TaxTMI 
TaxTMI 
TaxTMI 
2024 (11) TMI 855
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....ircumstances of the case, the Ld. CIT(Appeal) was not justified 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 Ac....
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....mann.com 118 (Kol-Trib) b) P.C. Chandra Holding Pvt. Ltd. vs. PCIT in ITA No.256/Kol/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 responsibili....
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....accordance with the provisions of section 198. 7.1. Schedule VII of the Companies Act provides a list of activities, which may be included by the companies in their CSR policies. The contents of the 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;....
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....(Corporate Social Responsibility Policy Rules 2014 notified by Ministry of Corporate Affairs vide notification dated 27.02.2014, also prescribe certain modes for compliance of CSR. The relevant Rule 4 of the said rules is reproduced as under: CSR Activities. (1) The CSR activities shall 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 ....
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....8 of the Act or a registered trust or a registered society, established by the Central Government or State Government; or (c) any entity established under an Act of Parliament or a State legislature; or (d) a company established under section 8 of the Act, or a registered public trust or a registered society, registered under section 12A and 80G of the Income Tax Act, 1961, and having an 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 Re....
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....prescribes that the CSR activities can also be taken through a registered trust or a registered society or a company either established by the company,itself,or by any other registered trust, society or company having an established track record of three years in undertaking similar programs or projects. Further a clarification has been issued vide Ministry of Corporate's circular No.21 of 2014 that "Registered Trust' as stated above would include Trusts registered 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 regi....
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....sibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession." 9.1. It is pertinent to mention here that before insertion of Explanation-2 to section 37(1) of the Act w.e.f.1.4.2015, various Benches of the Tribunal were of the view that since the CSR expenditure has been fastened upon the assessee under the Companies Act and that noncompliance of the same 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. C....
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....fulfilment of conditions, if any, specified therein. 13.4 Applicability:-This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years." 9.2. In para 13.2 of the explanatory notes, it has been explained that the objective of CSR is to share burden of the Government in providing social services by companies having net worth/turnover/profit above a threshold. It has been provided that if such expenses are allowed as tax deduction, 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 inserti....
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....tion in a previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, the deduction under this clause shall be equal to the sum so paid;] [(iia) any sum paid to a company to be used by it for scientific research: Provided that such company- (A) is registered in India, (B) has as its main object the scientific research and development, (C) is, for the purposes of this clause, for the time being approved by the prescribed authority in the prescribed manner, and (D) fulfils such other conditions as may be prescribed;] [(iii) [any sum paid 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....
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....the provisions of section 80G of the Act, the relevant part of the same is reproduced as under: Deduction in respect of donations to certain funds, charitable institutions, etc. 80G. [(1) In computing the total income of an assessee, there shall be deducted, in accordance with and subject to the provisions of this section, [(i) in a case where the aggregate of the sums specified in sub-section (2) includes any sum or sums of the nature specified ^3[in sub-clause (i) or in ^4[sub-clause (iiia)] ^5[or in sub-clause (iiiaa) ^6[or in sub-clause (iiiab)] ^7[or in sub-clause (iiib)] ^8[or in sub-clause (iiie)] ^9[or in sub-clause (iiif)] ^10[or in sub-clause (iiig)] ^11[or in sub-clause (iiiga)] ^12[or 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 who....
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....e previous year; or] (iiiha) the National Blood Transfusion Council or to any State Blood Transfusion Council which has its sole object the control, supervision, regulation or encouragement in India of the services related to operation and requirements of blood banks. Explanation.-For the purposes of this sub-clause,- (a) "National Blood Transfusion Council" means a society registered under the Societies Registration Act, 1860 (21 of 1860) and has an officer not below the rank of an Additional Secretary to the Government of India dealing with the AIDS Control Project as its Chairman, by whatever name called; (b) "State Blood Transfusion Council" means a society registered, in consultation with the National Blood Transfusion Council, under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in 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 ....
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....urpose other than the purpose of promoting family planning; or] (vi) an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both;] (via) any corporation referred to in clause (26BB) of section 10; or] (vii) the Government or to any such local authority, institution or association as may be approved in this behalf by the Central Government, to be utilised for the purpose of promoting family planning;] (b) any sums paid by the assessee in the previous year as donations for the renovation or repair of any such temple, mosque, gurdwara, church or other place as is notified by the Central Government in the Official Gazette to be of historic, archaeological or artistic importance or to be a place of public worship of renown throughout any State or States; (c) any sums paid by the assessee, being a company, in the previous year as donations to the Indian Olympic Association or to any other association or institution 2 [established in India, as the Central....
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.... 80G of the Act. It is pertinent to mention here that even there is no explanation provided under the Income Tax Act as to why the contributions towards Swachh Bharat Kosh and Clean Ganga Fund set up by the Central Government are not eligible for claiming deduction u/s 80G of the Act, whereas, there is no such restriction in relation to other type of contributions and to the institutions whose names find mention in Schedule VII of the Companies Act read with CSR Rules of 2014 and CSR Rules of 2021, as well as u/s 80G of the Act the even u/s 35 of the Act. Rather, as noted above, in the explanatory notes explaining the amendment to section 37(1), it has been clarified by the CBDT that if the funds meant for CSR are spent and are in the nature of expenditure described u/s 30 to 36 of the Act, that shall be allowed as deduction under those sections, despite the fact that such funds are made towards discharge of CSR obligation. Hence, this clarifies the position that the purpose of introduction of Explanation-2 to section 37(1) is not to disallow the CSR expenditure, if so admissible, under any other provision of the Act, but under section 37 only. 12. Now, coming to the contention ....
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....r the old rules, the mechanism to monitor and ensure that such donation has been actually spent on CSR activity was missing. The donor company would get absolved of its liability of CSR by just donating to the eligible trust/society/company, without ensuring that the amount has been actually spent by the donee on such specific object or purpose (CSR activity) for which it was donated. Therefore, Rule 7 of the CSR Rules, which permitted corpus contributions as eligible CSR expenditure, has been substituted and under the amended CSR Rules of 2021, corpus contributions to any entity shall not be admissible as CSR expenditure. The object and purpose of the aforesaid amendment is to ensure that the expenditure made is actually utilised towards CSR activities. 12.3. Further, certain amendments have also been made in the Income Tax Act,vide Finance Act, 2021. In the Memorandum explaining on the Finance Bill, 2021 it has been noted that various public trusts or institutions claim corpus donations as exempt under Section 11(1)(d) of the IT Act, and simultaneously also claim application of these funds as part of the mandatory 85% application for non-corpus income exempted under Section 11....
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....ed in discharge of CSR, it would have specifically mentioned so at the beginning of section 80G that such restriction would be applicable to all such donations as mentioned therein, as is clearly mentioned in the clauses (iiihk) and (iiihl) to section 80G(2)(a). Even, as noted above, though, vide explanation 2 to section 37(1) of the Act, deduction of expenditure incurred towards CSR has been made inadmissible, however, in the explanatory notes explaining the amendment to section 37(1), it has been clarified that if the funds meant for CSRs are spent and are in the nature of expenditure described u/s 30 to 36 of the Act, that shall be allowed as deduction under those sections. Therefore, the contention canvassed by the ld. DR, in our view, cannot be applied to hold that the amount contributed by the assessee to the charitable organisation would not fall within the definition and scope of the term donation under section 80G of the Act. 12.5. It has been held time and again that the taxing statutes require strict interpretation. The Hon'ble Supreme Court in the case of CST vs. Modi Sugar Mill 1961 SCR (2) 189 (SC) (since relied upon by both the representatives of the parties) has ....