Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCHES: ‘B’, NEW DELHI
Before: SHRI N.K.BILLAIYA & SMT. BEENA A PILLAI
PER BEENA A PILLAI, JUDICIAL MEMBER Present appeal has been filed by assessee against order dated 2nd December 2015 passed by Ld. CIT (A)-9, New Delhi for assessment year 2012-13 on following grounds of appeal: “ 1.1. The learned CIT has erred in confirming the disallowance of Corporate Social Responsibility (CSR for short) expenses of Rs 89.74 AY:2012-13 The National Small Industries Corp. Ltd.
lacs - incurred under the directions of DPE Govt, of India requiring Companies to spend a prescribed percentage of its profits on CSR - and now also made mandatory under the Companies Act. 1.2. The learned CIT has erred in confirming the non consideration of alternate claim under Sections 35AC, 80G and other applicable provisions of the Income Tax Act. 1.3. The Authorities below have been influenced by Explanations u/s 37 of the Act inserted with regard to Companies Act 2013.
2. That the tax demanded is wrong.
3. That the above grounds are independent and without prejudice to each other.
4. That the appellant seeks leave to add, amend, alter or abandon any of the above grounds at the time of hearing of the appeal.”
Brief facts of the case are as under. Assessee filed its return of income on 28/09/2012, declaring total income of Rs.56,48,78,670/-. The case was selected for scrutiny and notice under section 143(2) of the Income Tax Act, 1961 (the Act) was issued. A questionnaire along with notice under section 142(1) was also sent subsequently to assessee. In response to the statutory notices, representatives of assessee appeared before Ld. AO and filed requisite details as called for. 2.1. During course of assessment proceedings, Ld.AO observed that assessee incurred expenses of Rs.89,74,085/- under head ‘Corporate Social Responsibilities’ and claimed such expenses in return filed. Assessee was called upon to justify the claim of such AY:2012-13 The National Small Industries Corp. Ltd.
expenses. Reply was filed by assessee in response to query raised by Ld.AO on 13/12/14. Ld.AO after considering submissions of assessee, was of the opinion that such expenses claimed by assessee were towards CSR, cannot be allowed. Thus he made addition in the hands of assessee amounting to Rs.89,74,085/-. 2.2. Aggrieved by order of Ld.AO, assessee preferred appeal before Ld. CIT (A),who upheld addition made by Ld.AO. 2.3. Aggrieved by order of Ld.CIT (A) assessee is in appeal before us now.
Ld.Counsel submitted that assessee was to incur expenses under directions of Government for public projects. He submitted that activities carried out by assessee, falls within the purview of section 2 (15) of the Act, which also qualifies for deduction under section 35 AC and 80 G of the Act. He submitted that guidelines provided that CSR budget should be 0.5% to 2% of net profit during the year. Ld.Counsel submitted that expenses incurred by asessee are towards skill development and training of these sections which is ultimate objective of assessee. Ld.Counsel placed reliance upon manner in which such expenses has been incurred by assessee, which were debited to CSR expenses, details of which are as under: AY:2012-13 The National Small Industries Corp. Ltd.
Mission Education- provided education Rs. 30,89,257 among underprivileged children particularly in urban slum areas & Health care camps for urban slums specially children & women through smile foundation, New Delhi
Skill up-gradation for under privileged Rs. 17,03,306 girls & women- through Shiksha Bharati, Hapur Provided Mobile Medicare units for aged Rs. 11,78,550 persons-through Helpage India
Health Checkup camps- through Helpage Rs. 2,00,481 India Dementia Day care center- through Rs. 5,21,011 Helpage India Solar lantern assembly training through Rs. 5,35,000 Ramakrishna Math
Computer Training & English speaking for Rs. 506,000 Visually impaired students through IDL Bangalore Prevention of cruelty to Animals through Rs. 4,54,330 SPCA Noida
Gems & Jewellery Training for Deaf & Rs. 250,000 dumb students through- Centre for Development of Gems & Jewellery, Jaipur Education for Visually impaired students Rs. 36,000 through National Association for Blind
Contribution to CST Hub- Tata Institute of Rs. 4,45,000 Social Sciences, Mumbai
CSR Training expenses Rs. 55,150
Total Rs. 89,74,085 AY:2012-13 The National Small Industries Corp. Ltd.
On the contrary, the Ld.Sr.DR placed reliance upon order of Ld.AO and submitted that guidelines provide that CSR budget should be 0.5% to 2% of net profit during the year, and has to be spent out of income of assessee. He was of the opinion that, scheme did not allow such expenditure to be debited to P&L account. He placed reliance upon insertion given in Finance Act (No. 2) 2014 as Explanation 2 to Section 37 (1) of the Act. He submitted that the insertion was by way of clarification.
We have perused submissions advanced by both sides in the light of the records placed before us 6. Apart from arguing for allowability of expenses, assessee before us raised alternative plea, that these expenses may be allowed under section 35 AC and 80 G of the Act. 6.1. It is observed that assessee is a public sector undertaking which was established to promote and develop skill India through cottage and small industries. It has been submitted that in order to promote skill amongst poor class of the society, assessee established technical centres at various places and also carved out purposeful technical training programmes through NGOs which were involved in such activities at various places. Assessee has submitted that it has expended towards education of children of underprivileged labour employed in unorganised cottage industries in small cities through Smile Foundation, contributed towards training and education through Shiksha Bharati, Hapur, for skill upgradation for girls and women of underprivileged section of society, provided medical care units for aged persons through AY:2012-13 The National Small Industries Corp. Ltd.
Helpage India, health checkup camps, dementia daycare centre through Helpage India, conducted vocational training programmes for solar lantern assembly through Ramakrishna Math to develop skilled manpower for micro, small and medium enterprises as well as creating new enterprise in MSME sector, contributed towards computer training and English speaking for holistic development of persons with physical disabilities visually impaired students through IDL Foundation, Bangalore and through National Association for Blind covering development oriented activities, etc. It is observed that all these expenses have been incurred voluntarily. Most of these expenses are in the nature of donations which are eligible for exemption under section 80 G and a few are covered under section 35AC of the Act vide notification No. 39/2011 dated 24/04/11. 6.2. Ld.Sr.DR has alleged that, by way of amendment inserted by Finance Act (No. 2) 2014, no expenses are deductible incurred towards CSR against business income. He said that these should be treated as clarificatory in nature, and therefore expenses discharging corporate social responsibility were outside the ambit of expenses deductible under section 37 (1), by virtue of Explanation 2 inserted by Finance Act (No. 2) 2014. It is observed that Ld. AO/CIT (A) proceeded to make addition on the premises that Explanation 2 to section 37(1) was applicable to the present year under consideration.
We are unable to agree with plea advanced by Ld.Sr.DR. In our opinion Explanation 2 has been inserted in the section 37 (1) w.e.f. AY:2012-13 The National Small Industries Corp. Ltd.
01/04/15 and is prospective in nature. In our considered opinion amendment by way of Explanation 2 to Sec.37(1) cannot be construed as disadvantage to the assessee in the period prior to the amendment. It is a disabling provision, as set out in Explanation 2 to Sec.37(1), and refers to such Corporate Social Responsibility expenses u/s 135 of Companies Act, 2013 and as such cannot have application for period not covered by this Statutory Provision which itself came into existence in 2013. We draw our support from the decision of Hon’ble Supreme Court in case of CIT vs. Vatika Townships Pvt. Ltd. Reported in (2014) 367 ITR 466, wherein Hon’ble Court held as under: “Of the various rules guiding how legislation has to be interpreted, one established rule is that unless a contrary intention appears, legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow’s background adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lexprospicit non respicit: law looks forward not backward. As was observed in Phillips vs. Eyre: a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with AY:2012-13 The National Small Industries Corp. Ltd. future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.”
Thus we reject this argument of Ld.Sr.DR and hold that this amendment would not affect allowability of such expenses for the year under consideration, being assessment year 2012-13. It is observed that authorities below rejected claim of assessee only on the ground that Explanation 2 to Sec.37(1) is applicable to year under consideration. 8. We therefore allow grounds raised by assessee. As we have already allowed the said expenses under section 37 (1) for the year under consideration, the alternate claim raised by assessee under section 35AC and 80 G of the Act becomes academic in nature.
9. In the result appeal filed by assessee stands allowed. Order pronounced in the open court on 25th February, 2019.