Ajay Kumar K V | Vinod Kothari and Company
Corporate Social Responsibility (‘CSR’) is a concept whereby an entity integrates its business with the social goals in order to achieve a socio-economic balance. In India, section 135 of Companies Act, 2013 (‘Companies Act’) and the rules made thereunder govern CSR activities to be mandatorily undertaken by companies which fulfill the criteria as specified in the said Act. The CSR norms have recently undergone substantial changes.
When the CSR provisions were initially notified, corpus contribution to specific funds & activities was considered to be CSR expenditure under the extant CSR Rules (see, Rule 7 before amendments). The term ‘contribution to corpus’ led to confusion among the industry and MCA came out with a clarification letter (No. 05/01/2014- CSR) dated 18th June, 2014 clarifying that the contribution to Corpus of a Trust/ society/ section 8 companies etc. will qualify as CSR expenditure as long as (a) the Trust/ society/ section 8 companies etc. is created exclusively for undertaking CSR activities or (b) where the corpus is created exclusively for a purpose directly relatable to a subject covered in Schedule VII of the Act.
However, the CSR rules, in their present form, do not mention the term ‘corpus’ anywhere. As such, the question is whether corpus contribution is still an eligible CSR expenditure.
What is ‘corpus’?
‘Corpus’, in the context of trusts, etc. would generally mean contributions in the nature of capital. The courts and tribunals have opined that corpus specific voluntary contributions are of capital nature and hence are not taxable at the hands of the trust. In Sukhdeo Charity Estate v. Commissioner of Income-Tax, the Rajasthan High Court observed as follows:
“”Corpus” is a Latin word and the English meaning of it is a “body”. In Random House Dictionary, college edition, page 301, one of the meanings of “corpus” is “a principal or capital sum, as opposed to interest or income”. Similar is the meaning of the word “corpus” in Black’s Law Dictionary, 5th edition, page 310, Thus, a capital amount in the form of money, movable or immovable property and the donations received by a charitable trust for specific purposes may be said to be corpus or remained any capital in a fund in contrast to income.”
The Technical Guide issued by the Institute of Chartered Accountants of India observes specific features of ‘corpus’ in the context of non-profit organisations (NPOs). The Technical Guide also discussed various kinds of ‘funds’ as may be maintained by the NPOs – restricted funds, unrestricted funds, etc. Restricted funds are subject to certain conditions set out by the contributors and agreed to by the NPO when accepting the contributions. The restriction may apply to the use of the moneys received or income earned from the investment of such moneys or both. Funds, the use of which is subject to legal restrictions, are also considered as restricted funds.
See also, exposure draft on Uniform Accounting & Reporting Framework for NGOs which also makes similar observations.
Corpus contribution under Income Tax Act
Voluntary contributions to trusts, etc. are made taxable vide the definition of income under Section 2(24) (iia) of the Income Tax Act which reads as under-
“2(24)(iia) Voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) or by any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to in sub-clause (iiiae) or sub-clause (via) of clause (23C) of section 10 or by an electoral trust.”
As per Section 12 of the Income Tax Act, any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes.
It is a settled legal proposition, in case of a registered Trust under the Income-Tax Act, the corpus specific voluntary contributions are outside the scope of income as defined in section 2(24)(iia) of the Act due to their “capital nature”.
See, Sukhdeo Charity Estate v. Commissioner of Income-Tax (supra). In ITO v. Shri Sachyaya Mataji Trust [ITA No.538/Jodh/2013,] dated 09/05/2014, the Jodhpur bench of ITAT held that if a voluntary contribution is made with a specific direction, it shall be treated as capital of the trust for carrying on its charitable or religious activities. Then such an income falls under section 11(1) (d) as is not liable to tax. If the intention of the donor is to give that money to a trust to keep in trust the account in deposit and utilise the income therefrom for carrying on a particular activity, it satisfies the definition part of the corpus. The assessee would be entitled to the benefit of exemptions from payment of tax.
On an analysis of the above case laws and the provisions of the Income Tax Act, ‘corpus’ would include sums given with specific directions.
Thus voluntary contribution made with a specific direction as in the case of a CSR project contribution is a capital receipt for the Trust and hence not taxable as income. The money received in these funds has a specific purpose and not available for conducting activities that are ancillary to the main objects of the trust.
Corpus Contribution and CSR
The above discussion brings in more clarity with respect to the term ‘corpus contribution’. Corpus contribution, as is generally understood, is a contribution of capital nature, given with specific directions. In respect of CSR, since it has a specific purpose and is mandated by the law, it can be termed as corpus contribution.
The objective of CSR is broad and restricting CSR to only projects/programmes to be undertaken by the company (either directly or through implementing agencies) would narrow down the benefits which CSR provisions intend to offer. As such, fund contributions (of course, subject to certain conditions), should qualify as CSR Expenditure.
In Technical Guide on Accounting of CSR Funds by Third Parties [February, 2021], para 26 states as follows –
“26. The third parties i.e. section 8 company, or a registered trust or registered society may receive Corpus donation, which could be a CSR expenditure in the hands of the donor company if the required conditions are complied with. Corpus donations are with a specific direction regarding the use of the funds and characteristically capital in nature. MCA in General Circular No.21/2014 dated 18th June 2014 has clarified that contribution to Corpus of a Trust/ society/ section 8 companies etc. will qualify as CSR expenditure . . .”
Therefore, note that, such corpus contribution will still be subject to the 2 conditions as stated in the MCA Circular of 2014 (see, above). Also, there must be clear directions on the part of the company to the said entity as regards activities to be undertaken, modalities of fund utilisation, etc. and the company shall use appropriate monitoring and reporting measures to satisfy itself that the funds have been utilised for the specified activity/activities.
Here, one should also distinguish between fund contribution to an entity and making disbursement of funds to an implementing agency. In our earlier article titled ‘Understanding the borderline between implementing agencies and beneficiaries’, we have discussed distinguishing features of an ‘implementing agencies’, and ‘beneficiaries’ and the consequential impact of the same on the CSR compliances by the company. In case of fund contribution, the entity shall rather be a ‘beneficiary’ and not an ‘implementing agency’.
Basis discussions above, one may view that corpus or fund contributions should qualify as CSR expenditure provided that, the following conditions are fulfilled –
- (a) the entity is created exclusively for undertaking CSR activities or (b) where the fund/corpus is created exclusively for a purpose directly relatable to a subject covered in Schedule VII of the Act.
- the company gives specific directions to the entity with respect to activities, etc. to be undertaken, and for utilisation of the funds so contributed;
- the entity provides proper fund utilisation reports to the company such that the company can assess impact of the contributions and satisfy itself that the funds have been actually used for the specified activities.
The above conditions are in addition to the overarching regulatory requirements of having a CSR committee, and a well-defined CSR policy, etc. Any corpus/fund contribution proposed to be made shall be subject to overall regulatory requirements.
 See Technical Guide on Accounting for Not-for-Profit Organisations here: https://kb.icai.org/pdfs/PDFFile5b279c36d4ec27.59253395.pdf
 ICAI: https://resource.cdn.icai.org/62997csr50957tg-csrfunds.pdf