Deduction u/s 37

[ASHISH DESAI]

can contribution ( as a part of Corporate Social responsibily) made by the company to the local Gram Panchayat of the village(where the factory is lacated) towards the betterment of roads & providing water connection in every household, installing street lights etc....( this project is initiated by the State Government) be claimed as a general expenses deductible u/s 37 of IT Act? or should be debited as Donation & disallow. contribution will be in the common fund of the committee set for this development, which also will receive 90% contribution from the State Govt. please advise.

[Rama Krishana]

This issue is dependent on facts and circumstances rather than any legal fiction. There are different views expressed by the Honorable Supreme Court having regard to different situations and peculiarity of the case. For an example in one case (2008 -TMI - 6499 - SUPREME Court), it was held that expenditure incurred is in the nature of capital expenditure. On the contrary in another case (2008 -TMI - 5840 - SUPREME Court), apex court held that contribution towards development of the the roads was meant for facilitating the carrying on of the assessee's business and hence allowed for revenue expenditure.

AI Summary

Can Company CSR Contributions to Local Projects Be Deductible Under Section 37 of Income Tax Act? A query was raised regarding whether a company's contribution to local infrastructure improvements, as part of Corporate Social Responsibility (CSR), can be claimed as a deductible expense under Section 37 of the Income Tax Act. The contribution is part of a state government-initiated project and involves a common fund. The response indicated that the deductibility depends on the specific facts and circumstances of each case. The Supreme Court has ruled differently in similar cases, sometimes classifying such expenses as capital expenditure and other times as revenue expenditure, depending on their impact on the business.