Category: Laws

Tata Trusts’ 2015 move to “surrender” registrations that gave them tax exemptions was “not voluntary”, the Income-Tax Department had told the Bombay High Court in August 2018. The department claimed that the trusts were “forced” to surrender the registrations after an I-T appellate authority

Tata Trusts’ 2015 move to “surrender” registrations that gave them tax exemptions was “not voluntary”, the Income-Tax Department had told the Bombay High Court in August 2018.

The department claimed that the trusts were “forced” to surrender the registrations after an I-T appellate authority order in March 2014 “established” tax violations by them.

The tax department’s submission in the court had come in response to a writ petition filed by one of the trusts, Jamsetji Tata Trust, which had challenged the department’s move to cancel the registrations, claiming that they had themselves surrendered the registrations in 2015.

Justifying its move to seek cancellation of registrations, the tax body had told the court that Tata Trusts “were left with no other option” but to surrender following the appellate authority’s ruling over various violations for the 2010-11 assessment year. ET has seen the department’s 2018 response, which has not come in the public domain so far.

In October 2019, the tax department cancelled registrations of six Tata Trusts — Jamsetji Tata Trust, RD Tata Trust, Tata Education Trust, Tata Social Welfare Trust, Sarvajanik Seva Trust and Navajbai Ratan Tata Trust.

Tata Trusts in a statement at the time said the cancellation order was “a culmination of the decision taken by these six trusts in 2015 to surrender, of their own volition, their registration under the I-T Act and to not claim the associated tax exemptions.” Tata Trusts had withdrawn the writ petition in the high court a year earlier, in October 2018.

The Income Tax Appellate Tribunal (ITAT) order, referred to by the I-T department in its response to the court, was passed on March 23, 2014. The department’s affidavit, filed by principal commissioner of income tax, Mumbai, Lekha Kumar, claimed that Jamsetji Tata Trust “itself agreed that decision to given up benefits was based on ITAT’s decision” in its case. “So, the surrender is not voluntary,” it said.

The government is considering a high-level committee’s recommendation on tax deduction on CSR funding and making non-compliance with CSR norms a civil offence, a senior Ministry of Corporate affairs (MCA) official said. The committee chaired by Corporate Affairs Ministry Secretary

The government is considering a high-level committee’s recommendation on tax deduction on CSR funding and making non-compliance with CSR norms a civil offence, a senior Ministry of Corporate affairs (MCA) official said.

The committee chaired by Corporate Affairs Ministry Secretary Injeti Srinivas in its report submitted on August 2019 has recommended that in case of violation of CSR provisions, penalty may be imposed instead of imprisonment.

In respect of tax benefit for CSR activities, the committee has recommended that all activities listed under Scheduled VII of the Companies Act, 2013 to enjoy uniform tax benefit and CSR expenditure to be made deductible from the income earned for the purpose of taxation.

“The Ministry of Corporate Affairs is considering these recommendations for implementation,” the official said.

During the monsoon session of Parliament, Minister of State for Finance and Corporate Affairs Ministry Anurag Singh Thakur had informed that the government was looking into the committee’s recommendations.

The committee has also suggested a provision to carry forward unspent CSR balance for three to five years.

According to the new CSR norms under Section 135 of the Companies Act, a company has to earmark a part of its profit for social activities and transfer all unspent amount to an escrow account if it is an ongoing project.

This account will be opened by the company concerned in a bank and be called the unspent corporate social responsibility account.

The CSR expenditure which remains unspent in three years would be transferred to any fund specified in Schedule VII of the Companies Act such as the Swachch Bharat Kosh, the Clean Ganga Fund, and the Prime Minister’s Relief Fund.

The central government funds should be discontinued as CSR spend, the committee report said and instead a special designated fund should be created for transfer of unspent CSR money beyond three to five years.

The committee has recommended that Schedule VII be aligned with the sustainable development goals to include sports promotion, senior citizens’ welfare, welfare of differently abled persons, disaster management, and heritage protection.

According to the government data, of the total 21,337 companies liable for CSR 9,753 companies did not report CSR activity in 2017-18.

The other recommendations of the committee include developing a CSR exchange portal to connect contributors, beneficiaries and agencies, allowing CSR in social benefit bonds and promoting social impact companies.

The committee constituted in October, 2018 has among its members N Chandrasekaran, chairman, Tata Sons, and Amit Chandra, managing director, Bain Capital Private Equity, among others.

The government on Tuesday informed Parliament that it has so far given permission to prosecute in 366 cases related to CSR related offences. “So far, sanction for prosecution has been accorded in 366 cases. All CSR related offences are compoundable

The government on Tuesday informed Parliament that it has so far given permission to prosecute in 366 cases related to CSR related offences.

“So far, sanction for prosecution has been accorded in 366 cases. All CSR related offences are compoundable. So far, 118 applications for compounding have been made and 37 cases have been compounded,” Minister of State for Finance and Corporate Affairs Anurag Singh Thakur said in a written reply to the Rajya Sabha on December 10.

Whenever any violation of the CSR provisions is reported, action against such non-compliant companies are initiated as per provisions of Companies Act, 2013 after due examination of records, he added.

The Minister further said that there was no proposal under consideration to incentivise companies for CSR investment in areas like education and health care.

He was responding to queries raised by JD(U) member M P Veerendra Kumar who had also asked if the government has constituted a monitoring committee to oversee the CSR spending of the companies.

The Minister said the CSR is a Board driven process and the Board of the company is empowered to decide the activities to be undertaken as per Schedule VII of the Companies Act, 2013 taking into consideration the recommendation of its CSR committee.

The entire CSR architecture is disclosure based and CSR mandated companies are required to file details of CSR amount spent annually in MCA21 registry, he added.

Chief Justice of India (CJI) Ranjan Gogoi wants Corporate Social Responsibility (CSR) integrated into a modern business strategy to achieve the goal of social justice. This practice will ensure that financial drivers and sustainable development metrics are embedded in mainstream businesses

Chief Justice of India (CJI) Ranjan Gogoi wants Corporate Social Responsibility (CSR) integrated into a modern business strategy to achieve the goal of social justice. This practice will ensure that financial drivers and sustainable development metrics are embedded in mainstream businesses.

“To achieve the goal of social justice in the best possible manner, CSR must be integrated into our modern business strategy,” Gogoi said while speaking at an Associated Chambers of Commerce of India (ASSOCHAM) event. He said India is a developing country and although the country’s economy began to thrive post-privatization and globalization, the situation is different from that of the developed west. “Having entered the global marketplace without a particularly robust regulatory infrastructure and fully functional state services like schools, highways, or hospitals, we have experienced and continue to experience great inequities,” Gogoi feels.

Therefore, it requires the companies and businesses to act beyond their legal obligations to integrate social, environmental and ethical concerns into a company’s business process, he added. Gogoi also observed that one of the areas of greatest weakness concerning social protection relates to the extremely limited attention within the CSR agenda to the vast majority of workers, producers and enterprises in the country that are associated with micro and small enterprises, small-scale agriculture and the so-called informal sector’.

In India, corporates have been engaging themselves in philanthropy and charitable activities while embedding the same in law has given a new dimension to the CSR. Sharing CJI’s views, ASSOCHAM Senior Vice President Niranjan Hiranandani said the CSR should go well beyond the legal obligation and it should become part of an enterprise, starting from the top management.

A crucial legislation for ensuring equal rights to persons affected by HIV and AIDS in getting treatment, admission in educational institutions and jobs has come into force. The Ministry of Health has announced the implementation of the Human Immunodeficiency Virus (HIV)

A crucial legislation for ensuring equal rights to persons affected by HIV and AIDS in getting treatment, admission in educational institutions and jobs has come into force.

The Ministry of Health has announced the implementation of the Human Immunodeficiency Virus (HIV) and Acquired Immune Deficiency Syndrome (AIDS) Act through a gazette notification has been issued.

The Act, which received Presidential assent on April 20 last year, prohibits discrimination against such persons in accessing healthcare, getting jobs, renting accommodation, and in admission to public and private educational institutions.

The moves come after the Delhi High Court asked the Centre why it has not yet notified the law to prevent discrimination against HIV and AIDS patients despite the statute receiving Presidential assent in April last year.

Hearing a PIL that sought immediate notification of the legislation, a bench of Chief Justice Rajendra Menon and Justice C Hari Shankar had asked the health ministry, “You make a law and are not notifying it. Why?”. The matter was listed for hearing on November 26.

“In exercise of the powers conferred by sub-section 3 of section 1 of the Human Immunodeficiency Virus (HIV) and Acquired Immune Deficiency Syndrome (Prevention and Control) Act, 2017, the Central Government hereby appoints the 10th day of September, 2018, as the date on which the provisions of the said Act shall come into force,” the notification read.

According to the provisions of the Act, no HIV test, medical treatment or research will be conducted on a person without his informed consent and no person shall be compelled to disclose his HIV status for obtaining employment or services, except with his informed consent, and if required by a court order.

The legislation has provisions to safeguard the property rights of HIV positive people, he said, adding that every HIV infected or affected person below the age of 18 years has the right to reside in a shared household and enjoy the facilities of the household.

The act also prohibits any individual from publishing information or advocating feelings of hatred against HIV positive persons and those living with them.

As you may be aware, CSR has been made mandatory, following an amendment to the Companies Act, 2013 in April 2014. Businesses can invest their profits in areas such as education, poverty, gender equality, and hunger as part of any CSR compliance

As you may be aware, CSR has been made mandatory, following an amendment to the Companies Act, 2013 in April 2014.

Businesses can invest their profits in areas such as education, poverty, gender equality, and hunger as part of any CSR compliance.

Large companies are required to spend 2 per cent of their net profit on CSR activities.

A set of FAQs along with clarifications are provided below for better understanding of the stakeholders.

1. What is meaning of ‘any financial year’ mentioned in Section 135 (1) of the Companies Act, 2013?
   “Any Financial year” referred under Sub- Section (1) of Section 135 of the Act read with Rule 3(2) of Companies CSR Rule, 2014 implies any of the three preceding financial years ( may refer General Circular No. 21/2014, dated: 18.06.2014)
2. Compliance under section 135 of the Act i.e. Corporate Social Responsibility, is applicable from which Financial Year?
   

   The compliance of the provisions of CSR under the Companies Act, 2013 i.e. constitution of CSR Committee, formulation of CSR Policy, the spending of requisite amount on CSR activities came into force from April, 2014.

3. Whether expenditure by Companies on activities covered under Schedule VII for the fulfillment of any Act/Statute of Regulations will count as CSR expenditure?
   

   This would not count as CSR expenditure. (may refer point no. (iii) of General Circular No. 21/2014, dated: 18.06.2014)

4. Can the expenditure incurred towards personnel exclusively appointed by the companies for implementing the CSR activities of the company, be included in the expenditure earmarked for CSR activities?
   

   Salary paid by the companies to regular CSR staff as well as employees, who render their services for CSR will be part of Administrative overheads and should not exceed 5% of the total CSR expenditure as per rule 4(6) of CSR Policy, Rules 2014.

5. Whether CSR expenditure of a company can be claimed as a business expenditure?
   

   The amount spent by a company towards CSR cannot be claimed as business expenditure. The Finance Act, 2014 provides that any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.

6. Whether the ‘average net profit’ criteria for section 135(5) is Net profit before tax or Net profit after tax?
   

   Computation of net profit for section 135 is as per section 198 of the Companies Act, 2013 which primarily is NET PROFIT BEFORE TAX.

7. Can the CSR expenditure be spent on the activities beyond Schedule VII?
   

   General Circular No. 21/2014 dated June18, 2014 of MCA has clarified that the statutory provision and provisions of CSR Rules, 2014, is to ensure that while activities undertaken in pursuance of the CSR policy must be relatable to Schedule VII of the Companies Act 2013. However, the entries in the said Schedule VII must be interpreted liberally so as to capture the essence of the subjects enumerated in the said Schedule. The items enlisted in the Schedule VII of the Act, are broad-based and are intended to cover a wide range of activities.

8. What tax benefits can be availed under CSR?
   

   No specific tax exemptions have been extended to CSR expenditure per se. Finance Act, 2014 also clarifies that expenditure on CSR does not form part of business expenditure. While no specific tax exemption has been extended to expenditure incurred on CSR, spending on several activities like contributions to Prime Minister’s Relief Fund, scientific research, rural development projects, skill development projects, agricultural extension projects, etc., which find place in Schedule VII, already enjoy exemptions under different sections of the Income Tax Act, 1961.

9. Which activities would not qualify as CSR Expenditure?
   • 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.
   • One-off events such as marathons/ awards/ charitable contribution/ advertisement/sponsorships of TV programmes etc. would not be qualified as part of CSR expenditure.
   • Expenses incurred by companies for the fulfillment of any Act/ Statute of regulations (such as Labour Laws, Land Acquisition Act etc.) would not count as CSR expenditure under the Companies Act.
   • Contribution of any amount directly or indirectly to any political party shall not be considered as a CSR activity.
   • Activities undertaken by the company in pursuance of its normal course of business.
10. Will being a holding or subsidiary company of a company which fulfils the criteria under section 135(1) make the company liable to comply with section 135, even if the company itself fulfills the criteria
    

    Being a holding or subsidiary company of a company which fulfils the criteria under section 135(1) doesn’t make the company liable to comply with section 135, unless the company itself fulfills the criteria.

11. Whether provisions of CSR are applicable on Section 8 Company, if it fulfills the criteria of section 135(1) of the Act.
    

    Section 135 of the Act reads “ Every company…….”, i.e no specific exemption given to section 8 companies with regard to applicability of section 135, hence section 8 companies are required to follow CSR provisions.

12. Can donation of money to a trust by a company be treated as CSR expenditure of the company?

    General Circular No. 21/2014 of MCA dated June 18, 2014 clarifies that Contribution to Corpus of a Trust/ Society/ Section 8 companies etc. will qualify as CSR expenditure as long as:

    1. the Trust/ Society/ Section 8 company etc. is created exclusively for undertaking CSR activities or
    2. where the corpus is created exclusively for a purpose directly relatable to a subject covered in Schedule VII of the Act
13. There is no need to prepare director’s report for Foreign company so whether it is mandatory for foreign Company also to give reporting of CSR activity
    

    In case of a foreign company, the balance sheet filed under sub-clause (b) of sub-section (1) of section 381 shall contain an Annexure regarding report on CSR.

14. Whether contribution to political party is considered as CSR activity?
    

    Contribution of any amount directly or indirectly to any political party under section 182 of the Act, shall not be considered as CSR activity. (May refer Rule 4(7) of CSR Policy, Rules 2014).

15. Whether CSR projects or programmes for employee of the Company and their family will form part of CSR activity?
    

    NO, 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’. (May refer Rule 4(5) of CSR Policy, Rules 2014).

16. Whether expenditure incurred on disaster relief qualifies for CSR or not?

    Disaster relief can cover wide range of activities that can be appropriately shown under various items listed in Schedule VII. For example,

    1. medical aid can be covered under ‘promoting health care including preventive health care.’
    2. food supply can be covered under eradicating hunger, poverty and malnutrition.
    3. supply of clean water can be covered under ‘sanitation and making available safe drinking water’. (May refer to annexure to General Circular dated 18.06.2014)
17. Whether contribution in kind is permissible as CSR or not?
    

    Section 135 prescribes “….shall ensure that company spends….”.The company has to spend the amount.