Donations that are a component of CSR spending are eligible for a deduction under Section 80G

Fact and issue of the case

Aggrieved by the final assessment orders passed consequent to the di-rections of Hon’ble Dispute Resolution Panel, Bengaluru (“DRP”), in the case of Optum Global Solutions (India) Private Limited (“the assessee”) for the assessment years 2017-18 & 2018-19, under sec-tion 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (for short “the Act”) assessee filed these appeals. For the sake of convenience, we dispose of these appeals by this common order, taking appeal for the assessment year 2017-18 as a lead case.

Briefly stated relevant facts are that the name of the company was changed from QSSI Technologies India Private Limited to Optum Global Solutions (India) Private Limited on 12/07/2016. While scrutinizing the return of income for the assessment year 2017-18, the learned Assessing Officer made certain additions which include the disallowance of the deduction under section 80G of the Act, besides TDS short credit and interest under section 234B and 234C of the Act. Apart from these, there were certain other issues including the transfer pricing adjustment qua the provision of IT services.

When the assessee filed objections before the learned DRP, learned DRP, while confirming the disallowance of deduction under section 80G of the Act, issued certain directions. Though the assessee filed this appeal on several grounds, many grounds were withdrawn, stating the assessee had relief in respect of some issues in the rectification order dated 03/09/2022 and that there is a bilateral APA. Therefore, what remains to be adjudicated only in respect of deduction under section 80G of the Act, TDS short credit.

In so far as the issue relating to the disallowance of deduction claimed under section 80G of the Act qua expenditure incurred in Corporate Social Responsibility (“CSR”) is con-cerned, plea of the assessee is that the assessee donated/ contributed Rs. 3,79,83,500/- towards CSR during the financial year 2016-17 which was debited to P&L account. Out of the aforesaid CSR amount, contributions/donations amounting to Rs. 3.78 crores were made to the institu-tions/organisations registered under section 80G of the Act. Assessee donated Rs. 1,11,46,000/- to the Prime Minister’s National Relief Fund (‘PM Relief Fund’) which is eligible for 100% deduction u/s 80G of the Act, and another sum of Rs. 2,66,54,000/- to the institutions Smile Foundation, Vidya Comfort School, Parikrama Humanity Foundation, Helpage India, Udayan Care, Narayana Hrudayalaya Charitable Trust and Sewa International, which are eligible for 50% deduction u/s 80G of the Act. Accordingly, as-sessee claimed deduction of Rs. 1,33,27,000/-.

Learned Assessing Officer, however, disallowed the deduction under section 80G of the Act stating that CSR expenditure incurred u/s 135 of Companies Act is categorically disallowed under section 37 of the Act, and, therefore, on similar logic deduction under section 80G cannot be allowed. Learned Assessing Officer, relied on CBDT Circular No. 01/2015 dt. 21.01.2015 i.e., Explanatory Notes to the provisions of the Finance Act, to say that CSR expenses can be allowed neither as business expense nor as deduction under Chapter VI-A of the Act. According to the learned Assessing Officer, voluntary act on the part of donor is an essential element to treat the amount paid as a donation and in this case, the donations were made under the compulsion of section 135 of the Companies Act, such donations will be treated as mandatory requirement and assessee will not be eligible to take de-duction under Section 80G of the Act. It is the further observation of the learned Assessing Officer that exclusion of CSR expenditure under clauses (iiihk) and (iiihl) of section 80G(2) of the Act, namely, Clean Ganga Fund and Swacch Bharath Kosh makes it clear that any kind of sum spent on CSR activity is not at all eligible for any deduction under section 80G of the Act.

Learned AR submits that the learned Assessing Officer failed to consider the view taken by the ITAT. Learned AR further submits that on a complete misunderstanding of the cir-cular, learned Assessing Officer concludes that when the law explicitly states the CSR spends can be al-lowed only if covered under section 30 to section 36 only and not otherwise, assessee cannot Suo-moto expand the scope of such a law to imply Section 80G of the Act. According to the Learned AR, the as-sessee duly complied with Explanation 2 to section 37(1) inserted by Finance (No. 2) Act, 2014 and suo moto disallowed CSR expenditure while computing business income. He submitted that Section 80G of the Act provides that any sums paid by the Assessee in the previous year as donations to the specified associations/entities shall be allowable as deduction as per the limits prescribed thereunder; that the restriction provided under section 37(1) of the Act for claiming CSR spends as business expense for the purpose of computation of business income does not override the provisions of section 80G of the Act; that Section 80G applies only where donations have been made to certain specified funds or funds which have been given approval under section 80G of the Act; and that once such condition is met, de-duction under section 80G of the Act forming part of Chapter VI-A which is allowable qua gross total income cannot be denied merely for the reason that such payments formed part of CSR expendi-ture.

Learned AR further argued that there is no bar on claiming CSR expendi-ture as deduction if it falls within the scope of section 30 to 36 of the Act or qualifies for deduction un-der Chapter VI-A. CBDT Circular No. 01/2015 dt. 21/01/2015 in fact supports the position of assessee inasmuch as it specifically provides that there is no estoppel to claim CSR expenditure as deduction if it is of the nature described in section 30 to 36 of the Act; that neither Explanation 2 nor the Circular cast any restriction qua allowability of CSR expenditure as deduction under section 80G of the Act; that Sec-tion 80G and section 37 of the Act are independent; that only in case of specific exclusion provided un-der clauses (iiihk) and (iiihl) of section 80G(2) of the Act stipulate that such contributions shall be other than the sums spent by the assessee in pursuance of CSR under section 135(5) of the Companies Act.

Learned AR placed reliance on FAQ No. 6 in the General Circular No. 01/2016 dated 12/01/2016 issued by Ministry of Corporate Affairs. Lastly, he placed reliance on the decisions of the Co-ordinate Benches of the Tribunal in the cases of First American (India) Pvt. Ltd. vs. ACIT: ITA No. 1762/Bang/2019, Allegis services (India) Pvt. Ltd. vs. ACIT: ITA No. 1693/Bang/2019, FNF India Private Ltd. vs. ACIT: ITA No.1565/Bang/2019, JMS Mining (P.) Ltd. vs. Pr. CIT: [2021] 190 ITD 702 (Kolkata – Trib.), P.C. Chandra Holding Pvt. Ltd. vs. Pr. CIT-2: ITA No. 256/Kol/2022 and Naik Seafoods Pvt. Ltd. vs. Pr. CIT-2: ITA No. 490/Mum/2021 in support of his argument. 9. Per contra, learned DR vehemently opposed the argument advanced by the Learned AR and submitted that as rightly pointed out by the authorities below, when the assessee spends some amount in discharge of their CSR, such spending cannot be said as voluntary and it is only under the compulsion of law. Since the element of voluntariness is missing in this case, the said spending does not fall in the ambit of section 80G of the Act. He further submitted that the assessee cannot claim compliance of the provisions under section 135 of the Companies Act at the same time, when such payments are claimed as donations under section 80G of the Act. If such a plea is accepted, the purpose and philosophy behind the CSR under section 135 of the Companies Act will be defeated and every as-sessee will claim double benefit of the same amount spent, showing it under compliance with section 135 of the Companies Act and also claiming benefit under section 80G of the Act. Learned DR further submitted that when the letter of law is clear and does not warrant any interpretation, no aid need be sought from any other source.

Observation of the court

We are in agreement with such observations and findings of the Coordinate Bench of the Tribunal and while respectfully following the same, we hold that inasmuch as the assessee satisfied the conditions of section 80G of the Act, the assessee is entitled to claim deduc-tion under section 80G of the Act in respect of such donations which formed part of the spend towards CSR. Accordingly, we hold Ground No.2 in favour of the assessee.

Coming to the issue of TDS short credit, it is submitted that after pass-ing of the rectification order dated 03/09/2022, allowing the TDS credit, an amount of Rs. 55,920/- re-lates to Rail Tel Corporation of India was not addressed. We, therefore, direct the learned Assessing Officer to verify this issue and grant TDS credit in respect of Rail Tel Corporation of India also in accord-ance with law.

Interest under section 234B is consequential in nature whereas the issue relating to the interest under section 234C of the Act has been resolved by order dated 03/09/2022.

In view of the above, this appeal of assessee is allowed. Assessment Year 2018-19:

Coming to the appeal for the assessment year 2018-19, ground No. 2 thereof relates to the deduction under section 80G of the Act and it is squarely covered in favour of the assessee by our discussion in the earlier paragraphs. Accordingly, this ground is allowed.

Learned AR submitted in respect of Ground No. 2.1 and 2.2 that a rec-tification application in respect of the adjustment to the book profits under section 115JB of the Act to the tune of Rs. 80,45,41,267/- and interest under section 234C are pending with the learned Assessing Officer and a direction may be given to the learned Assessing Officer to dispose of that application expe-ditiously. Since the assessee sought rectification and such a request is pending before the learned As-sessing Officer, learned Assessing Officer will verify the record and dispose of such an application as ex-peditiously as possible. Ground is accordingly allowed.

All other grounds are not pressed/withdrawn and accordingly they are dismissed.

In the result, both the appeals of assessee are partly allowed.

Order pronounced in the open court on this 16th the day of August, 2023.