1. Introduction
1.1 I
initiate the subject of Corporate Social Responsibility (CSR) with a sutra
written by Chanakya
Dharma – religion (ethics or commitment
to duty as a human being) is the nucleus of happiness. The core of dharma is
wealth or Artha. The stability of the state is the precondition for Artha
(wealth) in the state. The primary duty of the rulers/government is to be in
command over senses and emotions (perennially until they are ruling)
Corporate Social Responsibility (CSR)
is an evolving concept and represents the collective culmination of fundamental
desire of every human being to be happy and to direct the efforts of all to
make it happen.
1.2 General Aspects
Corporate Social Responsibility (CSR)
can be explained as the initiative of a company to assess and take
responsibility for the company’s effects on the environment and impact on
social welfare. The term, generally, applies to company’s efforts that go
beyond what may be required by regulators. Corporate social responsibility is a
form of corporate self-regulation integrated into a business model. CSR
functions as a built-in, self-regulating mechanism whereby a business monitors
and ensures its active compliance with the spirit of the law and its response
to societal needs.
1.3 The term
“corporate social responsibility” came into common use in the late
1960s and early 1970s after certain corporations formed the term stakeholder,
meaning those on whom an organisation’s activities have an impact. It was used
to describe corporate owners beyond shareholders.
1.4 A single
globally accepted definition of CSR does not exist. However, various
organisations have developed formal definitions of CSR, some of them are:
1.4.1 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. – World Business Council for Sustainable Development.
1.4.2 Corporate
Social Responsibility is essentially a concept whereby companies decide
voluntarily to contribute to a better society and a cleaner environment. – European
Commission; Employment & Social Affairs.
1.5 Corporate
social responsibility offers manifold benefits both internally and externally
to the companies. Externally, it creates a positive image amongst the people
for its company and earns a special respect amongst its peers. Internally, it
cultivates a sense of loyalty and trust amongst the employees in the
organisational ethics. It can improve operational efficiency of the company and
can be accompanied by increase in quality and productivity.
1.6 The
essence of CSR comprises philanthropic, corporate, ethical, environmental and
legal as well as economic responsibility. In India, the evolution of CSR refers
to changes over time in cultural norms of corporations’ engagement and the way
businesses managed to develop positive impacts on communities, cultures,
societies, and environment in which those corporations operated.
1.7 In the
last decade, CSR has rapidly evolved in India with some companies focusing on
strategic CSR initiatives to contribute toward nation building. Gradually, the
companies in India started focusing on need-based initiatives aligned with the
national priorities such as public health, education, livelihoods, water
conservation and natural resource management.
2. CSR
in India – Legal Position
2.1 The
government introduced mandatory CSR requirements in Companies Act 2013. The
2013 Act mandates companies to spend on social and environmental welfare,
making India perhaps one of the very few countries in the world to have such a
requirement embedded in a corporate law. The CSR provision became effective
from 1st April 2014. Significant amendments have been made to CSR
provisions through issuance of various notifications, clarifications (including
Frequently Asked Questions (FAQs)), Guidance Note on accounting for expenditure
on CSR (GN on CSR) by The Institute of Chartered Accountants of India.
2.2 As per
rule 2(c) of Companies (Corporate Social Responsibility Policy) Rules 2014 CSR
means and includes but it is not limited to –
i. Projects or programs relating to
activities specified in Schedule VII to the Act; or
ii. Projects or programs relating to
activities undertaken by the board of directors of a company in pursuance of recommendations
of the CSR committee of the Board as per declared CSR Policy of the Company
subject to the condition that such policy will cover subjects enumerated in
Schedule VII of the Act.
2.3 Applicable to certain companies
Section 135 (1) provides that every
Company having –
i. Net worth of rupees five hundred
crore or more; or
ii. Turnover of rupees one thousand
crore or more; or
iii. Net profit of rupees five crore or
moreduring the immediately1 preceding financial year shall
constitute a Corporate Responsibility Committee of the Board.
As per rule 3 (1) of Companies
(Corporate Social Responsibility Policy) Rules 2014 every company including its
holding or subsidiary and a foreign company defined under clause (42) of
section 2 of the Act, having its branch office or project office in India which
fulfils the criteria specified in section 135(1) shall comply with the
provisions of section 135 of the Act and The Rules.
2.3.1 “Net
Worth” means the aggregate value of the paid-up share capital and all reserves
created out of the profits and securities premium account, after deducting the
aggregate value of the accumulated losses, deferred expenditure and
miscellaneous expenditure not written off, as per the audited balance sheet,
but does not include reserves created out of revaluation of assets, write-back
of depreciation and amalgamation.
2.3.2 “Turnover”
means the aggregate value of the realisation of amount made from the sale,
supply or distribution of goods or on account of services rendered, or both, by
the company during a financial year.
2.3.3 “Net Profit” means the net profit of a
company as per its financial statement calculated as per section 198 of the
Companies Act 2013, but shall not include the following: 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.
2.3.4 “average
net profits” shall be calculated in accordance with the provisions of
section 198 of the Companies Act 2013.
2.3.5 The net
worth, turnover or net profit of a foreign company shall be computed in
accordance with the balance sheet and profit and loss account of such company
prepared in accordance with the provisions of clause (a) of sub-section (I) of
section 381 and section 198 of the Act.
2.3.6 It has been provided that the net profits in
respect of a financial year for which the relevant financial statements were
prepared in accordance with he provisions of the Companies Act 1956, shall not
be required to recalculate the same in accordance with the provisions of
Companies Act 2013.
2.4 Constitution of the CSR Committee
2.4.1 Section
135 (1) provides that every Company covered by section 135(I) shall constitute
Corporate Social Responsibility committee with 3 or more directors, out of
which at least one director shall be independent director. In case where
company is not required to appoint an independent director under sub-section
(4) of section 149, it shall have in its CSR committee two or more directors.
A private company having only two
directors on its Board shall constitute its CSR Committee with two such
directors.
A foreign company shall constitute CSR
Committee comprising of atleast two persons of which one person should be
resident in India authorised to accept on behalf of the company service of
process any notices or other documents served on the company and another person
shall be nominated by the foreign company.
The composition of the Corporate Social
Responsibility Committee is required to be disclosed in the Board’s report
prepared under the Act.
2.4.2 The
2013 Act mandates that every company (including its holding or subsidiary, as
well as foreign companies having project office/branch in India) to undertake
CSR activities if they meet certain thresholds. One question which arises is
whether a holding or a subsidiary of a company (which fulfils the criteria for
CSR applicability under the 2013 Act) also has to comply with CSR provisions,
even if such holding or subsidiary itself does not fulfil those criteria. The
FAQs issued by the MCA clarify that a holding or a subsidiary of a company is
not required to comply with CSR provisions unless the holding or subsidiary
itself fulfils the CSR criteria.
2.4.3
It has also been clarified in the rules that every company which ceases
to satisfy the criteria mentioned above for three consecutive financial years
shall not be required to- a. constitute a CSR Committee; and
b. comply with the provisions contained
in section 135, till such time it meets the criteria specified in sub section
(1) of section 135.
2.5 Functions of CSR Committee
Section 135 (3) provides that the CSR
committee shall –
a. formulate and recommend to
the Board, a CSR Policy which shall indicate the activities to be undertaken by
the company as specified in Schedule VII; of Companies Act 2013
b. recommend
the amount of expenditure to be incurred on the CSR activities.
c. monitor
the Corporate Social Responsibility Policy of the company from time to time.
The Board shall take into account the
recommendations made by the CSR Committee and approve the CSR Policy of the
company.
2.6 CSR Policy and Report
Section 135 (4) provides that the Board
after taking into account the recommendations of CSR Committee, approve the CSR
policy for the Company and disclose the content of such policy on the Company’s
website.
The Board’s report to shareholders
pertaining to a financial year shall include an annual report of CSR containing
particulars specified in the Annexure to Companies (CSR Policy) Rules 2014.
2.7 Contribution under CSR
2.7.1 Section
135 (5) provides that every company referred in s/s. (1) shall ensure that the
company spends in every financial year at least 2% of the average net profits
of the Company made during the three immediately preceding financial years, in
pursuance of its Corporate Social Responsibility Policy.
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.
2.7.2 Contribution
of any amount directly or indirectly to any political party u/s.182 of the Act
shall not be considered as CSR activity.
3. CSR
ACTIVITIES
3.1 As per
rule 4 of Companies (Corporate Social Responsibility Policy) Rules 2014 CSR
activities includes activities undertaken by the Company as per its policy as
projects or programs either new or ongoing excluding activities undertaken in
pursuance of its normal course of business.
3.2 Activities which are included in CSR – As
per Schedule VII of Companies Act 2013
Activities relating to –
i.
eradicating hunger, poverty and malnutrition, promoting health care
including preventive health care and sanitation (including contribution to the
Swachh Bharat Kosh set up by the Central Government for the promotion of
sanitation) and making available safe drinking water;
ii.
promoting education, including special education and employment
enhancing vocation skills especially among children, women, elderly, and the
differently abled and livelihood enhancement projects;
iii.
promoting gender equality, empowering women, setting up homes and
hostels for women and orphans; setting up old age homes, day care centres and
such other facilities for senior citizens and measures for reducing
inequalities faced by socially and economically backward groups;
iv. ensuring environmental
sustainability, ecological balance, protection of flora and fauna, animal
welfare, agro forestry, conservation of natural resources and maintaining
quality of soil, air and water; (including contribution to the clean Ganga Fund
set up by the Central Government for rejuvenation of river Ganga)
v.
protection of national heritage, art and culture including restoration
of buildings and sites of historical importance and works of art; setting up
public libraries; promotion and development of traditional arts and
handicrafts;
vi.
measures for the benefit of armed forces veterans, war widows and their
dependents;
vii.
training to promote rural sports, nationally recognised sports, para
Olympic sports and Olympic sports;
viii.
contribution to the Prime Minister’s National Relief Fund or any other
fund set up by the Central Government for socio-economic development and relief
and welfare of the Scheduled Caste, the Scheduled Tribes, other backward
classes, minorities and women;
ix. contributions or funds provided to
technology incubators located within academic institutions which are approved
by the Central Government;
x.
rural development projects;
xi.
slum area development.
3.3 The CSR
projects or programmes or activities undertaken in India only shall amount to
CSR Expenditure. Companies should give preference to the local area and areas
around it where it operates, for spending the amount earmarked for CSR
activities. The MCA has also clarified that CSR activities enumerated in the
Schedule VII of the 2013 Act are broad-based and are intended to cover a wide
range of activities. Thus, these prescribed activities should be interpreted
liberally to capture
their essence.
3.4 Rule 4 of
the Companies (Corporate Social Responsibility Policy) Rules, 2014, requires
that the CSR activities that shall be undertaken by the companies for the
purpose of section 135 of the Act shall exclude activities undertaken in
pursuance of its ‘normal course of business’. The Rules also specify that CSR
projects or programmes or activities that benefit only the employees of the
company and their families shall not be considered as CSR activities in
accordance with the requirements of the Act. Such programmes or projects or
activities, that are carried out as a pre-condition for setting up a business,
or as part of a contractual obligation undertaken by the company or in
accordance with any other Act, or as a part of the requirement in this regard
by the relevant authorities cannot be considered as a CSR activity within the
meaning of the Act.
3.5 Similarly,
the requirements under relevant regulations or otherwise prescribed by the
concerned regulators as a necessary part of running of the business, would be
considered to be the activities undertaken in the ‘normal course of business’
of the company and, therefore, would not be considered CSR activities.
4. Implementing
CSR activities
4.1 A Company
can undertake CSR activities in one or more of the following ways:
i) The Company itself can do these activities
ii) A company established u/s. 8 of the
Act or a registered trust or a registered society, established by:-
a) the
company, or
b) the
company alongwith any other company, or
c) the
Central Government or State Government or any entity established under an act
of Parliament or a State legislature, or
d) Any
other person or persons, where such company or trust or society have an
established track record of three years in undertaking similar programs or
projects and the company has specified the projects or programs to be
undertaken, the modalities of utilisation of funds of such projects and
programs and the monitoring and reporting mechanism.
iii) A
company can collaborate with other companies for undertaking projects or programs
or CSR activities in such a manner that the CSR Committees of respective
companies are in a position to report separately on such projects or programs
in accordance with these rules.
4.2 Companies
may build CSR capacities of their own personnel as well as those of their
implementation agencies through Institutions with established track records of
atleast three financial years but such expenditure including expenditure on
administrative overheads shall not exceed five per cent of total CSR
expenditure of the company in one financial year.
5. CSR
– Accounting and related disclosures
5.1 The
Institute of Chartered Accountant of India has issued Guidance Note on
Accounting for expenditure on CSR activities which provides accounting
guideline for CSR expenditure.
5.2 The amount
of contribution made towards CSR would generally, be treated as an expense and
charged to the statement of profit and loss, unless it gives rise to an asset.
According to the Guidance Note on Accounting for CSR, an asset would be recognised
on the basis of an evaluation of control over the asset and accrual of future
economic benefits to the company.
5.3 Section
135 (5) of the Companies Act, 2013, requires that the Board of every eligible
company, “shall ensure that the company spends, in every financial year, at
least 2% of the average net profits of the company made during the three
immediately preceding financial years, in pursuance of its Corporate Social
Responsibility Policy”. A proviso to this Section states that “if the company
fails to spend such amount, the Board shall, in its report specify the reasons
for not spending the amount”.
Further, Rule 8(1) of the Companies
(Corporate Social Responsibility Policy) Rules, 2014, prescribes that the Board
Report of a company under these Rules shall include an Annual Report on CSR,
containing particulars specified in the Annexure to the said Rules, which
provide a format in this regard. The above provisions of the Act clearly lay
down that the expenditure on CSR activities is to be disclosed only in the
Board’s Report in accordance with the Rules made thereunder.
In view of above, no provision for the
amount which is not spent, i.e., any shortfall in the amount that was expected
to be spent as per the provisions of the Act on CSR activities as compared to
the amount actually spent at the end of a reporting period, may be made in the
financial statements.
The proviso to section 135 (5) of the
Act, makes it clear that if the specified amount is not spent by the company
during the year, the Directors’ Report should disclose the reasons for not
spending the amount.
However, if a company has already
undertaken certain CSR activity for which a liability has been incurred by
entering into a contractual obligation, then in accordance with the generally
accepted principles of accounting, a provision for the amount representing the
extent to which the CSR activity was completed during the year, needs to be
recognised in the financial statements.
Where a company spends more than that
required under law, a question arises as to whether the excess amount ‘spent’
can be carried forward to be adjusted against amounts to be spent on CSR
activities in future period. Since ‘2% of average net profits of immediately
preceding three years’ is the minimum amount which is required to be spent u/s.
135 (5) of the Act, the excess amount cannot be carried forward for set off
against the CSR expenditure required to be spent in future.
Further, the Board of Directors of the
Company are free to decide whether any unspent amount from the minimum required
CSR expenditure is to be carried forward to the next year. However, the carried
forward amount should be over and above the next year’s CSR allocation
equivalent to atleast 2% of the average net profit of the Company of the
immediately preceding three years.
Additionally, a company should also
disclose related party transactions e.g. contribution to a trust controlled by
the company in relation to CSR expenditure.
5.4 In some cases, a company may supply goods
manufactured by it or render services as CSR activities. In such cases, the
expenditure incurred should be recognised when the control on the goods
manufactured by it is transferred or the allowable services are rendered by the
employees. The goods manufactured by the company should be valued in accordance
with the principles prescribed in Accounting Standard (AS) 2, Valuation of
Inventories. The services rendered should be measured at cost. Indirect taxes
(like excise duty, service tax, VAT or other applicable taxes) on the goods and
services so contributed will also form part of the CSR expenditure.
Where a company receives a grant from
others for carrying out CSR activities, the CSR expenditure should be measured
net of the grant.
5.5 Item 5 (A)(k) of the General Instructions for
Preparation of Statement of Profit and Loss under Schedule III to the Companies
Act, 2013, requires that in case of companies covered u/s. 135, the amount of
expenditure incurred on ‘Corporate Social Responsibility Activities’ shall be
disclosed by way of a note to the statement of profit and loss. From the
perspective of better financial reporting and still be in line with the
requirements of Schedule III in this regard, it is generally recommended that
all expenditure on CSR activities, that qualify to be recognised as expense
should be recognised as a separate line item as ‘CSR expenditure’ in the
statement of profit and loss. Further, the relevant note should disclose the
break-up of various heads of expenses included in the line item ‘CSR
expenditure’.
5.6 In case a
contribution is made to a fund specified in Schedule VII to the Act, the same
would be treated as an expense for the year and charged to the statement of
profit and loss. In case the amount is spent through a registered trust or a
registered society or a company established u/s. 8 of the Act the same will be
treated as expense for the year by charging off to the statement of profit and
loss.
5.7 In cases,
where an expenditure of revenue nature is incurred on any of the activities
mentioned in Schedule VII to the Act by the company on its own, the same should
be charged as an expense to the statement of profit and loss. In case the
expenditure incurred by the company is of such nature which may give rise to an
‘asset’, a question may arise as to whether such an ‘asset’ should be
recognised by the company in its balance sheet. In this context, it would be
relevant to note the definition of the term ‘asset’ as per the Framework for
Preparation and Presentation of Financial Statements issued by the Institute of
Chartered Accountants of India. As per the Framework, an ‘asset’ is a “resource
controlled by an enterprise as a result of past events from which future
economic benefits are expected to flow to the enterprise”. Hence, in cases
where the control of the ‘asset’ is transferred by the company, e.g., a school
building is transferred to a Gram Panchayat for running and maintaining the
school, it should not be recognised as ‘asset’ in its books and such
expenditure would need to be charged to the statement of profit and loss as and
when incurred. In other cases, where the company retains the control of the
‘asset’ then it would need to be examined whether any future economic benefits
accrue to the company. Invariably future economic benefits from a ‘CSR asset’
would not flow to the company as any surplus from CSR cannot be included by the
company in business profits in view of Rule 6(2) of the Companies (Corporate
Social Responsibility Policy) Rules, 2014.
Where a company receives a grant from
others for carrying out CSR activities, the CSR expenditure should be measured
net of the grant.
5.8 Recognition of income earned from CSR
projects/programmes or during the course of conduct of CSR activities
Rule 6 (2) of the Companies (Corporate
Social Responsibility Policy) Rules, 2014, requires that “the surplus arising
out of the CSR projects or programs or activities shall not form part of the
business profit of a company”. Thus, in respect of a CSR project or programme
or activity, it needs to be determined whether any surplus is arising
therefrom. A question would arise as to whether such surplus should be
recognised in the statement of profit and loss of the company. It may be noted
that paragraph 5 of Accounting Standard (AS) 5, Net Profit or Loss for the
Period, Prior Period Items and Changes in Accounting Policies, inter alia,
requires that all items of income which are recognised in a period should be
included in the determination of net profit or loss for the period unless an
Accounting Standard requires or permits otherwise. As to whether the surplus
from CSR activities can be considered as ‘income’, the Framework for
Preparation and Presentation of Financial Statements issued by the Institute of
Chartered Accountants of India, defines ‘income’ as “increase in economic
benefits during the accounting period in the form of inflows or enhancements of
assets or decreases of liabilities that result in increases in equity, other
than those relating to contributions from equity participants”. Since the
surplus arising from CSR activities is not arising from a transaction with the
owners, it would be considered as ‘income’ for accounting purposes. In view of
the aforesaid requirement any surplus arising out of CSR project or programme
or activities shall be recognised in the statement of profit and loss and since
this surplus cannot be a part of business profits of the company, the same
should immediately be recognised as liability for CSR expenditure in the balance
sheet and recognised as a charge to the statement of profit and loss.
Accordingly, such surplus would not form part of the minimum 2% of the average
net profits of the company made during the three immediately preceding
financial years in pursuance of its Corporate Social Responsibility Policy.
5.9 Presentation and disclosure in financial statements
The General Instructions for
Preparation of Statement of Profit and Loss under Schedule III to the Companies
Act, 2013, requires that in case of companies covered u/s. 135, the amount of
expenditure incurred on ‘Corporate Social Responsibility Activities’ shall be
disclosed by way of a note to the statement of profit and loss.
The notes to accounts relating to CSR
expenditure should also contain the following:
a. Gross amount required to be spent by
the Company during the year;
b. Amount Spent during the year;
c. Details of related party
transactions eg; contribution to a trust controlled by the Company in relation
to CSR expenditure as per AS -18 – Related Party Disclosures;
d. Where provision is made in case of
CSR activity for which a liability has been incurred by entering into a
contractual obligation the same should be presented as per requirements of
Schedule III to the Companies Act, 2013. Further movements in the provisions
during the year should be shown separately.
6. CSR
– Tax implications
6.1 Before
Companies Act, 2013 and Finance Act, 2014, the expenditure on CSR was not
mandatory and there was no direct provision under Income Tax Act dealing with
CSR expenditure. Therefore, all the voluntary expenditures incurred on CSR were
claimed either u/s. 35(2AA) or 35AC or u/s. 80G of the Income Tax Act and in
most of the cases the CSR expenditures were claimed to be allowed u/s. 37(1) of
the Income Tax Act, 1961. However, after Companies Act 2013, CSR expenditure
became mandatory and the tax treatment of CSR spends became contingent upon the
Income Tax Act, 1961 and amendments thereof.
The Finance Act, 2014 had brought a
very radical and far reaching amendment, as far as CSR expenditures are
concerned. The Finance Act had proposed that CSR expenditure shall not be
allowed as expenditure u/s. 37 of Income Tax Act, 1961. However, any CSR
expenditure which is allowed as deduction under other sections such as section
30, 32, 35, 35AC, 80G etc., should be possible.
6.2 Historically
it is well established by various judicial pronouncement that the CSR
expenditures were allowed u/s. 37 (1) of the Income Tax Act, 1961, only on the
background that these expenditures were considered to be for the purpose of
business or for advancement of the business of the assessee. However, now Rule
4 of CSR Rule specifically provides that CSR activities will not include any
activities undertaken in pursuance of normal course of business and therefore,
to constitute a valid CSR expenditure, the expenditure cannot be in relation to
or for advancement of business of the company. Under this background, the
amendment in the Finance Act, 2014 seems to be clarificatory in nature as
expenditure can be allowed to be deducted u/s. 37(1) only when it is incurred
for the purpose of business.
6.2.1 If the
company directly undertakes CSR expenditures there will be no tax deduction and
therefore, the company cannot claim the tax benefits when it spends the amount
directly.
6.2.2 If the
company undertakes CSR expenditures through 80G registered NGOs (including its
own foundation) then the company can claim some tax benefit as such
contribution provide 50% tax benefit.
6.2.3 Further,
if a corporate undertakes CSR activities through Institutions registered u/s.
35CCA, 35AC, 35CCC, 35CCD of the Income Tax Act, 1961 or through funds like
Prime Minister Relief Fund, National Defence Fund having 100% tax benefit u/s.
80G then it will get 100% tax advantage.
6.2.4 Further, if
a corporate undertakes CSR activities through Institutions registered u/s. 35
for scientific research or social research then it may get 125% to 175% tax
advantage and will be most advantages for CSR, but the choice of activities will
be reduced and the money will go towards research and not towards direct field
level programmes.
6.2.5 Thus,
the present tax provisions of differential tax statement of CSR expenditure may
shift focus of the company to have a CSR policy on the basis of tax efficiency
also.
6.3 The present laws dealing with CSR, i.e.
Companies Act 2013 and Income Tax 1961, thus are going in 2 different
directors. The Companies Act requires a company to spend certain amount towards
C.S.R. and lays down elaborate mechanism in respect of the same. The Income Tax
Act very clearly states that the C.S.R. expenditure would not be allowed as
business expenditure. However, in case the company spends the amount of CSR
through a section 8 Company, Trust or Society, it can legitimately claim this
as a deduction under relevent provisions of the Income Tax Act. Thus, it
appears that there is a need to have a co-ordinated approach in these two laws,
in respect of CSR activities.
7. CSR
– Implementation issues
7.1 Certain
issues have been surfaced during the implementation of the CSR rules and they
can be addressed by setting up appropriate mechanisms. First, if a company has
to spend relatively large sums on CSR year after year, because its profits are
huge, it will face the challenge of identifying appropriate projects on a
sustained basis. It is important to realise that companies need to pump in 2
per cent of their net profits every year. This can put a strain on the
company’s management to search, select, implement and monitor new projects
every year. The task is likely to cumulatively build up both in terms of scale
and scope over time. For large companies the issue of identifying appropriate
projects on a sustained basis is even more challenging. Spending of such large
amounts may require large companies to have dedicated centres that identify,
implement, and monitor large scale projects or a large number of smaller
projects. This entails additional costs for a company that need to be factored
in. The Rules foresee this to some extent and allows companies to carry out
their CSR activities through registered trusts set up by the companies or
outside trusts with good track records; but the activities of these trusts
would in turn become challenging and will possibly need monitoring.
7.2 Another
issue relates to the treatment of CSR kind of expenditure that companies may
already be incurring. Would reclassifying them as CSR expenses meet the
requirements of law? For example, can companies that are operating educational
institutions or running major hospital facilities for their employees beyond
what the law requires, claim the excess facilities as CSR expenditure u/s. 135?
Will this be allowed if such facilities
are also open to nonemployees as well? Some questions have already been raised
as to whether certain types of expenditure which companies have been incurring
will qualify as items towards meeting the specified CSR target. In response to
this, the Ministry of Corporate Affairs issued a circular dated June 18th,
2014 (MCA, 2014b) specifying that “the activities undertaken in pursuance of
the CSR policy must be relatable to Schedule VII of the Act and the activities
mentioned in the Schedule VII must be interpreted liberally capturing the
essence of the subjects enumerated therein.” As stated earlier, the circular
also lists certain specific types of expenditures that will count as CSR
expenditure for meeting the provisions of section 135 and those that will not.
More such explanations and clarifications are likely to be made over time.
7.3 Another
problem relates to coordination among companies in choosing their respective
CSR activities. This is a concern, particularly because the Rules recommend
that the companies give preference to local areas in their CSR spending. To
prevent duplication in particular types of CSR projects by companies within a
particular region, formal partnerships or consortiums can be set up to achieve
better coordination of CSR activities among companies within that region. In
instances where large investments are necessary, such as in hospitals and
schools, smaller companies may be better off by pooling their CSR resources
through such consortiums.
7.4 Many
companies give donation to Trust or Societies for the purpose of CSR and claim
it as CSR expenditure. In such cases, it is necessary for the company to obtain
a certificate from the Trust or Society that the requisite amount has been
actually spent for the purpose for which it was received by the Trust. The
Trust/ Society should produce some documentary evidence for the company to show
that the actual work is done and the amount is spent on such work.
7.5 The Trust
or Societies which receive money form companies towards CSR need to follow a
proper method of accounting whereby they should be able to show to the
companies that the money received is actually spent for the specified purpose.
The company may even ask for a certificate from the auditor of such
Trust/Society for this purpose and even ask for a copy of the financial
statement of the Trust/Society for its records.
7.6 Companies need support from Non-Profit
Organisations (NPO) in various area of CSR activities such as identification
implementation and perseverance in undertaking such activities. People need a
different mindset when they do social work. This is an area where people
working in social sector through NPO need to guide and support the people form
the corporate sector in respect of various skills required for doing such work.
The combination of perseverance of persons doing social work coupled with the
effective and efficient way of handling the matter can give better results from
CSR activities.
7.7 The
N.P.Os need to prepare proper project reports and present their ideas in an
organised manner before the corporates so that the Companies get the required
confidence before they commit their money and time for such projects. This is
one area which needs substantial improvement since a large number of N.P.Os do
not have the necessary expertise and skills to make proper presentation even
when they are actually doing good work at ground level.
7.8 There is a
need to carry out social audit of many of the CSR projects so as to identify
and measure the impact of such work on the various sections of the Society.
There is a need for more agencies who can do such work. Mere spending of money
is not sufficient for achieving the desired social results and this aspect
needs to be brought to the notice of the corporates in proper manner.
7.9 Registrar
of Companies has issued Notices to many companies to explain as to why the
companies have not spent the necessary amount towards CSR. There is no penalty
provided in the Companies Act 2013 for non-payment or less payment towards CSR.
However, the collection of such data and explanations form companies by
Registrar of Companies indicate that the Govt. might soon come out with some
more stringent provisions in this matter.
8. Way
Forward
8.1 CSR is a
social movement wherein the companies are contributing their money and time in
fulfilling certain social objectives which help the members of the society. It
would be more useful if the top management of the companies put their heart and
soul into it and spend some more time for these activities. This would achieve
better effective and efficient use of economic resources for the betterment of
the Society. This would be also a good step in the right direction to ensure
sustainability of the business of the company.
8.2 Corporate
Social Responsibility should now move on to Individual Social Responsibility
whereby each individual feels the necessity of doing something for the society
Of course doing your own job with full integrity and honesty itself is a
positive contribution to the Society. However, if every individual decides to
spend atleast 5% of his/her time for some social work, it will make great
difference to the society. Everyone can choose the area of work as per his
choice, but such commitment of time will make all the difference to the area of
work selected. This will support many good initiatives taken by N.P.Os since
the social work actually needs involvement of many people in addition to the
monetary contribution. Such social work will also enhance the work experience
and reputation of people doing it and make them more happy.
The purpose of this article would be
achieved if more readers decide to do something for others and move on to
fulfil Individual Social Responsibility.
