Schenker India Private Limited Vs ACIT (ITAT Delhi)
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT), in the case of Schenker India Private Limited, has ruled that companies are eligible to claim deductions under Section 80G of the Income Tax Act, 1961, for donations made as part of their mandatory Corporate Social Responsibility (CSR) expenditure under Section 135 of the Companies Act, 2013. The decision sets aside the view taken by the Assessing Officer (AO) and the Dispute Resolution Panel (DRP) that such mandated payments lack the “voluntary” nature required for a donation.
Schenker India had incurred expenses towards CSR activities as required by the Companies Act. While computing its business income, the company disallowed these expenses itself, complying with Explanation 2 to Section 37(1) of the Income Tax Act, which bars CSR expenditure from being claimed as a business expense. However, a portion of this CSR expenditure was paid as donations to institutions registered under Section 80G. The company claimed a deduction for 50% of this donated amount under Section 80G from its gross total income. The AO disallowed this claim, arguing that since the expenditure was mandated by law, it was not voluntary and therefore could not be considered a donation eligible for Section 80G benefits.
The assessee contended before the ITAT that Section 37 (governing business expenditure) and Section 80G (governing deductions from gross total income) operate in different domains. The disallowance under Section 37 does not automatically preclude a deduction under Section 80G. It was argued that the legislative intent was clear, as amendments to Section 80G specifically denied the deduction for CSR contributions only to certain funds (like Swachh Bharat Kosh and Clean Ganga Fund), implying allowance for others. Furthermore, the assessee argued that the “voluntary” nature of a donation refers to the absence of reciprocity from the donee, a condition met even by CSR payments.
The ITAT, aligning with its previous rulings in cases like Interglobe Technology Quotient (P) Ltd. vs. ACIT and Cheil India P. Ltd. vs. DCIT, accepted the assessee’s arguments. The Tribunal reasoned that the disallowance of CSR expenditure under Section 37 means it is treated as an application of income, thus remaining part of the company’s gross total income. Section 80G deductions are applied at a later stage, from this gross total income. The ITAT held that the mandatory nature of CSR expenditure under the Companies Act does not affect its eligibility under Section 80G, provided the payments are made to eligible institutions and other conditions of Section 80G are satisfied. The voluntary aspect, the Tribunal noted, relates more to the lack of a quid pro quo from the recipient, which is characteristic of both donations and CSR activities.
Therefore, the ITAT concluded that the mandatory requirement to spend on CSR under Section 135 of the Companies Act does not negate the eligibility for claiming a deduction under Section 80G of the Income Tax Act for donations made to eligible entities as part of fulfilling CSR obligations. The Tribunal allowed the assessee’s appeal on this ground, setting aside the disallowance made by the lower authorities.
FULL TEXT OF THE ORDER OF ITAT DELHI
