Opinion Of Eminent Legal Luminaries On Controversial Issues

Whether CSR Expenditure Be Allowable As Business Expenditure?

QUERY: A company, obliged to spend 2% of average net profits on Corporate Social Responsibility. Considering the fact that the mandates of the Companies Act on CSR specifies only expenditure specified in Schedule VII, which are not related to business. Further the CSR rules insist that the expenditure should not be in the course of business or undertaken for employees and families. Will this expenditure be allowed as business expenditure? Will it be treated on par with other statutory payments and be subject to 43B.
ANSWER: Explanation 2 has been inserted in section 37(1) of the Act with effect from assessment year 2015-16 which reads as under:

“For the removal of doubts, it is hereby declared that for the purpose of sub-section (1), 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 purpose of the business or profession”

Further, there is no provision under section 43B to consider such payment as statutory payments. Section 43B applies only when statutory payments are made and not only provided. While Explanation 2 of section 37(1) as mentioned above, completely prohibits deduction of such expenses whether incurred or paid.
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Credit: Several of the queries and answers are reproduced with permission from the AIFTP Journal. We thank AIFTP for generously allowing us to host their research material.
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