Let the stronger man give to the man whose need is greater, let him gaze upon the lengthening path of life.
Travelling, dwelling within the places denotes the management of the system. Fundamental rights and fundamental duties are the keys to maintain the administration and make people to abide by laws. This mammoth democratic country having 36 states/UTs, populated nearly 140.76 crores further divided into countless places every day working more and more to run the administration with efficacy and minimize the unorganized culture. Along with the government, Companies who contributes towards society to make it better dwelling place and sustain it. In Corporate parlance, we know it as Corporate Social responsibility.
The decision in Chiranjeet Lal Chowdhuri Vs UOI[1] ‘we should bear in mind that a corporation, which is engaged, in production of a commodity vitally essential to the community has a social character of its own, and it must not be regarded as the concern primarily or only of those who invest their money in it. ‘supports that a responsible business should embrace ethical responsibilities.
From the progress and advancement parlance it seems to be a good picture of dual responsibility of government and private institutions to maintain the proper administration of the society. With the increasing degree company contribution, it has been statutorized under Section 135 of Companies Act which mandates that certain companies must allocate at least 2% of their average net profits from the preceding three financial years towards CSR activities. It is not compulsory over all company but having the turnover more than 1000 Crs.
Tax Implications:
The expenditure with regard to CSR are not deductible under Section 37(1) of Income Tax Act, 1961 as this activity is statutory and secondly they are not incurred for the purpose or furtherance of business. This is supported by explanation 2 of Section 37(1) “any expenditure incurred by an assesse on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assesse for the purposes of the business or profession”. After the amendment in CSR, It has been disputed several times that whether the CSR is part of tax deduction or not while filing the IT returns. Taxpayers claimed the expenditure as deduction under Section 80G of IT Act for eligible donations as the provision said “allows taxpayers to save tax by donating money to eligible charitable institutions. By donating to eligible institutions and organizations, taxpayers can claim deductions ranging from 50% to 100% of the amount donated.” CSR activity is not only to donate in the charitable institutions, but to protect the environment and pursue the activities as mentioned by law under Schedule VII of Companies Act,2013. Secondly, if the CSR expenditure will be deductible, it would be interpreted as the subsidizing of around one-third of such expenses by the Government by way of tax expenditure.
After GST has been introduced, there is concept of ITC mechanism which permits the assessee to offset the GST Input Tax Credit with the GST Output Tax Liability which prevents the cascading effect and promotes the seamless flow of credit. According to section 16 of the GST Act “input tax credit shall be available for registered person for the central tax, state tax, or IGST charged on input services, inputs, Capital goods used or intends to be used in this course of furtherance of business.” The CSR activities done are not in nature of furtherance of business but to share the burden with government in providing social services. In case of CIT v. Power Finance Corpn. Ltd.[2], New Delhi upheld the denial of ITC on CSR expenses holding that input services are those which are used for providing output services, but CSR obligations arise only after providing the output services. Accordingly, the Tribunal held that CSR expenses cannot be treated as input services for providing output services but are a consequence of such companies providing output services.
Albeit there is not furtherance of business but by providing the economic and financial help, it is motivating the small scale industries to grow and increase their business. Following the statutory compliance, companies are executing the responsibility but they are bearing the cost too. Due to loss of credit companies are more emphasizing on tax saving clauses vis-a vis their service supply to society.
It remains to be seen what will be the future policies regarding the deduction of CSR expenditure by legislation, by making laws we are making this a statutory compliance but not allowing the deduction seems to be the double disallowance which is not the intent. Only the donations done to charitable Institution and spending on research project cannot be the part of CSR. No doubt that these activities increase the Country’s pride, increases the literacy ambit and other scope but need to maintain the financial balance as well. It is contented that a company whose turnover is more than 1000 Crs., contribution of 2% will not affect the turnover, but it impacts their taxability and non-claiming the deductions on certain investments, expenses, and contributions made during the financial year. The senses of the corporates are waiting for the favorable decisions or laws in future.
Disclaimer: The opinion mentioned above is strictly personal. The judgments , case mentioned in the opinion above have been reffered from internet.
[1] AIR 1951 SC 41
[2] 2022
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