General Circulars on CSR

As we discussed in last post here, government bringing changes in CSR law frequently. With all these development nightmare of CSR may become tax seems to be true soon. In this post, we are discussing General Circulars issued by Government in relation to CSR during first year. There are three circulars General Circular 21/2014 dated 18^th June 2014, 36/2014 dated 17^th September 2014 and 01/2015 dated 3^rd February 2015.

General Circular 21/2014 enumerates following rules for interpretation of CSR Schedule VII of the Companies Act 2013:

1. The entries in the said Schedule VII must be interpreted liberally to capture the essence of the subjects. The items enlisted in the Schedule VII of the Act, are broad-based and are intended to cover a wide range of activities as illustratively mentioned in the Annexure.
2. One-off events such as marathons/ awards/ charitable contribution/ advertisement/ sponsorships of TV programmes etc. would not be qualified as part of CSR expenditure.
3. One-off events such as marathons/ awards/ charitable contribution/ advertisement/ sponsorships of TV programmes etc. would not be qualified as part of CSR expenditure.
4. Salaries paid by the companies to regular CSR staff as well as to volunteers of the companies (in proportion to company’s time/hours spent specifically on CSR) can be factored into CSR project cost as part of the CSR expenditure.
5. “Any financial year” referred under Sub-Section (1) of Section 135 of the Act read with Rule 3(2) of Companies CSR Rule, 2014, implies ‘any of the three preceding financial years’.
6. Expenditure incurred by Foreign Holding Company for CSR activities in India will qualify as CSR spend of the Indian subsidiary if, the CSR expenditures are routed through Indian subsidiaries and if the Indian subsidiary is required to do so as per section 135 of the Act.
7. ‘Registered Trust’ (as referred in Rule 4(2) of the Companies CSR Rules, 2014) would include Trusts registered under Income Tax Act 1956, for those States where registration of Trust is not mandatory
8. Contribution to Corpus of a Trust/ society/ section 8 companies etc. will qualify as CSR expenditure as long as (a) the Trust/ society/ section 8 companies etc. is created exclusively for undertaking CSR activities or (b) where the corpus is created exclusively for a purpose directly relatable to a subject covered in Schedule VII of the Act.

The clause (iv) of General Circular 21/2014 dated 18 June 2014 stand omitted with effect from 17 September 2014 by virtue of General Circular 36/2014.

Day by day Corporate Social Responsibility became sensitive issue for Government of India. The requirement of alternate fund for social causes and justice making CSR as non – tax taxation. General Circular 01/2015 dated 3^rd February 2015 is simply an unfortunate step in this direction. A High Level Committee has been constituted to suggest measures for monitoring the progress of implementation of Corporate Social Responsibility policies by the companies. The committee has been said to be constituted under “provisions” of Section 135 without any such express power under said Section. The Committee is required to submit its report on following terms and conditions:

1. To recommend suitable methodologies for monitoring compliance of the provision of Section 135,
2. To suggest measure to recommended by the Government for adoption by the companies for systematic monitoring and evaluation of their own CSR initiatives,
3. To identify strategies and evaluation of CSR initiatives through expert agencies and institutions to facilitate adequate feedback to the Government with regard to efficacy of CSR expenditure and quality of compliance by the companies,
4. To examine if a different monitoring mechanism is warranted for government Companies undertaking CSR, and if so to make suitable recommendations in this behalf, and
5. Any other matter incidental to the above or connected thereto.

This High level committee shall make its report within six months.

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