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TMI BlogLET THE CSR BE ON THE GOVERNMENT’S SHOULDERSX X X X Extracts X X X X X X X X Extracts X X X X ..... LET THE CSR BE ON THE GOVERNMENT’S SHOULDERS - By: - Abhinaya Ramesh - Income Tax - Dated:- 9-3-2020 - - Introduction: In the year 1953 the concept of Corporate Social Responsibility was introduced by the publication of Bowens corporate social responsibility . Earlier in India and abroad many corporates engaged in many charitable activities not out of legal compulsion. However, now it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not a charity but a legal compulsion. In this paper the authors examining the nature and scope of corporate responsibility and analyzing the existing legal provisions ensuring its implementation. Indian Companies Act, 1956 There has been no provision for corporate social responsibility. There was no statutory obligation on any company to expend their funds for any social or char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itable work. Indian Companies Act, 2013 . Sec 135 of the Indian Companies Act, 2013 impose a statutory duty on a Company. Sec 135 of Indian Companies Act 2013 provides as follows: Every company having net worth of ₹ 500 Crore or more or turnovers of ₹ 1000 Crore or more or a net profit of ₹ 5 crore or more during the immediately preceding financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 . [1] The CSR Committee shall Formulate strategies to the Board and propose it to it, which reflects the acts to be carried out by an undertaking in fields or subjects as set out in Schedule VII. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Suggest the amount of expenditure to be spent in the activities specified in clause (a) Supervise the role of the company from time to time. Every companies board shall approve the policy of the company after considering the committee s report and post it on company s website. Board shall ensure that the Company undertakes the Corporate Social Responsibility Policy. The Board shall make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sure that the undertaking invests at least 2% of the Company's average net profits generated over the three immediately preceding financial years . [2] In case of companies which have not completed a three-year financial period after its establishment during the immediately preceding financial years, the companies shall prefer local areas and areas surrounding it where it operates. Expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation for not utilizing the amount shall be specified by the Board in its report, in case the companies fail to spend the amount. Income Tax treatment of Corporate Social Responsibility : Explanation 2 to Sec.37(1) of the Income Tax Act, 1961 Expenditure incurred on activities relating to Corporate Social Responsibility referred to Sec.135 of Indian Companies Act, 2013 cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be claimed as a deduction U/s.37(1) of the Income Tax Act, 1961 . Therefore, companies have a choice of showing such expenditure as other expenditure connected to business and claim deduction u/s.37(1) or show it as Corporate Social Responsibility in which case they cannot claim deduction U/s.37(1) . Therefore, Corporate Social Responsibility is a statutorily imposed charity to be perfor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med by every company. However, a company is not prohibited from using Sec.30 to 36 deductions for their Corporate Social Responsibility expenditure. Failure of Control Mechanism: The ministry of corporate affairs has no mechanism to punish the erring corporate. Feeling the urgency of the situation, the finance minister decided to criminalize the erring directors with imprisonment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three years. Due to the pressure from the corporate business world, the 2019 budget decriminalized the idea of punishing erring directors. Now fine is only imposed on company and directors. Conclusion: The Government faces difficulty to enforce Section 135 provisions since its introduction. The authors suggest imposition of a Corporate Social Responsibility Cess of 2% on the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies Income Tax, scrapping the toothless Section 135 of the companies Act, 2013 and remove the explanation 2 to Sec.37(1) of the Income Tax Act, 1961 . Let the Government take Corporate Social Responsibility on its shoulders. ----- [1] For companies which are not bound to appoint an independent director shall have in its committee two or more directors . [2] Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 135 (5) of the Indian Companies Act 2013 -------- CA S Balachandran [ Professor, School of Law, SASTRA Deemed University . ] Ms. Abhinaya Ramesh [ Assistant Professor, School of Law, SASTRA Deemed University . ] - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - TMI - TaxTMI - TMITax ..... 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