TaxTMI 
TaxTMI 
2026 (8) TMI 761
X X X X Extracts X X X X
X X X X Extracts X X X X
....21 e-filed on 31.12.2020. The case selected for scrutiny followed by validly serving statutory notices. One of the issue examined by the ld. Assessing Officer is that the assessee has incurred Corporate Social Responsibility (CSR) expenses at Rs. 4,41,54,694/- and in the list of such CSR expenses were also included donations eligible for deduction u/s. 80G @100%/50%. Assessee has claimed deduction u/s. 80G of the Act at Rs. 2,09,89,742/- as reflected in the computation sheet but the in the assessment order disallowance on 80G is at Rs. 1,87,35,007/-. Subsequently, the assessee failed to get any relief from the ld.CIT(A) who also disallowed the deduction u/s. 80G of the Act at Rs. 2,09,89,742/- observing that the appellants claim disregard the nuanced legislative balance that disallows deduction of mandated CSR spends under business income provisions while carefully circumscribing 80G deductions to voluntary contributions, hence, allowing deductions for all CSR expenditures failing the voluntariness criterion would distort the fiscal policy underpinning the tax regime. Now the assessee is in appeal before this Tribunal. 4. Ld. Counsel for the assessee at the outset submitted that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s under : "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 rupees one thousand crore or more or a net profit of rupees five crore or more during any financial 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. (2) The Board's report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee. (3) The Corporate Social Responsibility Committee shall- (a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII; (b) recommend the amount of expenditure to be incurred on the activities referred to in clau....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts; (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 to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga); (v) protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional arts and handicrafts; (vi) measures for the benefit of armed forces veterans, war widows and their dependents, (Central Armed Police Forces (CAPE) and Central Para Military Forces (CPMF) veterans, and their dependents including windows]; (vii) training to promote rural sports, nationally recognised sports, paralympic sports and Olympi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 accordance with these rules. (4) Subject to the provisions of subsection (5) of section 135 of the Act, the CSR projects or programs or activities undertaken in India only shall amount to CSR expenditure. (5) The CSR projects or programs or activities that benefit only the employees of the company and their families shall not be considered as CSR activities in accordance with section 135 of the Act. (6) Companies may build CSR capacities of their own personnel as well as those of their Implementing agencies through Institutions with....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o 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 committees of respective companies are in a position to report separately on such projects or programmes in accordance with these rules. (5) The Board of a company shall satisfy itself that the funds so disbursed have been utilised for the purposes and in the manner as approved by it and the Chief Financial Officer or the person responsible for financial management shall certify to the effect. (6) In case ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aking 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 sections 12A and 80G of the Income Tax Act, 1961. However, it is further provided that every such entity, who intends to undertake any CSR activity, shall register itself with the Central Government by filing the form CSR-1 electronically with the Registrar of the Companies. It is further provided that the Board of the company shall satisfy itself that the funds so disbursed have bee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ness 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 the purposes of the business is only allowed as a deduction for computing taxable business income. 13.2 CSR expenditure, being an application of income, is not incurred wholly and exclusively for the purposes of carrying on business. As the application of income is not allowed as deduction for the purposes of computing taxab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 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. [Explanation. - Where any such expenditure has been laid out or expended before the commencement of the business (not being expenditure laid out or expended before the 1st day of April, 1973) on payment of any salary [defined in Explanation 2 below sub-section (5) of sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arch 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 perusal of the above reproduced provisions of section 35 of the Act would reveal that a deduction, even in some cases more than 100% of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r 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[(iia) the Prime Minister's National Relief Fund; or (iiiaa) the Prime Minister's....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 (iiihe) 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al 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 Government may, having regard to the prescribed guidelines, by notification in the Official Gazette, specify in this behalf) for- (1) 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 to....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mendments 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(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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 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 n....