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In the recent past a litigated issue is ‘Donations given towards CSR Expenses and its allowability as deduction U/s 80G’. The question whether contributions made under CSR are eligible for deduction u/s 80G of Income tax 1961 or not, is compounded further by The Ministry of Corporate Affairs (MCA) General Circular No. 14 /2021, Dated: 25th August 2021. In this circular MCA has answered various Frequently Asked Questions (FAQ).

FAQ 3.11: What tax benefits can be availed under CSR?

CSR Expenditure

MCA’s Answer: No specific tax exemptions have been extended to CSR expenditure. The Finance Act, 2014 also clarifies that expenditure on CSR does not form part of business expenditure.

To set in the context, earlier taxpayers were claiming CSR expenditure as business expenditure. However, the Finance (No 2) Act, 2014 introduced Explanation 2 to Section 37(1) (Applicable form AY 15-16) to disallow any expenditure incurred by the taxpayer on the activities relating to CSR referred to in Section 135 of the Companies Act. After the amendment, some tax authorities not only disallowed the expenditure under Section 37(1) but have also disputed the claim of deduction under Section 80G for eligible donations, qualifying for CSR. Let us understand the contention of the AOs in this regard in further details-

– CSR expenditure is not ‘voluntary’, but ‘mandatory’ in Nature, whereas 80G deduction should be allowed in a case of ‘voluntary’ payment.

– The intention of the legislature was never to allow deduction for CSR expenditure, else it would result in subsidising the CSR expenditure by one-third amount.

The following is the taxpayer’s defence in this respect –

– As per the plain reading of Explanation to 2 to section 37(1) of the ITA, any expenditure incurred towards CSR activities as referred to in section 135 of the Companies Act, 2013 is not allowed as ‘business expenditure’. The embargo created by this provision was to deny deduction for CSR expenses incurred by companies, as and by way of regular business expenditure while computing income under the head “Income from Business and Profession”.

– It could not be extended or imported to CSR contribution which was otherwise eligible for deduction under any other provision or Chapter.

– As per section 80G, deduction has to be made in accordance with and subject to the provisions of the said section. There is no prohibition or restriction placed by the Income Tax Act on such a donation even if shown as CSR expenditure.

– The restriction in respect of expenditure made by the taxpayer to any other fund or institution as referred to in section 80G(2)(a)(iv) of the ITA had not been placed by the legislature. And if the Parliament desired, it could have made such kind of / any restriction like in the case of donation to Swach Bharat Kosh and Clean Ganga Fund.

– As per the interpretation maxim “Expressio Unius Esl Exclusio Alterius”, a Latin phrase, “express mention of one thing excludes all others”. The phrase indicates that items not on the list are assumed not to be covered by the statute.

The arguments of the assessee have been accepted in a recent case of MARSH MCLENNAN GLOBAL SERVICES INDIA PRIVATE LIMITED Vs ASSESSMENT UNIT, INCOME TAX DEPARTMENT [2023-VIL-81-ITAT-MUM] taking a cue from some of multifarious judgements in this aspect like the following –

Goldman Sachs Services (P.) Ltd. V. Jt. CIT [2020] 117 535 (Bang.– Trib.)

Allegis Services (India) (P.) Ltd. V. Asstt. CIT [IT Appeal No. 1693 (Bang.) of 2019, Dated 29-4-2020]

FNF India (P.) Ltd. V. Asstt. CIT [IT Appeal No. 1565 (Bang.) Of 2019, Dated 5-1- 2021]

Malabar Industries Ltd. V. CIT [2000] 109 Taxman 66/243 ITR 83 (SC)]

Author Bio

Mr. Vivek Jalan is a Fellow Member of the Institute Of Chartered Accountants of India (ICAI) ; a qualified LL.M (Constitutional Law) and LL.B. He is the Chairman of The Core Group on Indirect Taxes of The CII- Economic Affairs and Taxation Committee (ER); He is the Chairman of The Fiscal Affairs Com View Full Profile

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April 2024