MCA has notified vide Notification No. G.S.R. 313(E) 26/05/2020 that contribution to ‘Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund)’ will fall under CSR Activities wef 28th March 2020. Article analyses CSR Provisions and related amendments in view of Pandemic Covid-19.
(i) Corporate Social Responsibility (CSR) The corporate beyond making profits, building assets, generating employment, using resources of public, are responsible to spend in monetary terms for the benefit of community and the society at large and not just for their employees, customers, business partners, investors and vendors. CSR is alternatively referred to as “corporate citizenship,” which essentially means that a company should be a “good responsible user of common resources”.
Thus CSR is nothing but activities of welfare carried out by the large corporates or business owners earlier for their employees only and now these activities to be made available to public at large. India is the first country to make CSR mandatory.
(ii) Section 135 of the Companies Act, 2013 (CA 2013) provides that CSR will apply to every Company having a Net Worth of Rs. 500 crores or more, Turnover of Rs. 1000 crores or more or Net Profit of Rs. 5 crores or more, during immediately preceding financial year. These companies are required to spent a minimum of 2% of “average net profit’ of the Company made during the three immediately preceding the financial years.
(iii) Covid-19 Pandemic and CSR spent During the disaster and crisis of COVD-19 Pandemic, Ministry of Corporate Affairs (MCA) had issued various Circulars and Notifications as detailed below, since March 23, 2020 till yesterday May 26, 2020 encouraging, clarifying and issuing FAQs for Corporates to understand any spent made by them towards social cause shall qualify as corporate social responsibility or not.
| Sr. No. | Date of Circular/ Notification/ Memo | Particulars |
| 1 | March 23, 2020 Circular 10/2000 | MCA has specified that the spending of CSR funds by the Companies for COVID-19 is eligible as CSR activities. Such funds may be spent for various activities related to COVID-19 under item nos. (i) and (xii) of Schedule VII relating to promotion of health care including preventive health care, sanitation, and disaster management.
The link for the said Circular is mentioned below: https://taxguru.in/company-law/spending-csr-funds-covid-19-eligible-csr-activity-mca.html |
| 2 | March 28,2020 Office Memo of MCA | March 28, 2020, the MCA issued an Office Memorandum, in relation to expenditure towards CSR whereby the MCA issued a clarification under item (viii) of Schedule VII of the Companies Act, 2013 which enumerates that contribution made to any fund set up by the Central Government for socio-economic development and relief qualifies as a CSR expenditure.
The Government of India had set up the Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (“PM CARES Fund”) with the primary objective of dealing with emergency or distress situations in light of the COVID-19 pandemic and any contribution made to the PM CARES Fund shall qualify as CSR expenditure under the Companies Act 2013. The link for the aforesaid office memorandum is as mentioned below: https://taxguru.in/company-law/contribution-pm-cares-fund-qualify-csr-expenditure.html |
| 3 | Many questions and confusions wrt CSR spent | There were many queries with respect to spent on CSR due to Circular 10/2000 dated March 23, 2000 and Office Memo dated March 28,2000.
(a) In April, 2020 many State Government had issued order and copy sent to MCA stating that considering the fact that National Disaster Management Authority has declared COVID-19 as a disaster situation and MCA has clarified that CSR Funds may be spent for various activities related to COVID-19, Government directs that all contributions to Chief Ministers Public Relief Fund (CMPRF) from the date of Orders of the National Disaster Management Authority from March 24, 2020 to June 30, 2020 shall be utilized exclusively for all the activities to combat the spread of COVID-19 (b) PM CARES Fund does not qualify the requirements of clause (viii) of the Schedule VII of the Companies Act, 2013, although Central Government has power to amend Schedule VII to include contribution to PM CARES as eligible CSR spent Due to above two issues there were queries among the Corporates whether, contribution given to CMPRF will qualify for CSR ? and PM CARES Fund is not part of schedule VII of the Companies Act 2013 and only through Office Memo ,MCA has specified that any funds contributed to PM CARES Fund will qualify as CSR, whether it will pass the test of literal interpretation of law. |
| 4 | April 10, 2020 Circular 15/2000 |
Ø Due to above confusion, on April 10, 2020 MCA has provided clarification in the form of FAQs on various queries on the contributions made in certain fund whether the same will be considered as CSR spent / contribution or not. The MCA had made it clear that any contribution made towards PM CARES Fund shall be treated as a permissible CSR expenditure and any contribution made towards the Chief Minister Relief Fund or State Relief Fund shall not be treated as permissible CSR expenditure. Interesting to take note that any contributions made to PM CARES Fund shall also qualify for 80G benefits for 100% exemption under the Income Tax Act, 1961. > April 10, 2020 MCA Circular 15/2000 clarifies as follow: a. Contribution made to ‘PM CARES Fund’ shall qualify as CSR expenditure b. Contribution made to ‘Chief Minister’s Relief Fund’ or ‘State Relief Fund for COVID-19’ is not included in Schedule VII of the Companies Act, 2013 and therefore any contribution to such funds shall not qualify as admissible CSR expenditure. c. Contribution made to State Disaster Management Authority to combat COVID-19 shall qualify as CSR expenditure d. Ministry vide General Circular No. 10/2020 dated March 23, 2020 has clarified that spending CSR funds for COVID-19 related activities shall qualify as CSR expenditure. It is further clarified that funds may be spent for various activities related to COVID-19 under items nos. (i) and (xii) of Schedule VII relating to promotion of health care including preventive health care and sanitation, and disaster management. e. Payment of salary/ wages in normal circumstances is a contractual and statutory obligation of the company. Similarly, payment of salary/ wages to employees and workers even during the lockdown period is a moral obligation of the employers and hence it shall not qualify as admissible CSR expenditure. f. Payment of wages to temporary or casual or daily wage workers during the lockdown period is part of the moral/ humanitarian/ contractual obligations of the company hence, it shall not count towards CSR expenditure. g. If any ex-gratia payment is made to temporary / casual workers/ daily wage workers over and above the disbursement of wages, specifically for the purpose of fighting COVID 19, the same shall be admissible towards CSR expenditure as a onetime exception provided there is an explicit declaration to that effect by the Board of the Company, which is duly certified by the statutory auditor. The link for the aforesaid Circular is mentioned below: https://taxguru.in/company-law/covid-19-related-faqs-corporate-social-responsibility-mca.html |
| 5. | May 26,2020 Notification | On May 26, 2020 MCA notified and amended Schedule VII to the Companies Act, 2013 and included ‘PM CARES Fund’ as an eligible CSR expenditure under item (viii) effective from March 28, 2020, the day when MCA had issued Office Memo specifying that any contribution to PM CARES Fund shall qualify as CSR Expenditure.
In the past a on October 24, 2014 Central Government had similarly notified that contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation and contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga shall qualify fro CSR expenditure under item (i) and (iv) of Schedule VII to the Companies Act, 2013. The link for the aforesaid Circular is mentioned below: https://taxguru.in/company-law/mca-includes-pm-cares-fund-csr-schedule-vii.html |
Conclusion:
After the notification of May 26, 2020, the query is rested with reference to eligibility of PM CARES Fund as part of Schedule VII to qualify for CSR Expenditure. The same is now made effective retrospectively from March 28, 2020. The disaster and the urgent need for mobilizing resources, donations to designated funds is a good option and many corporate had already contributed huge amount in PM CARES Fund. In times of crisis, people appreciate the efforts of and remember the companies which sacrifice their short-term gains in order to value their commitment to social responsibility.
However, the other question still remains, which is as per FAQs issued by MCA on April 10,2020, any contribution made to ‘Chief Minister’s Relief Fund’ or ‘State Relief Fund for COVID-19’ is not included in Schedule VII of the Companies Act, 2013 and therefore any contribution to such funds shall not qualify as admissible CSR expenditure. Whereas according to MCA Circular dated March 23, 2020 any spending of funds towards COVID-19 virus relating to promotion of healthcare, sanitation and disaster management to be eligible as a CSR activity under item (i) and (xii) of Schedule VII of the Companies Act, 2013 and items under (i) to (xii) to be interpreted liberally.
MCA may further clarify with respect to another query for contribution to ‘Chief Minister’s Relief Fund’ or ‘State Relief Fund for COVID-19’ , once the Government decides to take it as Central approach or State /local approach for eligibility to CSR expenditure.
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