QUESTION 1
Janya: What is Corporate Social Responsibility
Tanishi:
Section 135 of the Companies Act 2013
Corporate Social Responsibility
(1) Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.
QUESTION 2
Janya: How much amount should be set aside or spent for the fulfilment of CSR
Tanishi:
Section 135 Sub section 4 and 5 state as :
(4) The Board of every company referred to in sub-section (1) shall,—
(a) after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company’s website, if any, in such manner as may be prescribed; and
(b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.
(5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy:
Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities
QUESTION 3
Janya: What is the legal position if CSR spending is not done as above
Tanishi:
Earlier Position
If the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount. There is no specific penal provision for non-compliance under section 135 of the Act.
Position from 06th March 2018 onwards
Whenever violation of Corporate Social Responsibility (CSR) provisions is found, action under section 134 (8) of the Companies Act, 2013 (the ‘Act’) is initiated.
As per Section 134(8)
(8) If a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may
extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.
QUESTION 4
Janya: Whether the CSR expenditure is taxable or allowed as expense
Tanishi:
The amount spent by a company towards CSR cannot be claimed as business expenditure. The Finance Act, 2014 provides that any expenditure incurred by an assessee 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 assessee for the purposes of the business or profession. As per section 37(1) of Income Tax Act, 1961 the expenses incurred by the companies on CSR are taxable.
QUESTION 5
Janya: Is spending of CSR in the Covid 19 times allowed or covered
Tanishi:
Since Covid 19 is an unprecedented pandemic, MCA had vide General Circular No. 10/2020 dated 23th March 2020, notified Covid 19 as a natural disaster. Any spending towards such shall be considered as CSR.
QUESTION 6
Janya: Does contribution to recently set up PM-Cares Fund qualify for CSR
Tanishi:
As per MCA File NO. CSR-05/1/2020 dated 28th March 2020, the contribution to PM-Cares fund is eligible expenditure for CSR activities.
QUESTION 7
Janya: Does contribution to CM Relief Fund or State Relief Fund for Covid 19 qualify as CSR expenditure
Tanishi:
No, the expenditure does not qualify for the Schedule VII of the Companies Act 2013 which contains the number of items described therein.
QUESTION 8
Janya: If a company intends to do spending on its own on Covid 19, does it also qualify for CSR expenditure.
Tanishi:
Covid 19 related activites shall qualify for CSR expenditure as per General Circular No. 10/2020 dated 23rd march 2020 and funds may be spent under items nos (i) and (xii) of Schedule VII relating to promotion of health care, preventive health care, sanitation and disaster management. A liberal and broad based view is allowed here for CSR expenditure.
QUESTION 9
Janya: Whether payment of salary and wages to workers, employees or to casual or daily wage workers, during the lockdown period; qualify as CSR expenditure
Tanishi:
No, It does not qualify as CSR expenditure. It’s a contractual/ moral/ humanitarian obligation by the company.
QUESTION 10
Janya: Whether ex-gratia payment to temporary/ daily/ casual workers qualify as CSR expenditure
Tanishi:
Ex-gratia payment specifically made for Covid 19 measures is allowed as one-time exception provided there is an explicit declaration by the Company Board and it is duly certified by the auditors of the company.
QUESTION 11
Janya: Is there a limitation on the amount of funding toward COVID-19 that can be considered as spending toward a CSR Activity
Tanishi:
There is no cap or limitation specified by any authority with regard to the maximum or minimum amount of funding toward COVID-19 that can be considered as spending toward CSR Activity
QUESTION 12
Janya: whether it has been specified as to how or in what manner or proportion these funds are to be spent toward COVID-19 in order to be considered as a CSR Activity
Tanishi:
There is no specification as to the manner in which such funds can be spent for COVID-19 to be considered as spending toward CSR
The Companies are free to choose the manner and proportion of such spending. The only specification is that spending should be for COVID-19 for activities under item nos. (i) and (xii) of Schedule VII of the Companies Act to be considered as spending toward CSR.
QUESTION 13
Janya: Whether CSR fund expense by corporates for hospitals, government or anyone can be treated as CSR expense
Tanishi:
As explained in Answer to Question 12, there is no bar for such. Providing aid to hospitals or the government or any organization to fight COVID- 19 would be considered as an expense under CSR.
Disclaimer
While every care has been taken to ensure the accuracy/ authenticity of the above, the readers are advised to recheck/ reconfirm the same from the original sources/ relevant departments. The company shall in no way be responsible for any loss or damage suffered to any person on account of the same. The views expressed are personal opinion, compilation and is no way, to be used for any legal opinion, matters
Author Bio
Dear Author.
Wanted to know whether Covid 19 related exp incurred by the Company which qualify as CSR exp as per MCA circular are also allowable expenses under the Income-tax Act, 1961?