by Mr. K.VAITHEESWARAN, ADVOCATE & TAX CONSULTANT
 |
| VAITHEESWARAN, AdvocateTax Consultant |
CORPORATE SOCIAL RESPONSIBILITY (CSR) – The New Law ANALYSIS..
BACKGROUND
SECTION 135
ROLE OF THE BOARD
SEC. 198- CALCULATION OF NET PROFIT IN ANY FINANCIAL YEAR
Sec. 198 - CALCULATION OF NET PROFIT IN ANY FINANCIAL YEAR
Sec. 198- CALCULATION OF NET PROFIT IN ANY FINANCIAL YEAR
AVERAGE NET PROFIT
SCHEDULE VII
BACKGROUND
· A number of corporates spend significant amounts of money on social and charitable projects.
· Many companies have contributed to the development of the area in which they are located through non-mandated CSR spending.
· Under Article 38(2) of the Constitution dealing with Directive Principles of State Policy, the State has to strive to minimize inequalities of income and eliminate inequalities in status, facilities, opportunities amongst individuals as well as groups of people.
·
· The Companies Act, 2013 received the assent of the President of India on 29.08.2013.
· The Central Government vide G.O. dated 12.09.2013 has notified that 12th September 2013 shall be the date when select provisions shall come into force.
· Section 135 and 198 is relevant to CSR but is yet to be notified.
· Companies to set aside at least 2% of total profits for CSR.
· Reasons to be stated in case of failure to do so.
SECTION 135
· Every company having :
· Net worth of Rs. 500 crores or more, or
· Turnover of Rs. 1000 crores or more; or
· Net profit of Rs. 5 crores or more
· during any financial year, shall constitute a Corporate Social Responsibility (CSR) Committee of the Board consisting of 3 or more directors, out of which at least one director shall be an independent director.
· Board report to disclose composition of CSR Committee.
ROLE OF THE BOARD
· The Board has to consider recommendations of the CSR Committee; approve the CSR Policy; and disclose the contents of the Policy in its report.
· The Company has to place the contents of the Policy in the Company’s website in the prescribed manner.
· Board has to ensure that the activities are undertaken by the Company
· Board has to ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the 3 immediately preceding financial years, in pursuance of its CSR Policy.
· The company can give preference to the local area and areas around it where it operates, for spending the amount earmarked for CSR activities.
· In case of failure to spend such amount, the Board shall in its report made under Section 134(3)(o) specify the reasons for not spending the amount.
SEC. 198- CALCULATION OF NET PROFIT IN ANY FINANCIAL YEAR
· Credits shall be given to
· bounties and subsidies received from any Government, or any public authority constituted or authorized in this behalf, by any Government
· Credits shall not be given to
· Profits by way of premium on shares or debentures of the company, which are issued or sold by the company;
· Profits on sales of forfeited shares;
· Capital Profits including profits from sale of undertaking(s) of the company or of any part thereof;
· Credits shall not be given to (Cont…)
· Profits from sale of any immovable property or fixed assets of a capital nature comprised in the undertaking (s) of the company, unless the business of the company consists, whether wholly or partly, of buying and selling any such property or assets:
· Provided that where the amount for which any fixed asset is sold exceeds the WDV thereof, credit shall be given for so much of the excess as is not higher than the difference between the original cost of that fixed asset and its WDV ;
· Any change in carrying amount of an asset or of a liability recognized in equity reserves including surplus in P&L account on measurement of the asset or the liability at fair value
Sec. 198 - CALCULATION OF NET PROFIT IN ANY FINANCIAL YEAR
· The following sums shall be deducted, namely:—
· All the usual working charges;
· Directors’ remuneration;
· Bonus or commission paid or payable to any member of the company’s staff, or to any engineer, technician or person employed or engaged by the company, whether on a whole-time or on a part-time basis;
· Any tax notified by the Central Government as being in the nature of a tax on excess or abnormal profits;
· Any tax on business profits imposed for special reasons or in special circumstances and notified by the Central Government in this behalf;
· Interest on debentures issued by the company; mortgages executed by the company and on loans and advances secured by a charge on its fixed or floating assets; on unsecured loans and advances;
· Expenses on repairs, whether to immovable or to movable property, provided the repairs are not of a capital nature;
· Outgoings inclusive of contributions made under section 181;
· Depreciation to the extent specified in section 123;
· Excess of expenditure over income, which had arisen in computing the net profits in accordance with this section in any year which begins at or after the commencement of this Act, in so far as such excess has not been deducted in any subsequent year preceding the year in respect of which the net profits have to be ascertained;
· Compensation or damages to be paid in virtue of any legal liability including a liability arising from a breach of contract;
· Sum paid by way of insurance against the risk of meeting any liability such as is referred to above;
· Debts considered bad and written off or adjusted during the year of account.
·
Sec. 198- CALCULATION OF NET PROFIT IN ANY FINANCIAL YEAR
· The following sums shall not be deducted:
· Income-tax and super-tax payable by the company under the Income-tax Act, 1961, or any other tax on the income of the company;
· any compensation, damages or payments made voluntarily;
· Capital loss including loss on sale of the undertaking (s) of the company or of any part thereof not including any excess of the WDV of any asset which is sold, discarded, demolished or destroyed over its sale proceeds or its scrap value;
· any change in carrying amount of an asset or of a liability recognised in equity reserves including surplus in P&L account on measurement of the asset or the liability at fair value.
AVERAGE NET PROFIT
· Sec. 198 refers to the calculation of net profit in any financial year.
· Company falling under CSR mandate is required to spent at least 2% of the average net profit of the company made during the three immediately preceding years in pursuance of its CSR Policy.
SCHEDULE VII
· Activities that may be included by Companies in their CSR Policy:
(i) Eradicating extreme hunger and poverty;
(ii) Promotion of education;
(iii) Promoting gender equality and empowering women;
(iv) Reducing child mortality and improving maternal health;
(v) Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases;
(vi) Ensuring environmental sustainability;
(vii) Employment enhancing vocational skills;
(viii) Social business projects;
(ix) Contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; and
(x) Such other matters as may be prescribed.
· GENERAL MEETING
· The report of the Board of Directors to be placed in the General Meeting to include the details about the policy developed and implemented by the company on CSR initiatives taken during the year.
· While preparing the Statement of Profit and Loss, A Company shall disclose by way of notes additional information amount of expenditure incurred on CSR activities
Contact Details
K.VAITHEESWARAN, ADVOCATE & TAX CONSULTANT
Mobile: 98400-96876
Chennai
Flat No.3, First Floor,
No.9, Thanikachalam Road,
T. Nagar, Chennai - 600 017, India
No.9, Thanikachalam Road,
T. Nagar, Chennai - 600 017, India
Tel.: 044 + 2433 1029, 044 + 2433 4048
Bangalore
402, Front Wing,
House of Lords,
15/16, St. Marks Road, Bangalore – 560 001, India
Tel : 080 2224 4854, 080 4112 0804
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