TaxTMI 
TaxTMI 
2024 (11) TMI 855
X X X X Extracts X X X X
X X X X Extracts X X X X
....ied rather grossly erred in confirming the disallowance of deduction claimed u/s 80G under Chapter VIA in respect of donations which also qualifies as CSR expenditure and expressly disallowed by the appellant under Section 37(1) of the Income-tax Act, 1961. 2. That the appellant craves leave to add, amend, modify, rescind, supplement or alter any of the grounds stated hereinabove, either before or at the time of hearing of this appeal." 3. The brief facts of the case are that during the year under consideration, the assessee has incurred Corporate Social Responsibility (in short, "CSR") expenses as mandatorily required u/s 135 of the Companies Act, 2013 amounting to Rs. 4,53,33,770/-. Out of total CSR expenditure, certain expenditure was made by way of donations to eligible institutions u/s 80G of the income Tax Act ( "the Act") for the purpose of claiming admissible deduction out of expenditure. The assessee, accordingly, claimed deduction u/s 80G of the Act amounting to Rs. 1,48,19,675/- in the return of income. The Assessing Officer, however, during the assessment proceedings carried out u/s 143(3) of the Act, held that in view of Explanation to section 37(1) of the Act, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ol/2022 order dated 21.12.2022 c) Allegies Service (India) Pvt. Ltd. (ITA No.1693/Bang/2019 dated 29.04.2020) (Bang-Trib) 6.2. Whereas, the contention of the Ld. CIT-DR has been that the provisions of section 80G(2)(a) speaks of donations made to the various institutions, funds etc. That the contribution under CSR is a mandatory contribution and hence it is not a voluntary contribution. That the donations are always voluntary contributions hence the contribution made out of CSR obligation would not fall within the definition and scope of donation and hence will not be covered for claiming deduction u/s 80G of the Income Tax Act. Secondly, that there was no need felt by the legislature to amend any other clause of section 80G(2)(a) of the Act because payments made to those funds/institutions do not qualify as CSR. 7. We have considered the rival contentions and gone through the record. Before proceeding further, it will be relevant to reproduce the relevant statutory provisions/rules. Section 135 of the Companies Act, 2013 is read as under: Corporate Social responsibility Section 135. (1) Every company having net worth of rupees five hundred crore or more, or turnover of rup....
X X X X Extracts X X X X
X X X X Extracts X X X X
....said Schedule VII are reproduced as under: SCHEDULE VII (See section 135) Activities which may be included by companies in their Corporate Social Responsibility Policies Activities relating to:- [(i) eradicating hunger, poverty and malnutrition, [promoting health care including preventive health] and sanitation 3 [Including contribution to the Swatch Bharat Kosh set-up by the Central Government for the promotion of sanitation] and making available safe drinking water; (ii) promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects; (iii) promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups; (iv) ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water [including contribution t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hall be undertaken by the company, as per its stated CSR Policy, as projects or programs or activities (either new or ongoing), excluding activities undertaken in pursuance of its normal course of business. (2) The Board of a company may decide to undertake its CSR activities approved by the CSR committee, through a registered trust or a registered society or a company established by the company or its holding or subsidiary or associate company under section 8 of the Act or otherwise: Provided that (i) if such trust, society or company is not established by the company or its holding or subsidiary or associate company, it shall have an established track record of three years in undertaking similar programs or projects; (ii) the company has specified the project or programs to be undertaken through these entities, the modalities of utilization of funds on such projects and programs and the monitoring and reporting mechanism. (3) A company may also collaborate with other companies for undertaking projects or programs or CSR activities in such a manner that the CSR committees of respective companies are in a position to report separately on such projects or programs in accor....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... established track record of at least three years in undertaking similar activities. (2) (a) Every entity, covered under sub-rule (1), who intends to undertake any CSR activity, shall register itself with the Central Government by filing the form CSR-1 electronically with the Registrar, with effect from the 01st day of April 2021: Provided that the provisions of this sub-rule shall not affect the CSR projects or programmes approved prior to the 01st day of April 2021. (b) Form CSR-1 shall be signed and submitted electronically by the entity and shall be verified digitally by a Chartered Accountant in practice or a Company Secretary in practice or a Cost Accountant in practice. (c) On the submission of the Form CSR-1 on the portal, a unique CSR Registration Number shall be generated by the system automatically. (3) A company may engage international organisations for designing, monitoring and evaluation of the CSR projects or programmes as per its CSR policy as well as for capacity building of their own personnel for CSR. (4) A company may also collaborate with other companies for undertaking projects or programmes or CSR activities in such a manner that the CSR committe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red under Income Tax Act, 1956, for those States where registration of Trust is not mandatory. Further it has also been provided in the CSR Rules of 2014 that the company will have to specify the project or programs to be undertaken through these entities, the modalities of utilization of funds on such projects and programs and the monitoring and reporting mechanism. This means that simply making donation to a registered trust or institution will not suffice the compliance of CSR rather, the company has to ensure that the funds contributed by it have been spent on CSR activity and on the specified projects and programs through devised monitoring and reporting mechanism. These rules, thus, specify that mere donation to a registered charitable organisation is not in itself can be treated compliance of the CSR, rather, the donor company has to ensure that the expenditure is incurred on the CSR activity and that too on the specified projects and programs as approved by the company. 8.1. The CSR Amendment Rules, 2021 at the first instance reiterate that CSR activity can be carried out by the company itself, or through a registered public trust or a registered society, registered under ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... invites penal actions, therefore incurring of such expenditure is essential for running of the business of the company, therefore, the same would be allowable as business expenditure. However, with the insertion of explanation-2 to section 37(1) of the Act, it has been declared that the CSR expenditure would not be eligible for deduction as business expenditure. The aforesaid explanation has been brought into the Income Tax Act by way of Finance (No.2) Act, 2014 w.e.f. 01.04.2015. The "Explanatory Notes to the provisions of Finance (No.2) Act, 2014" issued by the Central Board of Direct Taxes vide its Circular No.01/2015 dated 21.1.2015 explaining the aforesaid amendment, read as under: "13. Corporate Social Responsibility (CSR) 13.1 Corporate Social Responsibility (CSR) Under the Companies Act, 2013 certain companies (which have net worth of Rs. 500 crore or more, or turnover of Rs. 1000 crore or more, or a net profit of Rs. 5 crore or more during any financial year) are required to spend certain percentage of their profit on activities relating to Corporate Social Responsibility (CSR). Under the existing provisions of the Act expenditure incurred wholly and exclusively for t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on, this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure. At this stage, it is pertinent to refer to the last lines to para 13.3 of the explanatory notes, wherein, it has been provided that though, the expenditure incurred towards CSRs is not an expenditure incurred for the purpose of business, "however, the CSR expenditure which is of the nature described in section 30 to section 36 of the Income-tax Act shall be allowed deduction under those sections subject to fulfilment of conditions, if any, specified therein". Surprisingly, such an explanation has been given in explanatory notes explaining the insertion of "Explanation-2 to section 37(1) and not either in the relevant provisions of section 30 to 36 or any explanatory notes thereto. 9.3. At this stage it will be relevant to reproduce the relevant provisions of section 35 of the Act: "Expenditure on scientific research. 35.(1) In respect of expenditure on scientific research, the following deductions shall be allowed- (i) any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business. [Expl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to a research association which has as its object the undertaking of research in social science or statistical research or to a university], college or other institution to be used for research in social science or statistical research : [Provided that [such association, university], college or other institution for the purposes of this clause- (A) is for the time being approved, in accordance with the guidelines, in the manner and subject to such conditions as may be prescribed; and (B) [such association, university], college or other institution is specified as such, by notification in the Official Gazette, by the Central Government." .... ----- [(2AA) Where the assessee pays any sum to a National Laboratory or a University or an Indian Institute of Technology or a specified person with a specific direction that the said sum shall be used for scientific research undertaken under a programme approved in this behalf by the prescribed authority, then- (a) there shall be allowed a deduction of a sum equal to one and one-half times the sum so paid ; and (b) no deduction in respect of such sum shall be allowed under any other provision of this Act:" -----. 9.3. A per....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... sub-clause (iiih)] 13[or sub-clause (iiiha) or sub-clause (iiihb) or sub-clause (iiihc)] 14[or sub-clause (iiihd)] 15[or sub-clause (iiihe)] 16[or subclause (iiihf)] 17[or sub-clause (iiihg) or sub-clause (iiihh)] 18[or sub-clause (iiihi)] 19[or sub-clause (iiihj)] or] 20[sub-clause (iiihk) or sub-clause (iiihl) or] 20[sub-clause (iiihm) or] in] sub-clause (vii) of clause (a) 21[or in clause (c)] 11[or in clause (d)] thereof, an amount equal to the whole of the sum or, as the case may be, sums of such nature plus fifty per cent of the balance of such aggregate; and] (ii) in any other case, an amount equal to fifty per cent of the aggregate of the sums specified in sub-section (2).] (2) The sums referred to in sub-section (1) shall be the following, namely:- (a) any sums paid by the assessee in the previous year as donations to- i) the National Defence Fund set up by the Central Government; or (ii) the Jawaharlal Nehru Memorial Fund referred to in the Deed of Declaration of Trust adopted by the National Committee at its meeting held on the 17th day of August, 1964; or (iii) the Prime Minister's Drought Relief Fund; or 22[(iiia) the Prime Minister's National Relief F....
X X X X Extracts X X X X
X X X X Extracts X X X X
....any part of India and has Secretary to the Government of that State dealing with the Department of Health, as its Chairman, by whatever name called; or (iiihb) any fund set up by a State Government to provide medical relief to the poor; or (iiihc) the Army Central Welfare Fund or the Indian Naval Benevolent Fund or the Air Force Central Welfare Fund established by the armed forces of the Union for the welfare of the past and present members of such forces or their dependants; or] (iiihd) the Andhra Pradesh Chief Minister's Cyclone Relief Fun d, 1996; or] (iiihe) the National Illness Assistance Fund; or] iiihf) the Chief Minister's Relief Fund or the Lieutenant Governor's Relief Fund in respect of any State or Union territory, as the case may be: Provided that such Fund is- (a) the only Fund of its kind established in the State or the Union territory, as the case may be; (b) under the overall control of the Chief Secretary or the Department of Finance of the State or the Union territory, as the case may be; (c) administered in such manner as may be specified by the State Government or the Lieutenant Governor, as the case may be; or] (iiihg) the National Sports Fu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the previous year as donations to the Indian Olympic Association or to any other association or institution 2 [established in India, as the Central Government may, having regard to the prescribed guidelines, by notification in the Official Gazette, specify in this behalf] for- (i) the development of infrastructure for sports and games; or (ii) the sponsorship of sports and games, in India;] (d) any sums paid by the assessee, during the period beginning on the 26th day of January, 2001 and ending on the 30th day of September, 2001, to any trust, institution or fund to which this section applies for providing relief to the victims of earthquake in Gujarat.] (3) [Omitted by the Finance Act, 1994 w.e.f. 1-4-1994] (4) Where the aggregate of the sums referred to in sub-clauses (iv), (v), 6 [(vi), (via) and (vii)] of clause (a) and in 7 [clauses (b) and (c)] of sub-section (2) exceeds ten per cent of the gross total income (as reduced by any portion thereof on which income-tax is not payable under any provision of this Act and by any amount in respect of which the assessee is entitled to a deduction under any other provision of this Chapter), then the amount in excess of ten p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, under any other provision of the Act, but under section 37 only. 12. Now, coming to the contention of the ld. DR, that u/s 80G(2)(a) the deduction is admissible on the sum paid by the assessee to the approved institutions as "donations". That the term "donations" refers to a gift usually one of a charitable nature. That the donation is a voluntary transfer of property by the doner to the donee without any exchange of value on the part of the recipient and that the CSR expenditure u/s 135 of the Companies Act, 2013 is a mandatory/statutory obligation and cannot be termed as "donation". Though, on the face of it, there seems to be some force in the aforesaid contention of the ld. DR, however, on deeper analysis of the facts, we find that this contention is not applicable in this case. 12.1. Though, there is a statutory obligation of CSR expenditure u/s 135 of Companies Act 2013, however there are many prescribed modes and activities under Schedule VII of the Companies Act for spending the CSR expenditure, which list is not exhaustive rather inclusive. There is no provision either u/s 135 of the Companies Act or under Schedule VII to the Companies Act or the CSR Rules, requiring ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se funds as part of the mandatory 85% application for non-corpus income exempted under Section 11(1). Therefore, to curb such practice of claiming double deduction, following amendments have been made in the Income Tax Act, 1961 vide the Finance Act, 2021: (i) Under Section 11(1)(d), an insertion has been made that corpus contributions shall be subject to the condition that such voluntary contributions are invested or deposited in one or more of the forms or modes specified under Section 11(5) specifically for such corpus. (ii) Explanation 4 to Section 11(1) has been inserted which provides that any application of income out of the corpus shall not be treated as application for charitable and religious purposes. However, if such amount is invested or deposited back to the corpus fund and in the prescribed form of investment/deposit, then such amount shall be allowed as application in the previous year in which it is deposited back to corpus. 12.4. These amendments have been made to ensure that the funds donated towards the discharge of CSR should be actually spent for the specific projects/purposes towards CSR activity. However, none of the amendments, except those, wherein, i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2) 189 (SC) (since relied upon by both the representatives of the parties) has held that a taxing statute must be interpreted in the light of what is clearly expressed. It cannot imply anything which is not expressed. It cannot import provisions in the statutes so as to supply any assumed deficiency. Reliance in this respect can also be placed on another decision of the Hon'ble Supreme Court in the case of Smt. Tarulata Shyam vs. CIT (1977) 108 ITR 345 (SC) holding that in a tax statute nothing is to be read and nothing is to be implied. That there is no scope of importing in the statute words which are not there. Even it has been held time and again that in interpreting a taxing statute, equitable considerations are out of place. When a taxing statute imposes a financial burden/tax liability even though the same appears to be harsh and not equitable, the courts have held that the fiscal statues are to be interpreted in strict terms and such liability cannot be set aside on the ground of equity or natural justice. The vice-versa is also true. Since, there is no bar to claim deduction under the relevant provisions of section 80G, except wherein so specifically barred i.e. in respect....