Tax Tribunals Permit Deductions for CSR Donations
Mumbai: In a recent development, the Income Tax Appellate Tribunal (ITAT) benches in Delhi and Mumbai have approved a deduction under Section 80-G of the Income Tax Act for donations made by two corporate entities. These donations, even though they were part of the companies’ Corporate Social Responsibility (CSR) expenditures, have been acknowledged as deductible.
Historically, Income Tax officials had rejected the deductions for donations under CSR expenses, arguing that such expenses are mandated by the Companies Act and not voluntary. The officials contended that donations could only be deductible if they were given voluntarily, a viewpoint previously upheld during assessments.
However, the ITAT’s recent rulings have shifted this perspective. The tribunals recognized that, although CSR expenditures are a compliance requirement under the Companies Act, they can still qualify for deductions under Section 80-G. This decision marks a significant change in the interpretation of tax laws concerning CSR activities.
Under Section 135 of the Companies Act, companies with a net worth of Rs 500 crore or more, or a turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more, are required to spend at least 2% of their average net profit over the preceding three years on CSR activities. With the ITAT’s decision, these companies now have clearer guidance that their mandatory CSR expenditures can also benefit from tax deductions.
Navin Ballodia, a tax partner at BDO-India, commented on this development, stating, “Tribunals are now increasingly allowing the deduction under section 80-G. The reason for the allowance is that there is no bar under section 80-G to disallow the expenditure.”
This ruling is expected to provide substantial relief and clarity to numerous companies striving to fulfill their CSR obligations while managing their tax liabilities effectively.
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