FAQs on Corporate Social Responsibility

9 replies
  1. Avinash Bansal
    Avinash Bansal says:

    I need a clarification on Q.33
    Suppose we not spend full amount on CSR and next year we spend unspent amount of previous year over and above of current year obligation can treat as CSR expenses and will adjust of previous unspent amount.

    Example:
    FY Amount to be spent Amount spend (Short)/ excess
    2017-18 1,00,00,000 50,00,000 (50,00,000)
    2018-19 1,00,00,000 50,00,000 (50,00,000)
    2019-20 1,00,00,000 2,00,00,000 1,00,00,000

    Reply
  2. SATISH MEHTA
    SATISH MEHTA says:

    I have some query/ difficulty in understanding the answer no 39 of the captioned FAQ on CSR.

    For ready reference, I reproduce the said question and answer and then I will try to explain my query.

    =============================================================================================================

    39. If current Financial Year’s net profits are less than 5 crore, whether company will be required to make CSR expenditure for next Financial Year?

    Rule 3(2) of the Companies (CSR Policy) Rules, 2014 states that:
    “(2) Every company which ceases to be a company covered under subsection (1) of section 135 of the Act for three consecutive financial years shall not be required to (a) constitute a CSR Committee; and (b) comply with the provisions contained in sub-section (2) to (5) of the said section, till such time it meets the criteria specified in sub-section (1) of section 135.”

    Accordingly, applicability of CSR is not required to be checked every year except where the company ceases to be covered under section 135 (1) for 3 consecutive financial years. In the instant case, even though current Financial Year’s net profits are less than 5, the Company will still be covered under section 135 (1) of the Act, 2013 and hence be required to spend in accordance with section 135 (5) of the Act, 2013 provided it has a positive balance on the average to be spent.
    =====================================================================================================================
    Query –

    Sir, I understand that provisions of Rule 3(2) will have to be complied with even if a company is not covered under the sub-Section (1) of Section 135.
    And therefore, provisions of sub-sections (2) to (5) of S. 135 have to be complied with (in addition to CSR Committee) even if a company is out of S. 135(1).
    Sub-section (5) of S. 135 prescribed quantum of CSR Spend to be spent.

    The said sub-section starts with “”The Board of every company referred to in sub-section (1), shall ensure ….”.

    As per my understanding, based on above wording, compliance of sub-section (5) of S. 135 restricts its applicability only to the companies covered under Section 135(1).
    In other words, if a company is not covered under s. 135(1), it is not required to and can not comply with S.135(5) (although mentioned in the Rule).
    And therefore, there is no provision applicable relating to quantum of CSR Spend for that company.

    I would be obliged if you share your views on this.

    Reply
    • Smriti Wadehra
      Smriti Wadehra says:

      Sir,

      On a combined reading of the provisions of section 135(1) of Companies Act, 2013 and Rule 3(2) of Companies (Corporate Social Responsibility) Rules, 2014, we understand that the applicability of CSR spending comes from section 135(1) of the Act. Hence, if in any particular year, the Company does not get triggered by the limits prescribed under the section, there shall be no requirement of spending for that FY.

      Further, the other compliances as required under the section may not with complied, as the intent of the section is not just to form the Committee and frame the policy but to spend towards CSR.

      Reply
  3. Tanushree Uplenchwar
    Tanushree Uplenchwar says:

    I understand that if an asset is capitalised and claimed as a CSR expenditure in the year in which it is capitalised, we cannot claim depreciation as a CSR expenditure in future years, since that will lead to duplication of same expenditure. The question however is -Can we claim the depreciation as a eligible CSR expenditure over the useful life of an asset (which is used for CSR) where such a CSR asset is not claimed as eligible CSR expenditure in the first year of capitalisation of the entire amount?

    Reply
    • Megha Saraf
      Megha Saraf says:

      Hi Tanushree, 

      The intent of CSR is to do actual spending and not to concoct ways to demonstrate expenditure has been done to meet the threshold spending requirement. The tax allowance for CSR expenditure for CSR expenditure is the benefit the company gets for incurring such expenditure. Depreciation on the other instance is not a cash outflow. Therefore, depreciation or tax forgone cannot tantamount to CSR expenditure.Further, expenditure on CSR cannot result into creation of property which belongs to the company i.e. the company will not be the beneficiary of that property at all. If that is the case, the question of any capitalisation or depreciation of the property will not arise.   

      Reply
  4. Sushil Sharma
    Sushil Sharma says:

    Thanks for the explanation.
    In continuation, I came to understand that in Finance Act, 2016, amendment has been made to exclude a company registered in India (having more than 50% share holders outside India), having investment made in India through automatic route, from the definition of Foreign source.
    I am confused after going through the said amendment.
    Hence requesting you to please give some light on the same amendment.

    Reply
  5. Staff Publication
    Staff Publication says:

    Contribution by foreign companies to third parties for CSR- whether attracts FCRA provisions?

    The definition of ‘foreign contribution’ under FCRA is wide enough to include not only money, but also any article or security transferred from a foreign source, either directly or indirectly, under the purview of FCR Act. In this regard, if we consider the text of Explanation 3 of the definition, it seems to exempt money received for goods or services in the ordinary course of business. Therefore, in our view, if contribution is provided by foreign companies to third parties (implementing agencies) such as NGOs/ NPOs/ Section 8 companies for the purpose of carrying out their own charitable activities, the same shall not qualify as foreign contribution. However, if the NGOs/NPOs/Section 8 companies further extend the funds to any other entity, the provisions of FCRA shall be attracted.

    Reply
    • Sushil Sharma
      Sushil Sharma says:

      Thanks for your reply and nice explanation.
      In continuation, I came to understand that in Finance Act, 2016, amendment has been made to exclude a company registered in India (having more than 50% share holders outside India), having investment made in India through automatic route, from the definition of Foreign source.
      I am confused after going through the said amendment.
      Hence requesting you to please give some light on the same amendment.

      Reply
      • Smriti Wadehra
        Smriti Wadehra says:

        As rightly mentioned by you, pursuant to the amendment introduced by the Finance Act, 2016, Indian companies whose nominal capital has been held by the foreign companies within the sectoral caps as provided under the FEMA Act, 1999 shall not be regarded as a foreign source. Hence, any contribution by such companies shall not trigger the provisions of FCRA. 

        However, in this regard, please note that the said clause pertains to holding of nominal capital only. Accordingly, if an Indian company becomes a subsidiary of a foreign company other than by virtue of shareholding, then the benefit of this clause may not apply, since, the definition of foreign source under FCRA still includes a ‘foreign company’ and in turn the term ‘foreign company’ is defined to include ‘a subsidiary of foreign company’.

        Reply

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *