Presentation On

Legal aspect

OF

CORPORATE SOCIAL

RESPONSIBILITY

11-Jan-17

11-Jan-17

SL. No. PARTICULARS

PART-A BACKGROUND/ NEED/ ORIGIN OF CSR

PART-B CSR( CORPORATE SOCIAL RESPONSIBILITY) LAW-2013

1. Provisions of Companies Act, 2013

2. C.S.R. Committee

3. Annual Reporting of CSR Spend

4. Tax Impact under various types of CSR Activities

PART-C IMPLEMENTATION OF CSR AGENDA

PART-D CONCLUSIONS

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‘A commitment to improve community well being through discretionary business practices and contributions of corporate resources’.

– Philip Kotler and Nancy Lee (2005)

Corporate social responsibility encompasses not only what companies do with their profits, but also how they make

them. It goes beyond philanthropy and compliance and addresses how companies

manage their economic, social, and environmental impacts, as well as their

relationships in all key spheres of influence: the workplace, the marketplace, the supply

chain, the community, and the public policy realm.

- Harvard University

‘A multi layered concept that can be differentiated

into four interrelated aspects – economic, legal, ethical and philanthropic

responsibilities’.

– Archie Carroll (1991)

‘A way companies manage the business

processes to produce an overall positive impact on

society.’

– Mallen Baker, Founding Director,

Business Respect

Corporate Social Responsibility is the continuing commitment by business to

behave ethically and contribute to economic development while

improving the quality of life of the workforce and their families as well as of the local community and society at

large”

Lord Holme and Richard Watts

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Mortality Rate is 53

per 1,000 that a

newborn baby will die

before reaching age

five, if subject to age-

specific mortality rates

of the specified year

Literacy rates are

82.14% for men and

65.46% for women

Worldwide, infectious

diseases such as

waterborne diseases

are the number one

killer of children

under five years old

India ranks last

among the world‘s

20 biggest

economies in

terms of air

pollution levels

29.8%

population is

below poverty

line

Indian census

statistics reveal

that the sex ratio

in India slumped

from 976 girls per

1000 boys in 1961

to 914 in 2011

Asia has

maximum

numbers of

polluted rivers

than anywhere

else in the

world

The

unemployment

rate is

estimated to be

8.8%

In India alone, the

single largest cause of

ill health and death

among children is

diarrhea, which kills

nearly half a million

children each year

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Quoran States

They ask thee what they should

spend (In charity). Say: Whatever

ye spend that is good, is for

parents and kindred and orphans

and those in want and for

wayfarers. And whatever ye do

that is good, -Allah knoweth it

well.

Guru Granth Sahib

states

―He who eats what

he earns through

honest work and

shares with others,

he alone O Nanak

recognises (follows)

the true path in

life.‖

Bhagvad Gita states

Charity which is given without

consideration of anything in return,

at a sanctioned and holy place and

at an astrologically auspicious time,

given as a matter of duty to one

qualified; that charity is regarded as

of the nature of goodness.

Bible states

Do not neglect to

do good and to

share what you

have, for

such sacrifices are

pleasing to God.

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As per Section 135 of the Companies

Act 2013 (Applicable from Financial

Year 2014-15), every

Company(including Private Company)

having given particulars during any

financial year shall constitute a

Corporate Social Responsibility

Committee of the Board consisting of

3 or more directors (including one

independent director at least, subject

to exemptions.

Turnover of at least

Rs.1,000 crores Net worth of at

least Rs.500 crores

Net profit of Rs. 5

crores

A Private. Company

(only 2 directors on its

Board)- 2 Directors

Foreign company

One person (i.e. person

resident in India authorized to

accept on behalf of the

company service of notices or

other documents served on the

company) and another person

shall be nominated by the

foreign company

Unlisted Company/ Private

Company (not required to

appoint Independent

Director)- 3 or more

directors without any

Independent Director

Other Companies: 3 or

more directors, with at

least 1 Independent

Director

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Formulation and

recommendation

of CSR Policy to

Board

Ensure & Monitor

Compliance of CSR

Policy through

preparation of

Transparent

Monitoring

Mechanism for

implementation

Approve the CSR Policy

for and disclose

contents of such Policy

in its report and also

place it on the

company‘s website

Recommend the amount

of expenditure and

ensure that at least two

per cent of the average

net profits is spent by

the company in every

Financial year

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CSR Policy should specify that the corpus would include the following:

(i) 2% of the average net profits(Profit before tax) (ii) Any income arising there from,

(iii) Surplus arising out of CSR activities.

Following should be mentioned in CSR Policy:

Surplus arising out of the CSR activity will not be part

of business profits of a company. Also, any surplus

arising out of CSR Activities will be re-directed towards

CSR Activities and not the business of the company.

Transparent

monitoring

mechanism

Modalities

of

execution

List of CSR

projects/programmes/

activities to be

undertaken as specified

in Schedule VII of the Act

Expenditure/budget

for the CSR

Activities

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•The Board shall ensure that the amount to

be spent ,in every Financial Year shall be,

at least 2% of the Average Net Profit(Profit

before tax) of the Company made during

the 3 immediately preceding financial

years, in pursuance of its CSR Policy.

AMOUNT OF CSR

EXPENDITURE

•Once a company is covered under the provisions of CSR as

per sub section (1) of Section 135, the company will have to

comply with the rules for three consecutive financial years,

even if in the subsequent years, these rules do not apply to

them. However, any company that ceases to be covered

under Section 135 of the Act for three consecutive financial

years will not be required to comply with the provisions

relating to CSR till such time it meets the criteria specified in

sub section (1) of Section 135.

APPLICABILITY

OF CSR

PROVISIONS

ACTIVITIES INCLUDED ACTIVITIES EXCLUDED

Approved by the board of directors, and on the recommendation of the CSR Committee (must be cited in the CSR Policy)

Political contribution

Building Capacity of CSR team (up to 5 percent of CSR expenditure), through institutions with an established track record of at least three years

Solely for benefit of employees and their families

Contribution to corpus Activities that are in pursuance of normal course of business of a company.

Any surplus earned through CSR Activities (or interest earned on corpus funding) will, however, need to be plowed back as additional CSR spend.

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Schedule VII Activities-Activities which may be included by companies in their Corporate

Social Responsibility Policies:

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Eradicating extreme

hunger & poverty

Reducing child mortality and

improving maternal health

Employment enhancing

vocational skills

Contributions to Prime Minister Fund or any

other fund set up by the Central Government or the State Governments

Social business projects such other matters as may be

prescribed

Promotion of education

Ensuring environment sustainabilit

y

Combating human immunodeficiency

virus, acquired immune deficiency syndrome,

malaria and other diseases

Promoting gender equality and

empowering women

Composition of the

CSR Committee

Responsibility statement

of CSR Committee stating

that the implementation

and monitoring of CSR

Policy is in compliance

with CSR objectives and

policy of the company.

Details of CSR

spent during the

financial year

Disclosure of Reasons of

not spending the

prescribed CSR

Expenditure

Average net profit

of the company for

the last three

financial years

Brief outline of the

company‘s CSR

Policy

Overview of

projects or

programs to be

conducted

Prescribed CSR

expenditure - 2%

of the average net

profits of last 3

Financial Years

CSR Policy should

be displayed on

the company

website

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Total Revenue Less: Extraordinary income(if included above) 1. Profit from Premium of shares/Debentures 2. Profit from sales of Forfeited shares 3. Profit in terms of capital natures (in terms of undertaking of company or any part of

thereof) 4. Profit from the sale of immovable property/fixed assets/any capital nature 5. Any surplus change in carrying amount of an assets or liability recognized in equity

reserves

Total Revenue after extraordinary income Less: Total Expenditure including Operating Expenses (i.e. Raw material expenses, stock adjustments, wages, selling and admin expenses,

interest, depreciation) Profit before Tax

Add: if debited in Profit & Loss A/c 1. Income tax and any other tax 2. Compensation, damages or other payments made voluntarily 3. Loss of capital natures including loss on sale of undertaking of company or any part of

thereof 4. Any transfer to assets/liabilities revaluation reserves

Net Profit

11-Jan-17

The Finance Act, 2014 has proposed that CSR expenditure shall not be

allowed as expenditure under section 37 of Income Tax Act, 1961.

However, any CSR expenditure which is allowed as deduction under other

sections such as section 35, 35AC, 80G etc. is permissible.

Companies which are subject to the Minimum Alternate Tax (‗MAT‘) are

likely to get benefit under MAT, As MAT is calculated on Book profits of the

company and CSR expenditures are to be debited in profit & loss account

which will ultimately result in reduced MAT liability.

As per Section 80G of the Income tax Act,1961regarding Deduction in respect of donations to certain funds, charitable

institutions, etc. it states as follows:

―In computing the total income of an assessee, there shall be deducted, in accordance with and subject to the

provisions of this section,--

in a case where the aggregate of the sums specified in subsection (2) includes any sum or sums of the nature specified

in sub- clause (iiia) or in sub- clause (iiiaa) or in sub- clause (iiiab)] or in sub- clause (iiie)] or in sub- clause (iiif)] or

in sub- clause (iiig)] or sub- clause (iiih) or] in] sub- clause (vii) of clause (a) thereof, an amount equal to the whole of

the sum or, as the case may be, sums of such nature plus fifty per cent of the balance of such aggregate; and]

in any other case, an amount equal to fifty per cent of the aggregate of the sums specified in sub- section (2)‖

As per Section 35 AC of the Income Tax Act,1961 regarding Expenditure on

eligible projects or schemes, it states as follows:

―Where an assessee incurs any expenditure by way of payment of any sum to a

public sector company or a local authority or to an association or institution

approved by the National Committee for carrying out any eligible project or

scheme, the assessee shall, subject to the provisions of this section, be allowed a

deduction of the amount of such expenditure incurred during the previous year‖.

11-Jan-17

Donations paid to

specified institutions

qualify for tax

deduction u/s 80G but

is subject to certain

ceiling limits. Based

on limits, all eligible

donations under

section 80G is divided

into four categories:

100% deduction

without any qualifying

limit (e.g., Prime

Minister‘s National

Relief Fund)

50% deduction

subject to

qualifying limit

(e.g., an approved

institution for

charitable purpose

other than

promoting family

planning)

50% deduction without

any qualifying limit

(e.g., Indira Gandhi

Memorial Trust)

100%

deduction

subject to

qualifying limit

(e.g., an

approved instit

ution for

promoting

family

planning)

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Prime Minister‘s National

Relief Fund

National Defence Fund

Central Govt.‘s Fund for

Technology Development &

Application

The Chief Minister‘s

Earthquake Relief Fund,

Maharashtra

Donations made to Zila

Saksharta Samitis

The Army Central Welfare Fund

or the Indian Naval Benevolent

Fund or The Air Force Central

Welfare Fund

Army Central Welfare

Fund, Indian Naval Ben.

Fund, Air Force Central

Welfare Fund

The National Blood

Transfusion Council or a State

Blood Transfusion Council

National Illness Assistance

Fund

Prime Minister‘s Armenia

Earthquake Relief Fund

The Africa (Public Contribution –

India) Fund

National Trust for Welfare of

Persons with Autism, Cerebral

Palsy, Mental Retardation &

Multiple Disabilities

The National Foundation

for Communal Harmony

Approved university or

educational institution of

national eminence

Indian Olympic

Association/ other such

notified association

Andhra Pradesh Chief

Minister‘s Cyclone Relied

Fund

Chief Minister‘s or Lt.

Governor‘s Relief Fund

National Sports Fund

National Cultural Fund

Govt./ local authority/

institution/ association

towards promoting

family planning

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Jawaharlal Nehru

Memorial Fund

Donations to govt./

local authority for

charitable purposes

(excluding family

planning)

Donations for repair/

renovation of notified

places of worship

World Vision India

Udavum Karangal

Indira Gandhi

Memorial

Trust

Prime Minister‘s

Drought Relief

Fund

National

Children‘s

Fund

Authority/

corporation having

income exempt under

erstwhile section or

u/s 10(26BB)

The Rajiv

Gandhi

Foundation

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Donations to the

following are eligible for

100% deduction subject

to 10% of adjusted gross

total income

• Donations to the

Government or a local

authority for the

purpose of promoting

family planning

• Sums paid by a

company to Indian

Olympic Association

Donations to the

following are eligible for

50% deduction subject to

10% of adjusted gross

total income

• Donation to the

Government or any

local authority to be

utilized by them for

any charitable

purposes other than

the purpose of

promoting family

planning

Qualifying Limit:- The qualifying

limits u/s 80G is 10% of the adjusted

gross total income. The limit is to be

applied to the adjusted gross total

income. The ‗adjusted gross total

income‘ for this purpose is the gross

total income (i.e. the sub total of

income under various heads) reduced

by the following

•Amount deductible under Sections

80CCC to 80U (but not Section 80G)

•Exempt income

•Long-term capital gains

•Income referred to in Sections

115A, 115AB, 115AC, 115AD and

115D, relating to non-residents and

foreign companies

11-Jan-17

In case of direct CSR spending, the

effective tax rate will increase. The

company will have to pay additional taxes

where the company undertakes CSR

activities directly as CSR expenditure can

be done from post tax income.

In case, a company undertakes CSR activities

through NGOs registered under section 80G

(eligible for 50% tax deduction),then the tax

liabilities will be reduced to 50% on such

additional taxes.

The company will get 100% tax advantage and will not

be required to pay any additional taxes where it

undertakes CSR activities through NGOs registered

under section 35AC or through NGO registered under

section 80G (eligible for 100% tax deduction).

Sr.

No.

Specific CSR Activities referred under Schedule VII to the 2013 Act Expenditure allowed under the relevant provisions of

the Income-tax Act, 1961

I Activities concerning Basic necessities of Life More than prescribed layers of subsidiaries

- Eradication of poverty, hunger and malnutrition Section 35AC read with Rule 11K(i)(f) of Income-tax

Rules, 1962 (‗the 1962 Rules‘)

- Promoting Sanitation and health care and making available safe drinking water Section 35AC r.w. Rule 11k(i)(a),(f),(j) of the 1962

Rules

II Activities concerning Education

- Promoting Education, including special education and employment enhancing

vocational skills especially among children, women and elderly and the differently

able

Section 35AC r.w. 11K(i)(c),(i),(o),(p),(s) of the 1962

Rules

- Livelihood enhancement programs Section 35AC r.w. 11K(i)(j),(s) of the 1962 Rules

III Activities addressing inequality and gender discrimination

Section 35AC r.w. Rule 11K(i)(n),(i) of the 1962 Rules - Promoting gender equality

- Empowering women

- Setting up of homes and hostels for women and orphans

- Setting up old age homes, day care centre and such

IV Activities concerning Care for environment

Section 35AC r.w. Rule 11K(i)(d),(h),(l),(q),(r) of the

1962 Rule - Ensuring environmental sustainability and ecological balance

- Preservation of flora and fauna, animal welfare, agro forestry

- Conservation of natural resources and maintaining quality of soil, air and wate

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Sr.

No.

Specific CSR Activities referred under Schedule VII to the 2013 Act Expenditure allowed under the relevant

provisions of the Income-tax Act, 1961

V Activities concerning protection of National Heritage, Art and Culture Section 35AC r.w. Rule 11K (The notification

issued under the Act in the past have accepted

the said activities for deduction u/s. 35AC

[except with no precedent available for

protection of national heritage u/s. 35AC, but

deduction could be claimed

in Section80G(2)(b)

- Protection of national heritage, art and culture including restoration of building and

sites of historical importance and works of art

- Setting up public libraries

- Promotion of traditional arts and handicrafts and its development

VI Activities concerning benefit to Armed Forces, veterans, war widows and their

dependants

- Measures for the benefit of armed forces, veterans, war widows and their dependents Section 80G(2)(a)(i) and 80G(2)(a)(iii)(h)(c)

VII Activities concerning Sports

- Training to promote rural sports, nationally recognised sports, Paralympics sports and

Olympic sports

Section 35AC r.w. Rule 11K(i)(g)

VIII Activities concerning national relief and welfare of Economically backward class of

Society

- Contribution to PM National relief fund or any other fund Section 80G(2)(a)(iiia)

- Relief and welfare of the Schedules Casts, Schedules Tribes,\ Other backward castes,

minorities and women

Section 35AC r.w. Rule 11K(i)(b),(c) and Rule

11K(ii) of the Income-tax Rules

IX Activities concerning Technology incubators

- Contributions or funds provided to technology incubators located within academic

institutions which are approved by Central Government

Section 35(2AA) and Section 80G(2)(iihi)

[considering limited information available and

provided on the subject, it will have to be

determined as to whether the aforesaid

section shall be able to provide deduction to

the activities concerned]

X Activities concerning Rural Development -Rural Development Projects

COURTESY: CA Ankit Virendra Sudha Shah

SOURCE: file:///C:/Users/ABC/Desktop/CSR/Untitled%20Document.html

Section 35AC and Section 35CCA [with limited

information available and provided on the

term referred to as ‗rural development

projects‘ therefore, either of the provisions

may be considered for allowability of

expenditure]

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Company can establish

their own following

legal entities

•Registered trust

•Registered society

• Company or its

subsidiary or holding

or associate company

under Section 8.

If a Trust, Society or

Company is not

established by the

Company, then it must

have an established

track record of three

years in undertaking

similar projects or

programs.

A company can

collaborate with other

companies for

undertaking CSR

activities in such

manner that the CSR

Committees of the

respective companies

are able to report

separately on such CSR

Activities.

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Differential factors Trust Society Section 8 company22(earlier

known as Section 25 company)

Basic document Trust deed which contains

objects of the trust (bye-law)

Memorandum of association

Articles of association with

rules and regulations

Memorandum of association

Articles of association

Formation Simple Simple Slightly difficult

Jurisdiction Deputy registrar or charity

commissioner

Registrar of Societies Registrar of Companies

Legislation / statute Relevant state trust act Societies Registration Act 1860 Companies Act 2013

Objectives Social benefits and charitable Literary, charitable, scientific

and resource oriented

Non profit activities

Re-amendment or modification

of objects

Alteration can be undertaken

only by the founder or settler

Easy, legal procedures Complicated, legal procedures

Required members Minimum = 2, maximum = no

limit

Minimum = 7, maximum = no

limit

Minimum = 7, maximum = no

limit

Registration As trust with the registrar As society with society

registrar

As per Companies Act under

Section 8 (earlier Section 25)

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Differential factors Trust Society Section 8 company22(earlier

known as Section 25 company)

Stamp duty 4% of trust property value will

be executed in non judicial

stamp paper with the registrar

No stamp paper required for

memorandum of association,

and rules and regulations

No stamp paper required for

memorandum and articles of

association

Name Easy to choose Easy to choose Prior approval required from

Registrar of Companies

Management board Trustees Governing body Board of directors and

management committee

Succession in management By election By election By appointment

Meetings No provisions Annual meeting as per law,

governing body meeting as per

the rules of society,

Quite extensive as per the

provision of Company Law

Statutory regulations Nominal Limited Maturable and exhaustive

Membership transfer Not possible Not possible Free or control as per desire

Payment to members As notified in trust deed Not restricted As approved by company and

state

Member admission Not applicable Governing body control General body or board control

through issue of capital

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COURTESY: Handbook on Corporate Social Responsibility in India Source-PWC

In a country such as India, where one-third of the population is

illiterate, two-thirds lack access to proper sanitation, and 400

million people still live on less than US$2 a day, the passage of

the Companies Act should be hailed as a positive step forward in

ensuring that business contributes to equitable and sustainable

economic and social development.

Also, by making CSR mandatory, companies may treat it as a ―check the box‖ exercise rather than

looking at ways to innovate and generate a return from doing social and environmental good. And

most companies will comply by channeling funds to community organizations that are addressing

one of the priority topics mentioned. There is no shortage of organizations that will be willing to

accept these funds—there are an estimated 3.3 million NGOs in India—but few organizations have

the capacity and the skill to effectively manage projects that can have a large-scale impact. In an

effort to meet the spending obligations, companies may not do the right due diligence to select

high-impact, credible organizations.

It‘s too early to say what the real impact of this act will be, especially given

that passing it and enforcing it are two different things. But with the

controversy around the CSR provision, and the lack of specificity and detail,

there is an opportunity for leading companies to influence the way the CSR

mandate is interpreted. Given the immense need and tremendous business

opportunity in India, this can only be a good thing.

11-Jan-17

Dr. Gopal Energy Foundation

JA120,DLF TOWERS-A

NEW DELHI-110025

Tel. :91-11-26943664

Fax.: 91-11-26970075

Mobile 09810070075

E-mail info@dgef.in

Website-www.dgef.in

11-Jan-17