Opinion Of Eminent Legal Luminaries On Controversial Issues

Whether CSR Expenses Allowable?

QUERY: Explanation 2 to Section 37 provides that any expenditure incurred by an assessee on the activities relating to corporate social responsibility shall not be deemed to be an expenditure incurred by the assessee for the purpose of business. According to the Memorandum explaining the provisions of the Finance Bill 2014, such expense, being an application of income, is not incurred wholly and exclusively for the purpose of carrying on business and, hence, not allowable as deduction. It also says that CSR which is of the nature described in Section 30 to 36 of the Act shall be allowed under those sections subject to fulfilment of the conditions, if any, specified therein. Which types of expenses can be allowed under these sections?
ANSWER: As it is evident from section 37 of the Act, that it is subject to the provisions of sections 30 to 36. Further, the Finance Minister has clarified that deductions specifically allowable under sections 30 to 36 of the Income-tax Act, 1961 could be availed. In effect, Section 30 of the Act can be used for availing deductions against the expenditure incurred on rent, repairs and insurance in respect of building. Section 31 in respect of repairs and insurance of machinery, plant and furniture used for CSR activities. Thus, rent, rates, taxes and repairs incurred on building or other assets taken on lease earmarked for CSR activities would also qualify for deductions. Companies can also claim deduction towards depreciation on assets used for CSR purposes. Funds spent on skill development projects gives the assessee the benefit of claiming 150% deduction in their books. In fact, the CSR Rules issued by MCA (Ministry of Corporate Affairs) read with the MCA circular dated June 2014 clarifies that CSR activities should be undertaken by the companies in project / programme mode.

Posted in Income-tax

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