ACS Divesh Goyal
Presently Corporate Social Responsibility (CSR) expenditure is at the discretion of the corporate however after enactment of Section 135 of Companies Act 2013 such expenditure is made mandatory for certain corporate.
Corporate Social Responsibility (CSR) has been in existence for a long time and is almost as old as civilization. It is based on the Gandhian Principle of “trusteeship concept” whereby business houses are looked upon as trustees of the resources they draw from society and thus are expected to return them back manifold. CSR is extremely important for sustainable development of all stakeholders (all the people, on whom the business has an impact, including the society at large).
With the enactment of the Companies Act, 2013, India has become the forerunner to mandate spend on Corporate Social Responsibility (CSR) activities through a statutory provision. While many corporate houses have been traditionally engaged in doing CSR activities voluntarily, the new CSR provisions put formal and greater responsibility on companies in India to set out clear framework and processes to ensure strict compliance. However, what the Companies Act does is bring more companies into the fold and increase the total CSR spend. –
Company is a social institution having duties and responsibilities towards the community in which if functions. Its objective is to bring about maximization of social welfare and common good.
♣ India is the only count so far, where CSR has been made mandatory.
Applicability – Companies to which CSR provisions are applicable:
A. Following below mention companies are required to constitute CSR Committee:
The Provisions of CSR are applicable to Foreign Company having Branch office or project in India if it fulfil the above given criteria.
When companies get ceases to comply with the provisions of CSR?
Companies covered under CSR provisions goes outside the CSR provisions if it ceases to fulfill the criteria for Three Consecutive Years. [Rule 3(2) of Companies (CSR Policy) Rules, 2014.
Once company again fall within the limit provisions of CSR will be applicable on Company.
Constitutions of CSR Committee: Company to which CSR is mandatory should appoint a CSR Committee to undertake and monitor CSR activities.
CSR Committee Meeting:
Role/ Functions of CSR Committee:
Responsibility of the Board of Directors:
Net Profit Require spending on CSR Activity:
“Net profit” means the net profit of a company as per its financial statement prepared in accordance with the applicable provisions of the Act, but shall not include the following, namely:
Most Imp: AVERAGE NET PROFIT IS CALCULATED AS PER SECTION 198 I.E. CALCULATION DONE FOR MANAGERIAL CALCULATION. (Example of calculation as per Section- 198 given below)
Whats included in CSR Activities-
Activities which not qualifies as CSR Activities
CSR POLICY & EXPENDITURE
– a list of CSR projects or programs which a company plans to undertake falling within the purview of the Schedule VII of the Act, specifying modalities of execution of such project or programs and
– monitoring process of such projects or programs:
SCHEDULE VII MANDATES EXPENDITURE FOR THE FOLLOWING ACTIVITY-
1) Eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making available safe drinking water,
2) Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects,
3) Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, daycare centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward ,
4) ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agro forestry, conservation of natural resources and maintaining quality of soil, air and water;
5) Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional art and handicrafts,
6) Measures for the benefit of armed forces veterans, war widows and their dependents;
7) training to promote rural sports, nationally recognised sports, paraolympic sports and Olympic sports; 8) Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women;
9) contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government,
10) Rural development projects,
11) Slum Area Development
BUILDING CSR CAPACITY:
Company may build CSR capacity of their own personnel as well as those of their implementing agencies through institutions with established track record of three years are permissible. However, such expenditure shall not be more than 5% of total CSR expenditure of company in one financial year.
EFFECT OF NONE COMPLYING WITH CSR PROVISIONS:
If a company fails to provide ors spend such amount, the Board shall specify reasons for not spending the amount in its report.
Thus, spending on CSR activities is not mandatory and no penalty can be imposed for non-compliance.
INCOME TAX ASPECTS:
Expenditure on CSR is required. However, allow ability of expenditure on CSR as deduction under section 37 of Income Tax Act is not yet clear, particularly because spending on CSR is not mandatory.
SAMPLE BOARD RESOLUTION FOR CONSTITUTION OF CSR COMMITTEE:
“RESOLVED THAT pursuant to the provisions of Section 135 of the Companies Act, 2013, a Corporate Social Responsibility (CSR) Committee of the Board of Directors of the Company be and is hereby constituted comprising of the following members of the Board of Directors of the Company as members of CSR Committee:
1. Mr. A
2. Mr. B
3. Mr. C
RESOLVED FURTHER THAT the terms of reference of CSR Committee shall, interalia,
Include the following:
RESOLVED FURTHER THAT the quorum for the CSR Committee Meeting shall be one third of its total strength (any fraction contained in that one third be rounded off as one) or two members, whichever is higher.
RESOLVED FURTHER THAT Company Secretary to the Company shall act as Secretary to the CSR Committee.”