 234C was treated as consequential and did not require separate adjudication. As a result, the appeal was partly allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT DELHI
The captioned appeal has been filed by the assessee against the order of Learned Commissioner of Income-tax (Appeals)-44, Delhi, pertaining to Assessment Year 2015-16.
2. At the outset, learned Counsel appearing for the assessee submitted that Ground No.1, being a general ground, does not require adjudication. He further submitted that Ground No.6 has become redundant as the Assessing Officer, in the meanwhile, has granted the desired relief. In view of the aforesaid submissions, ground nos.1 and 6 are dismissed as not pressed.
3. In Ground No.2, the assessee has challenged disallowance of deduction claimed under section 80G of the Act, 1961 in respect of Corporate Social Responsibility (CSR) donations.
4. Briefly the facts relating to the issue in dispute are, the assessee is a residential corporate entity stated to be engaged in the business of providing services in terms of operating and supporting the network, development and delivery of software based solutions for telecommunication industry. For the assessment year under dispute, the assessee filed its return of income on 30.11.2015 declaring total income of Rs.690,78,94,230/-. In course of assessment proceedings, assessee made a fresh claim of deduction under section 80G of the Act. It was the case of the assessee that it has incurred expenditure of Rs.3.4 crores towards CSR activities. The assessee claimed that though the expenditure was disallowed in the computation of income following section 37(1) of the Act, however, since the institutions to whom the assessee had donated the funds are eligible under section 80G of the Act, the assessee is entitled for deduction of 50% of the amount expended in terms of section 80G of the Act. While completing the assessment, the Assessing Officer did not allow assessee’s claim. Contesting the disallowance, the assessee preferred appeal before learned First Appellate Authority. While deciding the issue, learned First Appellate Authority held that intention of Government is very clear that expenditure on CSR does not form part of business expenditure and no specific tax exemption including deduction under section 80G of the Act has been extended to CSR expenditure. He further held that deduction under section 80G of the Act is applicable only to ‘donation’ which is a ‘voluntary act’ on the part of the donor. He observed that since CSR expenditure has been incurred mandatorily in compliance of provisions of the Companies Act, it cannot be said to be voluntary and would not qualify for tax deduction under section 80G of the Act.
5. Before us, learned Counsel appearing for the assessee submitted that the institutions to whom the assessee has donated the CSR funds are registered under section 80G of the Act. Hence, assessee is eligible for deduction under section 80G of the Act. He submitted, since there is no prohibition under section 80G of the Act, the assessee cannot be denied deduction under the said provision. In support of such contentions, he relied upon the following decisions:
i. Honda Motorcycle and Scooter India Pvt. Ltd. vs. ACIT (ITA No.1523/Del/2022 order dated 22.08.2023)
ii. Escorts Skill Development vs. CIT (Exemptions) [2019] 108 com 53 (Delhi-Trib.)
6. Learned Departmental Representative relied upon the observation of learned First Appellate Authority.
7. We have considered rival submissions and perused the material on record. We have also applied our mind to case laws cited before us. Undisputedly, expenditure incurred towards CSR is specifically prohibited from being allowed as deduction towards business expenditure by insertion of Explanation – 2 to Section 37(1) of the Act by Finance Act, 2014 w.e.f 01.04.2015. However, there is no such corresponding amendment to section 80G of the Act. Only condition for claiming deduction under section 80G of the Act as per the existing provision is the institute to which donation is made must have been registered under section 80G of the Act. Once the aforesaid condition is fulfilled, the donor is entitled to avail the deduction. This is also the view expressed by the Co-ordinate Bench in case of Honda Motorcycle and Scooter India Pvt. Ltd. (supra). The relevant observation are as under:
“17. Apropos the issue of disallowance u/s 80G of the Income-tax Act, 1961 (for short ‘the Act’) : The assessee made certain donation to approved institutions or funds and claimed 50% of the total donation made as deduction u/s 80G. This amount also formed part of the CSR initiative of the assessee company which amounts to INR 22,81,29,964/-. It is observed that the assessee has duly disallowed CSR expenditure of INR 22,81,29,964/- debited to the statement of profit and loss under section 37 of the Act. DRP rejected the claim of the assessee by saying that the donation is pursuant to the CSR policy of the company and lacks the test of voluntariness as required under section 80G. The AO has disallowed the claim on the ground that anything donation over and above the CSR u/s 80G will be only allowed as the CSR expense is not an allowable expense u/s 37 of the Act. Ld. Counsel of the assessee placed reliance on the following decisions :-
(i) JMS Mining (P.) Ltd. vs. PCIT [2021] 130 com 118 (Kolkata – Trib.)
(ii) Goldman Sachs Services (P) Ltd. vs. JCIT (2020) (117 taxmann.com 535) {ITAT Bangalore}
(iii) First American (India) Pvt. Ltd. (ITA No. 1762/Bang/2019)
(iv) Allegis Services (India) Pvt. Ltd. (ITA No. 1693 /Bang/ 2019)
Ld. Counsel further submitted that if the intention was to deny deduction of CSR expenses under section 80G, appropriate amendments on lines of section 37(1) should also have been made under section 80G of the Act. In the absence of any such amendment, CSR expenses should not be disallowed under section 80G of the Act.
18. We have heard both the parties and perused the records. We find that ITAT, Bangalore Bench in the case of Goldman Sachs Services (P.) Ltd. (supra) has held that the other contributions made under section 135 (5) of the Companies Act are also eligible for deduction/s 80G of the Act subject to satisfying the requisite conditions prescribed for deduction u/s 80G of the Act. For this purpose, the issue is remanded to the file of AO to examine the same whether the payments satisfy the claim of donation u/s 80G of the Act. We find that the case law is fully applicable to the facts of the case. There is no restriction in the Act that expenditure when disallowed for CSR cannot be considered u/s 80G of the Act. Hence, we remit the issue to the file of AO to verify whether these payments were qualified as donations u/s 80G of the Act or not, if they qualify as donation u/s 80G of the Act then the requisite amount deserves to be allowed.”
8. Before us, it is the specific contention of learned Counsel of the assessee that the institutes to whom the assessee has donated the CRS fund are registered under section 80G of the Act. Keeping in view the submissions of the assessee as well as the ratio laid down in the judicial precedents cited before us, we direct the Assessing Officer to allow assessee’s claim of deduction under section 80G of the Act, subject to, factual verification of assessee’s claim that the donee institutions are registered under section 80G of the Act and other conditions of section 80G of the Act are fulfilled. Ground is allowed for statistical purposes.
9. In Ground No.3 assessee has raised the issue of lower rate of Dividend Distribution Tax (DDT) as per the provisions of Double Taxation Avoidance Agreement (DTAA) as against applicability of rate of tax under section115-O of the Act. Though, the Assessing Officer has not specifically dealt with the issue, however, while dealing with the issue, learned First Appellate Authority rejected assessee’s claim following the decision of ITAT Special Bench in the case of DCIT vs. Total Oil India (P.) Ltd. [2021] 127 com 774 (Mumbai-Trib.).
10. Before us, though, learned Counsel reiterated the stand taken before the Departmental Authorities however he fairly submitted that issue has been decided against the assessee by the ITAT Special Bench in the case of Total Oil India (P.) Ltd (supra). The learned Departmental Representative submitted that the special Bench decision covers the issue against the assessee.
11. Having considered rival submissions, we find, issue in dispute is squarely covered by the decision of the Special Bench of ITAT in the case of Total Oil India (P.) Ltd. 104 ITR(T) 1. Hence, respectfully following the ratio laid down therein, we reject assessee’s claim.
12. Ground No.5 being consequential to ground no.3 is also dismissed.
13. In Ground No.4, the assessee has claimed deduction of Education Cess (‘EC’) and Secondary Higher Education Cess (‘SHEC’) levied on income tax payable on the total income. Having considered rival submissions, we are of the view that in view of amendment u/s 40(a)(ii) of the Act by Finance Act, 2022 with retrospective effect from 01.04.2005, the claim of the assessee is not allowable. This is so because as per the amended provision, Education Cess and Secondary Higher Education Cess partake the character of income tax. In this context, we refer to decision of the Hon’ble Supreme Court in the case of JCIT vs. M/s. Chambal Fertilisers and Chemicals Ltd. SLP(C) No.7379 of 2019 order dated 14.12.2022. Accordingly, ground raised is dismissed.
14. Ground No.7 on the issue of levy of interest under section 234A, 234B and 234C of the Act being consequential in nature, does not require any adjudication.
In the result, appeal is partly allowed for statistical purposes.
Order pronounced in the open court on 05.03.2024
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