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AAR Ruling: CSR activities are not eligible for an input tax credit (ITC)

Fact and issue of the case

M/s SHRIRAM PISTONS AND RINGS LIMITED, A-4 to A-7, B-8/1 & 2, B 9 & 10, Industrial Area III, Meerut Road, Ghaziabad- 201 003 (U.P.) (here in after referred to as the applicant) is a registered assessee under GST having GSTIN: 09AAACS0229G1 ZN.

The applicant has submitted an application for Advance Ruling dated 14.10.2022 enclosing dully filled Form ARA-01 (the application form for Advance Ruling) along with annexure and attachments. The applicant in his application has sought advance ruling on following question-

Whether the Applicant is entitled to avail Input Tax Credit of the GST paid on various services/ expenses incurred towards discharging its CSR obligation, can be considered as being in course or furtherance of business in terms of Section 76(1) of the CGST Act, 2017 r/w UPGST Act, 207Th

As per declaration given by the applicant in Form ARA-01, the issue raised by the applicant is neither pending nor decided in any proceedings under any of the provisions of the Act, against the applicant.

Shriram Pistons and Rings Limited (hereinafter referred to as ‘Applicant’) is engaged in manufacture and supply of automobile parts (two wheelers and four wheelers) viz. Engine Parts such as Pistons, Piston rings, Engine Valves etc. and related products from its manufacturing unit (factory) located at A-4 to A-7, B-8/1 & 2, B 9 & 10, Industrial Area III, Meerut Road, Ghaziabad- 201 003 (U.P.).

The Applicant is a company incorporated under the Companies Act, 1956 and is engaged in developing, manufacturing and marketing of its finished products. The Applicant with GSTIN 09AAACS0229G1ZN is registered with the Goods and Services Tax Department in the state of Uttar Pradesh and falls within the jurisdiction of Central Goods and Services Tax Commissionerate, Ghaziabad.

With an initiative to provide financial assistance to improve the lives of under-served and unprivileged sections of the society, the Ministry of Corporate Affairs of the Government of India, vide an amendment in 2013 in the Companies Act 1956, introduced ‘Corporate Social Responsibility Policy’ (hereinafter referred, as `CSR’) in Section 135 of the Companies Act. The said Policy provides the guidelines to be followed by corporations/companies for conducting Corporate Social Responsibility by contributing to improve sanitation, water facility, healthcare, education, etc.

In view of Section 135 of the Companies Act, 2013 (hereinafter referred to as the `Companies Act’), a Company having net worth of five hundred crore or more, or turnover of more than one thousand crore or more or a net profit of rupees five crore or more during the immediate preceding financial year, is bound to constitute a Corporate Social Responsibility Committee (`CSR Committee’). The provisions relating to Corporate Social Responsibility (CSR) is enumerated in Section 135 of the Companies Act and the same is reproduced below:

Corporate Social Responsibility.

Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during the immediately preceding financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more Directors, out of which at least one director shall be an independent director. Provided that where a company is not required to appoint an independent director under sub-section (4) of Section 149, it shall have in its Corporate Social Responsibility Committee two or more Directors.]

The Corporate Social Responsibility Committee shall –

formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company [in areas or subject, specified in Schedule VII] ;

recommend the amount of expenditure to be incurred on the activities referred to in clause (a);

monitor the Corporate Social Responsibility Policy of the company from time to time.

The Board of every company referred to in sub-section (1) shall, –

after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company’s website, if any, in such manner as may be prescribed; and

ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.

The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years [or where the company has not complete the period of three financial years since its incorporate, during such immediately preceding financial years], in pursuance of its Corporate Social Responsibility Policy: Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities: Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of Section 134, specify the reasons for not spending the amount [ and, unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII within a period of six months of the expiry of the, financial year]. Provided that also that if the company spends an amount in excess of the requirements provided under this sub-section, such company may set off such excess amount against the requirement to spend under this sub-section for such number of succeeding financial years and in such manner, as may be prescribed] [Explanation – For the purpose of this section “net profit’ shall not include such sums as may be prescribed, and shall be calculated in accordance with the provisions of Section 198]

Any amount remaining unspent under sub-section (5), pursuant to any ongoing project, fulfilling such conditions as may be prescribed, undertaken by a company in pursuance of its Corporate Social Responsibility Policy, shall be transferred by the company within a period of thirty days from the end of the financial year to a special account to be opened by the Company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account, and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year.

If a company is in default in complying with the provisions of sub-section (5) or sub-section (6), the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one crone rupees, whichever is less, and every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or two lakh rupees, whichever is less.

Observation of the court

In view of the above discussions, we, both the members pass the following ruling-

RULING

Answer: CSR activities, as per Companies (CSR Policy) Rules, 2014 are those activities excluded from normal course of business of the applicant and therefore not eligible for ITC, as per Section 16(1) of the CGST Act.

This ruling is valid only within the jurisdiction of Authority for Advance Ruling Uttar Pradesh and subject to the provisions under Section 103(2) of the CGST Act, 2017 until and unless declared void under Section 104(1) of the Act.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here

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The 26,134 Imprisonment Clauses in India’s Business Laws

India suffers from ‘regulatory cholesterol’ that is getting in the way of doing business. The legislations, rules and regulations enacted by the Union and State governments have over time created barriers to the smooth flow of ideas, organisation, money, entrepreneurship and through them the creation of jobs, wealth and GDP.

The presence of hostile clauses in these laws, rules and regulations has grown since Independence, surviving three decades of economic reforms initiated in 1991. The biggest challenges come from the continuance of imprisonment as a tool of control. As automation increases in the coming years, the pre-Independence 1940s-style administrative controls meant to protect labour will prove counter-productive in 21^st-century India.

There are 1,536 laws that govern doing business in India, of which 678 are implemented at the Union level. Within these laws is a web of 69,233 compliances, of which 25,537 are at the Union level. These compliances need to be communicated to the governments through 6,618 annual filings, 2,282 (34.5 percent) at the Union level and at the states, 4,336.

These changes in compliance requirements occur constantly and add to business uncertainty. In the 12 months up to 31 December 2021, there have been 3,577 regulatory changes; over the three years from 1 January 2019 to 31 December 2021, there were 11,043 changes in compliance requirements. This translates to an average of 10 regulatory changes every single day.

Of the 1,536 laws that govern doing business in India, more than half carry imprisonment clauses. Of the 69,233 compliances that businesses have to follow, 37.8 percent (or almost two out of every five) carry imprisonment clauses. More than half the clauses requiring imprisonment carry a sentence of at least one year.

Several of these clauses criminalise process violations, while some of them punish inadvertent or minor lapses rather than wilful actions to cause harm, defraud, or evade. For some laws, delayed or incorrect filing of a compliance report is an offence whose punishment stands on par with sedition under the Indian Penal Code, 1860.

The largest number of imprisonment clauses are found in labour laws, with more than 50 such clauses per law. Five states have more than 1,000 imprisonment clauses in their business laws: Gujarat (1,469 imprisonment clauses); Punjab (1,273); Maharashtra (1,210); Karnataka (1,175); and Tamil Nadu (1,043).

This report argues that the criminalisation of business laws violates Indian business traditions: from the Mahabharata to the Arthashastra, criminality was never a part of punitive action against businesses in ancient India — only financial penalties were. Reforming these clauses is necessary to restore dignity to entrepreneurship in India. The authors make 10 major, and 31 minor recommendations:

1: Reform the way policies are designed.

2: Use criminal penalties in business laws with extreme restraint.

3: Constitute a regulatory impact assessment committee within the Law Commission of India.

4: Involve all independent economic regulators in compliance reforms.

5: End the criminalisation of all compliance procedures.

6: Create alternative mechanisms and frameworks.

7: Define standards for legal drafting.

8: Introduce sunset clauses.

9: Reform with one legislation.

10: Infuse dignity to entrepreneurs, businesspersons and wealth creators.

Introduction

India’s business regulation framework needs a 21^st century rethink. This paper provides the basis for it. It seeks to deepen the debate around economic reforms in the world’s fifth-largest economy, which is headed towards becoming the world’s third largest before 2030. Using newly isolated data, it collects, compiles and analyses 26,134 specific clauses in the country’s business legislations, rules and regulations that impose prison terms for violations. As it explores the discourse around what this report calls “regulatory cholesterol” (defined below) that places hurdles before India’s entrepreneurs, it situates itself within the ongoing policy discussions around reducing imprisonment clauses in India’s business laws. In March 2020, for instance, the Union Cabinet made clear its legislative intent to rationalise such clauses by approving related amendments in the Companies Act, 2013.

This planned rationalisation is a crucial policy correction. Seven months earlier, in July 2019, the government had tabled, and Parliament had enacted, the Companies (Amendment) Act, 2013 in which it had amended Section 135 of the law and criminalised violations on corporate social responsibility (CSR) with imprisonment. “Every officer of such company who is in default shall be punishable with imprisonment for a term which may extend to three years,” Subsection 7 of Section 135 of the amended law states. Following resistance from the corporate sector, the government announced it will not operationalise this clause, less than two weeks after enactment of the law. While the clause has not been notified so far, it remains etched in law, and could still be executed.

Less than three months after the amendment was enacted, on 7 August 2019, a committee on CSR submitted a report titled, ‘Report of the High Level Committee on Corporate Social Responsibility – 2018’. Set up 11 months earlier and chaired by the Secretary of the Ministry of Corporate Affairs, Injeti Srinivas, the committee recommended that unspent CSR funds be spent within three to five years. In case a company fails to spend, the money should be transferred to a fund to be specified by the government. Further, a penalty of two to three times the default amount should be imposed subject to a maximum of Rs 1 crore. However, there will be no imprisonment.

There are 176 imprisonment clauses in the Companies Act, 2013 read with 14 related Rules. The jail terms range from less than three months to as high as 10 years. The Ministry of Corporate Affairs says the offences may be classified into two broad categories: those calling for imposition of monetary penalties; and those calling for imposition of imprisonment, with or without fine. Only after a new amendment Bill has been drafted and tabled in Parliament would it become clear whether the government is keen on removing or reducing criminal clauses in this law. This will be an important change—a crucial marker in the rationalisation or the removal of criminality in business laws.

Further, labour laws are currently being reformed. The 29 central labour laws are being subsumed into four labour codes—Code on Wages, 2019; Occupational Safety, Health and Working Conditions Code, 2020; Code on Social Security, 2020; and Industrial Relations Code, 2020. Once notified, the four codes are expected to reduce the number of sections from 1,232 to 480, or a 61-percent reduction. On initial assessment, imprisonment provisions will reduce by half.

If the amendments to the Companies Act, 2013 are enacted, it could be the starting point for deeper economic reforms. India’s entrepreneurial landscape is full of laws, rules, and regulations that have raised barriers to doing business. The Factories Act, 1948, for instance, read with 58 rules, contain 8,682 imprisonment clauses. This is an important law as it provides core protections to workers. Even simpler laws similarly have multiple imprisonment clauses: the Legal Metrology Act, 2009 read with 29 rules, has 391 imprisonment clauses; the Electricity Act, 2003 read with 35 rules, has 558; and the Motor Vehicles Act, 1988 read with nine rules has 134.

This report creates the foundations of new information around the unexplored area of imprisonment clauses in business laws. It informs the ongoing debate around simplifying laws, making them less coercive and more investment-friendly to attract capital and entrepreneurs into India as they exit China, and make Indian businesses more comfortable to be able to do what they do best: create value for society, jobs for India’s young demographic, taxes for the government, and wealth for investors.

Economic growth today is a political imperative, private sector enterprises the drivers, capital the catalyst, and entrepreneurs the executors. All have to work together and function in unison. Seventy-five years after independence, these four seem to be converging, but the weight of past excesses has now grown into a labyrinth of policy complexities that need to be rationalised. Good economics, or ‘good business’, is becoming good politics.

The analysis and recommendations this report makes will contribute to a new and original theory that links India’s legal system, economic growth and prosperity with the most important and equally condemned factor of production—the entrepreneur. To that extent, this report takes a macroeconomic and legal look at the microeconomics of manufacturing, in particular and business, in general. The report seeks to start new streams of research within which to examine economic growth, and through it sow the seeds of a new 21^st century model of development that turns the current model on its head by focusing on and according dignity to value creators.

The report proceeds as follows. Section I introduces the paper. Section II frames the problem and provides a historical context from which to envision the future. Section III defines this problem as part of what this report expresses as “regulatory cholesterol”, which illustrates how India’s policymaking has slowed the country’s entrepreneurs, and thereby the country’s growth. Section IV places the data sources used. This data is an entirely new addition to India’s economic literature. It also explains how the report has classified the data into seven parts: labour; finance and taxation; environment, health and safety; secretarial; commercial; industry specific; and general.

Section V analyses the imprisonment clauses within smaller intervals. It will help the country debate and policymakers focus on a large number of clauses from which to study those that can be easily eliminated. Section VI disaggregates the data and analyses the imprisonment clauses across the seven categories defined above. Section VII disaggregates the data and analyses the imprisonment clauses across the Union and state governments, and explores the extent of excesses across these geographies. Section VIII delves into the philosophy of punishment frameworks in India, and compares India’s business laws with the Indian Penal Code, 1860. The results are instructive. Section IX argues for change and offers 11 streams of recommendations to policymakers and lawmakers on how to deliver this change. Section X concludes the paper and offers a new context of India’s economic discourse that leans towards compliance reforms in general, and imprisonment clauses within them, in particular.

Read the entire report

ORF_Monograph_JailedForDoingBusiness_Final-New-11Feb-1

Source: https://www.orfonline.org/research/jailed-for-doing-business/?amp#_ednref6

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February, 11
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Compliance Law, Corporate Law
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Clarification on off setting the excess CSR spent for FY 2019-20

E-file no. CSR-01/4/2021-CSR-MCA
Government of India
Ministry of Corporate Affairs

5th Floor, ‘A’ Wing, Shastri Bhawan,
Dr. R. P. Marg, New Delhi-110001
Dated: 20th May 2021

Circular

To,
All concerned stakeholders.

Subject: Clarification on offsetting the excess CSR spent for FY 2019-20 – reg.

Madam/ Sir,

Keeping in view the spread of COVID-19 in India, an appeal dated 30.03.2020 was made to MDs/CEOs of top 1000 companies in terms of market capitalization, to contribute generously to “Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund” (PM CARES Fund). In the appeal, it was mentioned that such contribution may, inter-alia, include the unspent CSR amount, if any, and an amount over and above the minimum prescribed CSR amount for FY 2019-20, which can later be offset against the CSR obligation arising in subsequent financial years. The said appeal was uploaded on the website of the Ministry and sent to e-mails of the aforementioned corporates on 31.03.2020.

2. In pursuance to the said appeal, certain companies claimed to have contributed CSR funds to the ‘PM CARES Fund’ over and above their prescribed CSR amount for FY 2019-20. Several representations have been received in the Ministry for setting off the excess CSR amount spent by the companies in FY 2019-20 by way of contribution to ‘PM CARES Fund’ against the mandatory CSR obligation for FY 2020-21.

3. The issues raised in the said representations have been examined in the Ministry and accordingly, it is hereby clarified that where a company has contributed any amount to ‘PM CARES Fund’ on 31.03.2020, which is over and above the minimum amount as prescribed under section 135(5) of the Companies Act, 2013 (“Act”) for FY 2019-20, and such excess amount or part thereof is offset against the requirement to spend under section 135(5) for FY 2020-21 in terms of the aforementioned appeal, then the same shall not be viewed as a violation subject to the conditions that:

i. the amount offset as such shall have factored the unspent CSR amount for previous financial years, if any;

ii. the Chief Financial Officer shall certify that the contribution to “PMCARES Fund” was indeed made on 31st March 2020 in pursuance of the appeal and the same shall also be so certified by the statutory auditor of the company; and

iii. the details of such contribution shall be disclosed separately in the Annual Report on CSR as well as in the Board’s Report for FY 2020-21 in terms of section 134(3) (o) of the Act.

4. This issues with the approval of the competent authority.

Yours faithfully,

(Shobhit Srivastava)
Deputy Director (CSR Cell)
Tel: 011-23070216

Copy to:

1. E-Governance for uploading on MCA website.

2. Guard File

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May, 21
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MCA Circular
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Form CSR- Instructions for Filling of e-form CSR

Form CSR-Instructions for Filling of e-form CSR(Form for voluntary reporting of Corporate Social Responsibility)

Note:

1. Instructions are not provided for the fields which are self explanatory

2. If the space within any of the fields is not sufficient to provide all the information, then additional details can be provided as an optional attachment to the e-Form.

Please note the following:

Refer ‘Corporate Social Responsibility Voluntary Guidelines, 2009’ available on the MCA portal under the ‘MCA Guidelines 2009’

Refer the relevant provisions of the Companies Act, 1956 and rules made there under with respect to the matter dealt in the e-Form

Enter the Corporate Identity Number (CIN) of the company

You may find CIN by entering existing registration number or name of the company in the ‘Find CIN/GLN’ service at the MCA21 portal
Click the “Pre-fill” button.
System will automatically display the name, registered office address and the email ID of the company. In case there is any change in the email ID, enter the new valid email ID.

Part B

I. CSR Policy

2. Enter the DIN of the director responsible for the corporate policy. DIN entered should be an approved DIN.

Click the “Pre-fill” button. System will automatically display the name of such director. Select the appropriate designation of the director

System shall validate that in case period for which CSR is being reported (‘From date’ in field number 2) is on or after 01 .07.2007, then DIN entered should be associated with the company as on date of filing the eForm or at anytime during the period for which CSR is being reported.

In case the details do not exist in the system, DIN of that person shall not be allowed to be entered. For such cases, Company would need to ensure that Form DIN-3 or Form 32, as the case may be, has been filed in respect of that person.

II. Governance relating to CSR

2(c) In case there is a stakeholder relationship committee or similar committee of the Board of Directors, enter the name of such committee and the number of directors who are member of the committee.

(d) Based on the number entered, blocks for entering details of directors shall be displayed. Details of maximum of four (4) directors can be filed through this eForm. If the total number is more than four, then details of remaining director(s) can be provided as an optional attachment.

Enter the DIN of the director. DIN entered should be an approved DIN.
Click the “Pre-fill” button. System will automatically display the name of such director. Select the appropriate designation of the director.
System shall validate that in case period for which CSR is being reported (‘From date’ in field number 2) is on or after 01 .07.2007, then DIN entered should be associated with the company as on date of filing the eForm or at anytime during the period for which CSR is being reported. In case the details do not exist in the system, DIN of that person shall not be allowed to be entered. For such cases, Company would need to ensure that Form DIN-3 or Form 32, as the case may be, has been filed in respect of that person.

Attachments

Company CSR Policy
Company CSR Report
Company sustainability report
Details of subsidiary(s) included in Part B
Details of other entity(s) included in Part B
Any other information can be provided as an optional attachment

Verification

Enter the serial number and date of board resolution authorising the signatory to sign and submit the eForm.

Signature

The eForm should be digitally signed by managing director or director or manager or secretary of the company authorised by the board of directors.

Designation

Select the designation of the person digitally signing the eForm.

Enter the DIN in case the person digitally signing the eForm is a director or managing director Enter income-tax PAN in case the person signing the eForm is a manager

Enter membership number or income-tax PAN in case the person digitally signing the eForm is a secretary.

Common Instruction Kit

Pre-fill

When you click the pre fill button after entering the Corporate Identity Number in the eForm, the name is displayed by the system. This button may appear more than once in an eForm, and shall be required to be clicked for displaying the data pertaining to that field. You are required to be connected to the Internet for pre-filling.

Attach

Click the Attach button corresponding to the document you wish to attach. In case you wish to attach any other document, click the Optional Attachment button (Through Optional attachment, you can attach maximum five attachments).

Remove attachment

You can view the attachments added to eForm in the rectangle box provided next to the list of attachment. If the user wants to remove or delete any attachment, select the attachment to be removed and press the “Remove attachment” button.

Check Form

Once the eForm is filled up, click the Check Form button for form level validation, for example, to check whether all the mandatory fields have been filled or not. If an error is displayed, rectify the error and click the “Check Form” button again. When the form level validation is complete, the message, “Form level pre scrutiny is successful”, is displayed. The form level validation (Check Form) is done without being connected to the Internet.

Modify

The “Modify” button gets enabled after the check form is done. By clicking this button, you can make changes in the filled eForm. The digital signatures, if already attached, shall be removed. Once you have changed the filled eForm, click the Check Form button again.

Prescrutiny

The “Prescrutiny” button gets enabled once check form is done. You are required to be connected to the Internet for pre scrutiny. On pre-scrutiny, the system level check is performed and if there are any errors, the same are displayed to the user. After correcting the pre scrutiny errors, attach the digital signature on the eForm in the signature field.

Upload eForm

Once the eForm is pre scrutinised, filled and signed, it is ready for uploading on the MCA21 portal. Login to the MCA21 portal with your user ID and password for uploading the eForm.

Note: User is advised to refer to eForm specific instruction kit.

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Covid 19 Research and Development of new vaccine, drugs and medical devices will be allowed as CSR Activities to Companies

Companies (Corporate Social Responsibility Policy) Amendment Rules, 2020

The Ministry of Corporate Affairs, vide Gazette Notification dated 24^th August, 2020, has made Contribution to incubators or research and development projects in the field of science, technology, engineering and medicine, funded by the Central Government or State Government or Public Sector Undertaking or any agency of the Central Government or State Government, as an eligible CSR activity.

Accordingly, amendment to the Schedule VII to the Companies Act has been made vide notification dated August 24, 2020. The change has come into effect from 24^th August, 2020..

Post this notification, Schedule VII of the Companies Act specifically mentioned that Contribution to incubators or research and development projects in the field of science, technology, engineering and medicine, funded by the Central Government or State Government or Public Sector Undertaking or any agency of the Central Government or State Government would count towards a company’s CSR obligations.

The text of the MCA Notification dated 24.08.2020, is reproduced below for your information:

MCA amends Schedule VII of Companies Act, 2013 and to include more entities in engaged in research and development to whom contribution will fbe treated as Contribution for Corporate Social Responsibility (CSR) Activities as required under Section 135 of Companies Act, 2013. Same is done by substituting item (ix) of Schedule VII of Companies Act, 2013 vide notification No. G.S.R. 525(E) dated 24th August, 2020.

G.S.R. 525(E).—In exercise of the powers conferred by sub-section (1) of section 467 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following further amendments in Schedule VII to the said Act, namely:-

In the said Schedule, for item (ix) and the entries thereto, the following item and entries shall be substituted, namely:-

“(ix) (a) Contribution to incubators or research and development projects in the field of science, technology, engineering and medicine, funded by the Central Government or State Government or Public Sector Undertaking or any agency of the Central Government or State Government; and

(b) Contributions to public funded Universities; Indian Institute of Technology (IITs); National Laboratories and autonomous bodies established under Department of Atomic Energy (DAE); Department of Biotechnology (DBT); Department of Science and Technology (DST); Department of Pharmaceuticals; Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH); Ministry of Electronics and Information Technology and other bodies, namely Defense Research and Development Organisation (DRDO); Indian Council of Agricultural Research (ICAR); Indian Council of Medical Research (ICMR) and Council of Scientific and Industrial Research (CSIR), engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs)”.

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MCA notifies following activities as CSR Activity

Provided that any company engaged in research and development (R&D) activity of new vaccine, drugs and medical devices in their normal course of business may undertake research and development activity of new vaccine, drugs and medical devices related to COVID-19 for financial years 2020-21, 2021-22 and 2022-23 subject to the conditions that-

(i) such research and development activities shall be carried out in collaboration with any of the institutes or organisations mentioned in item (ix) of Schedule VII to the Act.

(ii) details of such activity shall be disclosed separately in the Annual Report on CSR included in the Board’s Report”.

G.S.R. 526(E).—In exercise of the powers conferred by section 135 and sub-sections (1) and (2) of section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules further to amend the Companies (Corporate Social Responsibility Policy) Rules, 2014, namely:-

1. Short title and commencement.—(1) These rules may be called the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2020.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Companies (Corporate Social Responsibility Policy) Rules, 2014 (hereinafter referred to as the said rules), in rule 2, in sub-rule (1), in clause (e), the following proviso shall be inserted, namely:-

“Provided that any company engaged in research and development activity of new vaccine, drugs and medical devices in their normal course of business may undertake research and development activity of new vaccine, drugs and medical devices related to COVID-19 for financial years 2020-21, 2021-22 and 2022-23 subject to the conditions that-

(i) such research and development activities shall be carried out in collaboration with any of the institutes or organisations mentioned in item (ix) of Schedule VII to the Act.

(ii) details of such activity shall be disclosed separately in the Annual Report on CSR included in the Board’s Report”.

3. In the said rules, in rule 4, in sub-rule 1, the words “excluding activities undertaken in pursuance of its normal course of business” shall be omitted.

4. In the said rules, in rule 6, in sub-rule (1), —

(i) first proviso shall be omitted;

(ii) In the second proviso, the word “further” shall be Omitted.

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August, 26
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Corporate Law
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Contribution to CM Relief Fund, salary & wages to employees shall not qualify as CSR expenditure. FAQ on what qualify

The Ministry of Company Affairs has been receiving several references/ representations from various stakeholders seeking clarifications on eligibility of CSR expenditure related to COVID-19 activities. In this regard, a set of FAQs along with clarifications are provided below for better understanding of the stakeholders:

COVID-19 related Frequently Asked Questions (FAQs) on Corporate Social Responsibility (CSR)

S. No.	Frequently Asked Questions (FAQs)	Reply
1	Whether contribution made to ‘PM CARES Fund’ shall qualify as CSR expenditure?	Contribution made to ‘PM CARES Fund’ shall qualify as CSR expenditure under item no (viii) of Schedule VII of the Companies Act, 2013 and it has been further clarified vide Office memorandum F. No. CSR-05/1/2020-CSR-MCA dated 28th March, 2020.
2.	Whether contribution made to ‘Chief Minister’s Relief Funds’ or ‘State Relief Fund for COVID-19’ shall qualify as CSR expenditure?	‘Chief Minister’s Relief Fund’ or ‘State Relief Fund for COVID-19’ is not included in Schedule VII of the Companies Act, 2013 and therefore any contribution to such funds shall not qualify as admissible CSR expenditure.
3.	Whether contribution made to State Disaster Management Authority shall qualify as CSR expenditure?	Contribution made to State Disaster Management Authority to combat COVID-19 shall qualify as CSR expenditure under item no (xii) of Schedule VII of the 2013 and clarified vide general circular No. 10/2020 dated 23rd March, 2020.
4.	Whether spending of CSR funds for COVID-19 related activities shall qualify as CSR expenditure?	Ministry vide general circular No. 10/2020 dated 23rd March, 2020 has clarified that spending CSR funds for COVID-19 related activities shall qualify as CSR expenditure. It is further clarified that funds may be spent for various activities related to COVID-19 under items nos. (i) and (xii) of Schedule VII relating to promotion of health care including preventive health care and sanitation, and disaster management. Further, as per general circular No. 21/2014 dated 18.06.2014, items in Schedule VII are broad based and may be interpreted liberally for this purpose.
5.	Whether payment of salary/wages to employees and workers, including contract labour, during the lockdown period can be adjusted against the CSR expenditure of the companies?	Payment of salary/ wages in normal circumstances is a contractual and statutory obligation of the company. Similarly, payment of salary/ wages to employees and workers even during the lockdown period is a moral obligation of the employers, as they have no alternative source of employment or livelihood during this period. Thus, payment of salary/ wages to employees and workers during the lockdown period (including imposition of other social distancing requirements) shall not qualify as admissible CSR expenditure.
6.	Whether payment of wages made to casual /daily wage workers during the lockdown period can be adjusted against the CSR expenditure of the companies?	Payment of wages to temporary or casual or daily wage workers during the lockdown period is part of the moral/ humanitarian/ contractual obligations of the company and is applicable to all companies irrespective of whether they have any legal obligation for CSR contribution under section 135 of the Companies Act 2013. Hence, payment of wages to temporary or casual or daily wage workers during the lockdown period shall not count towards CSR expenditure.
7.	Whether payment of ex- gratia to temporary /casual /daily wage workers shall qualify as CSR expenditure?	If any ex-gratia payment is made to temporary / casual workers/ daily wage workers over and above the disbursement of wages, specifically for the purpose of fighting COVID 19, the same shall be admissible towards CSR expenditure as a one- time exception provided there is an explicit declaration to that effect by the Board of the company, which is duly certified by the statutory auditor.

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Companies Corporate Social Responsibility Policy Amendment Rules, 2020

The Ministry of Corporate Affairs, Government of India has invited Public Comments on Draft Companies (Corporate Social Responsibility Policy) Amendment Rules 2020.

In this regard the Ministry of Corporate Affairs, Government of India has issued a Circular which is as follows:

Corporate Social Responsibility (CSR) for companies has been mandated through Companies Act, 2013 which came into effect since 01.04.2014. Section 135 of the Act enumerates the provisions concerning CSR and the Companies (Corporate Social Responsibility Policy) Rules, 2014 prescribes the rules for implementation. All these were notified on 27th February, 2014 and came into effect since 01.04.2014. The Companies (Amendment) Act, 2019 amended section 135 dealing with Corporate Social Responsibility. The Companies (Amendment) Act, 2019 received President’s assent and was published in Official Gazette on 31st July, 2019.

In order to operationalize the Companies (Amendment) Act, 2019, the Companies (Corporate Social Responsibility Policy) Amendment Rules , 2020 has been drafted for carrying out amendments in the Companies (CSR Policy) Rules, 2014.

Following are significant changes

1) Definition of Corporate Social Responsibility changed and new definition is

Corporate Social Responsibility (CSR)” means the activities undertaken by a Company in pursuance of its statutory obligation laid down in section 135 of the Act in accordance with the provisions contained in these Rules, but shall not include the following, namely-

i) Activities undertaken in pursuance of normal course of business of the company.

ii) Any activity undertaken by the company outside India.

iii) Contribution of any amount directly or indirectly to any political party under section 182 of the Act.

iv) activities that significantly benefit the employees of the company and their families. Provided that in case of any activity having less than twenty five percent employees as its beneficiary, then such activity shall be deemed to be CSR activity under these rules

2) The Net Profit for CSR means

“Net profit” means the net profit of a company as per its financial statement prepared in accordance with the applicable provisions of the Act, but shall not include the following, namely: –

(i) any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise; and (ii) any dividend received from other companies in India, which are covered under and complying with the provisions of section 135 of the Act

3) CSR Implementation can be done by Company or Outsourced which requires Registration with Central Government via E Form CSR-1

The Board shall ensure that the CSR activities are undertaken by the company itself or through:

a company established under section 8 of the Act, or
any entity established under an Act of Parliament or a State legislature.

Provided that such company/entity, covered under clause (a) or (b), shall register itself with the central government for undertaking any CSR activity by filing the e-form CSR-1 with the Registrar along with prescribed fee.

4) CSR Committee shall formulate annual action plan

The CSR Committee shall formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy, which shall include the following:

the list of CSR projects or programmes that are approved to be undertaken in areas or subjects specified in Schedule VII of the Act;
the manner of execution of such projects or programmes as specified in sub-rule (1) of Rule 4;
the modalities of utilization of funds and implementation schedules for the projects or programmes; and
monitoring and reporting mechanism for the projects or programmes.
Details of need and impact assessment, if any, undertaken by the company.

5) Administrative overheads cannot be more than 50% of CSR Expenditure

The board shall ensure that the administrative overheads incurred in pursuance of sub-section (4) (b) of section 135 of the Act shall not exceed five percent of total CSR expenditure of the company for the financial year.

Provided that a company undertaking impact assessment, in pursuance of sub-rule (3) of Rule 8, may incur administrative overheads not exceeding ten percent of total CSR expenditure for that financial year.

6) CSR Surplus should be add back to project not company

Any surplus arising out of the CSR projects or programmes or activities shall not form part of the business profit of a company and shall be ploughed back into the same project or shall be transferred to the Unspent CSR Account and spent in pursuance of CSR policy and action plan of the company.

The CSR amount may be spent by a company for creation or acquisition of assets which shall only be held by a company established under section 8 of the Act having charitable objects or a public authority.

7) CSR Assets created shall only be with Company under section 8 for charitable purpose

Provided that any asset created by a company prior to the commencement of Companies (CSR Policy) Amendment Rules, 2020, shall within a period of One hundred and eighty days from such commencement comply with the requirement of this rule, which may be extended by a further period of not more than ninety days with the approval of the board based on reasonable justification.

8) Unspent Corporate Social Responsibility Account’

Unspent balance, if any, towards fulfilment of CSR obligation at the time of commencement of these Rules shall be transferred within a period of thirty days from the end of Financial Year 2020-21 to special account viz., ‘Unspent Corporate Social Responsibility Account’ opened by the company and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year

9) Impact Assessment for all Company spending CSR more than 5 Crore

A company having the obligation of spending average CSR amount of Rs 5 Crore or more in the three immediately preceding financial years in pursuance of sub section 5 of Section 135 of the Act, shall undertake impact assessment for their CSR projects or programmes, and shall disclose details of the same in its Annual Report on CSR

10) Display of CSR activities on its website

The Board of Directors of the company shall mandatorily disclose the composition of the CSR Committee, and CSR Policy and Projects approved by the Board on their website for public viewing, as per the particulars specified in the Annexure.

11) Creation of National Unspent Corporate Social Responsibility Fund

The Central Government shall establish a fund called the “National Unspent Corporate Social Responsibility Fund” (herein after referred as “the Fund”) for the purposes of sub-section (5) and (6) of section 135 of the Act. The Fund shall be utilized for the purposes of undertaking CSR projects in the in areas or subjects specified in schedule VII of the Act. Provided that until such fund is created the unspent CSR amount in terms of provisions of sub-section (5) and (6) of section 135 of the Act shall be transferred by the company to any fund as specified in schedule VII of the Act

The manner of administration, authority for administration of the Fund shall be in accordance with such guidelines as may be prescribed by the Central Government from time to time

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