Tax Tribunal Grants Deductions for CSR Donations: Impact on Corporate Taxation
summary: The recent ITAT ruling clarified the tax treatment of Corporate Social Responsibility (CSR) contributions, emphasizing that while they cannot be claimed under Section 37(1) as business expenditure, they are eligible for deductions under Section 80G, provided certain conditions are met. The decision ensures compliance with regulations while encouraging corporate social responsibility initiatives.
In a recent ruling by the Income Tax Appellate Tribunal (ITAT), an important clarification has been provided regarding the tax treatment of Corporate Social Responsibility (CSR) contributions made by companies. The case, which traversed through various levels of appeal, sheds light on the nuanced interpretation of tax laws concerning CSR expenditure.
Initially, the Assessing Officer, in a decision dated 26/09/2022, contended that CSR contributions were not voluntary donations but rather mandatory expenditures under Section 135 of the Companies Act, 2013. This stance was challenged by the assessee, asserting that they were not seeking deductions under Section 37(1) but rather under Section 80G, which was not expressly disallowed.
Subsequently, the Commissioner of Income Tax (Appeals) sided with the assessee, emphasizing that the company sought deductions under Section 80G, which lacked specific disallowance for CSR expenditures. Dissatisfied with this outcome, the Revenue appealed to the ITAT.
In its verdict, the ITAT echoed previous tribunal decisions, affirming that CSR expenses, despite being disallowed under Section 37 post the Finance Act, 2014, remained eligible for deductions under Section 80G. It highlighted that the Assessing Officer’s denial of deduction under Section 80G based on the mandatory nature of CSR expenditure was erroneous.
The ITAT underscored the absence of explicit restrictions in Section 37(1) or Section 80G concerning CSR expenditure, emphasizing legal precedence and legislative intent. Notably, it referenced several relevant judgments, including the cases of Goldman Sachs Services Pvt. Ltd., Allegis Services (India) (P.) Ltd., FNF India (P.) Ltd., and JMS Mining (P.) Ltd., which supported the allowance of deductions for CSR contributions under Section 80G.
Quoting the Hon’ble ITAT Bangalore Bench’s decision in the Goldman Sachs Services Pvt. Ltd. case, the tribunal emphasized the eligibility of CSR contributions for Section 80G deductions, provided they meet the necessary criteria.
Further analysis of Section 80G revealed exceptions for contributions to specific funds like the Swachh Bharat Kost and Clean Ganga Fund, which were explicitly excluded from deductions. However, contributions made to CSR implementing agencies with an 80G certificate for other specified CSR activities were deemed eligible for Section 80G deductions.
In conclusion, the ITAT ruling clarifies that while CSR expenditure cannot be claimed under Section 37(1) as business expenditure, companies can avail deductions under Section 80G, subject to meeting prescribed conditions. This verdict provides clarity on the tax treatment of CSR contributions, ensuring compliance with regulatory frameworks while incentivizing corporate social responsibility initiatives.
