-raises more questions than it settles.
Nitu Poddar, Senior Associate ( email@example.com )
Setting off excess-spent on CSR
Pursuant to Rule 7(3) of the CSR Rules, 2014, a company is allowed to take benefit of the excess amount (more than the requirement under section 135(5) spent by it on CSR activities upto three succeeding financial years. This provision has come into effect from January 22, 2021.
Accordingly, the common view that has formed is that only amount that is spent in excess on and from January 22, 2021 can be set off against the CSR obligations of three succeeding year. However, the second view, and the more appropriate one is, even amount spent in excess before Jan 22, 2021 may also be set-off against the CSR obligations of a year, subject to such excess spent is done within three years of taking such set-off. That is to say, any excess spent done in FY 2019-20, 2018-19, 2017-18 could have been set-off in FY 2020-21.
The reason for the second view is that, all that the provisions of Rule 7(3) allows is “setting off “the excess spent, which is being done post January 22, 2021.
Clarification Circular by MCA:
MCA, on May 20, 2021, has issued a Circular, purportedly clarifying the following:
- Any amount spent in excess during FY 2019-20;
- On March 31, 2020;
- By contribution to the PM-Cares
may be set off against the CSR obligation for FY 2020-21 (only) subject to the following conditions:
- Unspent amount, if any, of the previous years, should have been factored;
- CFO and statutory auditor to certify that such amount was
- contributed on 31.03.2020;
- pursuant to the appeal by the MCA.
- Details of such contribution to be disclosed separately in the CSR Report and Board’s Report.
Issues arising from the Circular
The MCA Circular rather raises several questions and leave then unanswered:
- What about the contribution done prior to 31.03.2020?;
- What about the excess spent done in any other activity as mentioned in schedule vii?;
- What about the excess spent done in FY 2018-19 and 2017-18?
- Why a certificate from statutory auditor? This is not required for any other excess spent done neither is this part of Rule 7(3).
The Circular seems to support the view of the ICSI, as mentioned in Q-47 of the FAQ released on April, 29, 2020, which says that only excess spent done after January, 22, 2021 may be allowed to set-off in subsequent years. However, taking such view would may not be the correct interpretation of the applicability of the provisions.
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