MCKINSEY GLOBAL CAPABILITIES AND SERVICES PRIVATE LIMITED (MGCS) [MGSIPL NOW MERGED WITH MGCS],HARYANA vs. ADDITIONAL / JOINT / DEPUTY / ASSISTANT COMMISSIONER OF INCOME TAX / INCOME-TAX OFFICER, DELHI

As with regard to ground No. 2 to 2.3, the relevant facts are that during the year under consideration, the appellant claimed deduction under section 80G of the Act in respect of the following donations made by it till 30th July, 2020: S. Date of Party Amount Deduction Whether No. Donation donated allowable part of u/s 80G CSR (50%) expense 1. 15.04.2019 Interglobe 55,00,000 27,50,000 Yes Foundation 2. 27.08.2019 55,00,000 27,50,000 Yes PAN- 3. 18.03.2020 20,00,000 1,00,000 Yes ACCI2495N 4. 17.06.2020 1,10,00,000 55,00,000 No 5. 20.12.2019 Uththaan 13,12,500 6,65,250 Yes PAN- 6. 14.05.2020 12,89,400 6,44,700 Yes AAJU0183G 7. 07.05.2020 End Poverty 9,87,840 4,93,290 No PAN- AATE3346B TOTAL 2,75,89,740 1,37,94,870 4.1 Admittedly the donations made as part of CSR expenditure were suo-motu disallowed by the appellant under section 37(1) of the Act. However, the assessing officer disallowed the entire deduction claimed by the appellant on the ground that donations forming part of CSR expenditure is not allowable as deduction under section 80G of the Act. The CIT(A) though rightly observed that donations to the extent of Rs.1,19,87,840, McKinsey Global Capabilities & Services Pvt. Ltd. being total of S.No. 4 & 7, in above column, were not paid as part of CSR expense, however, the CIT(A) confirmed the disallowance on the ground that the same were made beyond 31.03.2020. Similarly, donation of Rs.12,89,400 made to Uththaan, referred above at S.No.6, after 31.3.2020 was disallowed by the CIT(A) on the ground that payment was made beyond the end of financial year (without prejudice to eligibility of CSR expenditure. 4.2 Here itself we will like to observe that CIT(A) seems to have lost sight of the fact that provisions of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 ("TOLA'), were applicable in regard to the donations made beyond 31.03.2020. This aspect could not be disputed by Ld. DR. As per the provisions of TOLA, inter-alia, the due date for making donations, deduction for which could be claimed under section 80G of the Act, in the income tax return for assessment year 2020-21 was extended till 30th July, 2020.

of the Bangalore Bench of the Tribunal to submit that that deduction under section 80G cannot be denied in respect of CSR expenditure incurred under section 135(5) of the Companies Act, 2013. He submitted that the Tribunal while allowing the deduction under section 80G, has also considered clauses (iiihk) & (iiihl) of section 80G(2) to hold that contribution made under section 135(5) of the Companies Act, 2013 other than to McKinsey Global Capabilities & Services Pvt. Ltd. "Swachh Bharat Kosh" and "Clean Ganga Fund" shall be eligible for deduction under section 80G of the Act. The relevant extracts of the decision, as relied by him, are as under: "16…………. We find that the CSR expenses are required to be incurred by companies as per Section 135 of the Companies Act and the deduction u/s. 37(1) of the Act, is not available from Assessment Year 2015-16 as per the Explanation 2 to Section 37(1) of the Act inserted by the Finance Act No.2. 2014. Whereas, the appellant company has made a claim for deduction of CSR expenses w/s. 80G of the Income Tax Act, 1961. But the assessing officer has rejected the assesses claim without verifying the nature of contributions and observed that it is not a donation, and was not spent voluntarily for the eligibility of claim u/s.80G of the Act but due to legal obligation prescribed w/s. 135 r.w. Schedule VII of Companies Act, 2013. We find that the A.O has allowed education u/s. 80G of the Act in respect of contribution made to PM Relief Fund which is not disputed. We are of the opinion that the A.O. has not made his observations clear that no CSR expenses are eligible for deduction m/s. 80G of the Act. We consider it appropriate to refer to the Clauses (link) & (d) of sub section 2 of Section 80G of the Act which are read as under: "(link) the Swachh Bharat Kosh, set up by the Central Government, other than the sum spent by the appellant in pursuance of Corporate Social Responsibility under sub-section (3) of Section 135 of the Companies Act, 2013 (18 of 2013): or (iihl) the Clean Ganga Fund, set up by the Central Government, where such appellant is a resident and such sum is other than the sum spent by the appellant in pursuance of Corporate Social Responsibility under sub- section (5) of Section 135 of the Companies Act, 2013) (18 of 2013)" Where these two exceptions are provided in Section 80G of the Act, it can be inferred that the other contributions made us. 135(5) of the Companies Act are also eligible for deduction u/s 80G of Income Tax Act subject to appellant satisfying the requisite conditions prescribed for deduction u/s 80G of the Act. In the present case the A.O. has not dealt on these aspects, prima facie, considered the contributions as not voluntary but a legal obligation and has accepted the genuineness of the contributions. We are of the opinion that the matter has to be considered for examination McKinsey Global Capabilities & Services Pvt. Ltd. and verification of facts subject to the appellant satisfying the requirements of claim u/s 80G of the Act. Accordingly, we restore the entire disputed issues to the file of A.O. for fresh examination and verification as discussed above and the appellant should be provided adequate opportunity of hearing and shall co-operate in submitting the information and we allow the ground of appeal of the appellant for statistical purposes." (emphasis supplied) 6.2 Ld. Counsel has then relied a co-ordinate Delhi bench of Tribunal decision in the case of Honda Motorcycle and Scooter India Pvt. Ltd. vs ACIT: vide order dated 22.08.2023, where relying on the decision of Bangalore bench of the Tribunal in the case Goldman Sachs (supra), the Co- ordinate bench has held that there is no restriction in the Act that expenditure when disallowed for CSR cannot be considered under section 80G of the Act. The said donation also formed part of CSR expenditure of the assessee, though the assessee disallowed the said expenditure under section 37(1) of the Act. The Tribunal, however, remitted the issue to the file of the assessing officer with the directions to allow deduction under section 80G of the Act subject to verification that the payments qualified as donation under that section. The relevant extracts of the decision, as relied by him, are as under;

18. We have heard both the parties and perused the records. We find that ITAT, Bangalore Bench in the case of Goldman Sachs Services (P.) Lad. (supra) has held that the other contributions made under section 135 (5) of the Companies Act are also eligible for deduction's 80G of the Act ITA No. 1523/Del./2022 subject to satisfying the requisite conditions prescribed for deduction w/s 80G of the Act. For this purpose, the issue is remanded to the file of AO to examine the same whether the payments satisfy the claim of donation's 80G of the Act. We find that the case law is fully applicable to the facts of the case. There is no restriction in the Act that expenditure when disallowed for CSR cannot be considered w/s 80G of the Act, Hence, we remit the issue to the file of AO to verify whether these payments were qualified as donations u/s 80G of the Act or not, if they qualify as donation u/s 80G of the Act then the requisite amount deserves to be allowed." (emphasis supplied) 6.3 Ld. Counsel also relied judgment in case of Teradata India Pvt Ltd vs. DCIT: ITA 1248/Del/2022, the co-ordinate Delhi Bench of the McKinsey Global Capabilities & Services Pvt. Ltd. Tribunal, where in the bench allowed the deduction claimed under section 80G of the Act in respect of donations made to eligible institutions as part of CSR Expenditure, holding as under; "16. It is not in dispute that contributions made by the assessee are made to eligible institutions which are enjoying exemption u/s 80G of the Act. The fact that those contributions were made only to eligible institutions are not in dispute before us. We find that all the institutions listed in the tabulation are enjoying exemption u/s 80G of the Act and accordingly, assessee would be entitled for deduction u/s 80G of the Act thereon, irrespective of the fact that it is made as part of CSR obligations. The assessee in the instant case had duly complied the provisions of Companies Act, 2013 read with CSR rules thereon and as per the provisions of the Income Tax Act had also voluntarily disallowed the CSR expenditure while computing the taxable income. Since, the donee institutions are eligible institutions enjoying exemption u/s 80G of the Act, the assessee has claimed deduction u/s 80G of the Act which is also provided in the statute itself to the assessee. Hence, denial of deduction u/s 80G of the Act to the assessee would result in gross injustice. We direct the ld AO to grant deduction u/s 80G of the Act to the assessee. Accordingly, the ground No. 6 to 6.6 raised by the assessee are allowed." (emphasis supplied) 6.4 He has also made reference to Hyderabad Bench of the Tribunal decision in the case of Optum Global Solutions (India) (P) Ltd vs DCIT: [2023] 203 ITD 14 (Hyd Trib.) that where assessee satisfied conditions of section 80G, the assessee shall be eligible to claim deduction under the said section in respect of such donations, even if the same formed part of spends towards CSR. The relevant extracts of the decision, as relied by him, are as under: "13. After computing the business income, while computing the total income of the assessee, the assessee is invoking the benefit under chapter-VIA by claiming deduction of the sums under section 80G of the Act. According to the Revenue, when once such sum went to satisfy the requirement of section 135 of the Companies Act, the benefit gets exhausted and such an amount is no more available for the purpose of claiming deduction under section 80G of the Act.

(Mum Trib), which has relied on the decision of Bangalore bench of the Tribunal in the case of Allegis (supra) and held that "the claim for deduction under section 80G of the Act in respect of CSR expenses cannot be denied". The Tribunal, however, remitted the issue to the file of the assessing officer with the directions to allow deduction under section 80G of the Act is the conditions specified therein are satisfied. He also cited the following decisions for the same proposition of law.

McKinsey Global Capabilities & Services Pvt. Ltd. FNF India Private Limited vs ACIT: 133 taxmann.com - 251 (Bang Trib.) Infinera India (P.) Ltd vs. JCIT: 194 ITD 463 (Bang - Trib.) First American (India) Private Limited: ITA No. - 1762/Bang/2019 (Bang. Trib) Sling Media (P) Ltd vs. DCIT: 194 ITD 1 (Bang Trib.) - JMS Mining (P.) Ltd vs PCIT: 130 taxmann.com 118 - (Kol Trib.) DCIT vs. Peerless General Finance & Investment Co - Ltd: 112 taxmann.com 410 (Kol Trib.) Diamond Beverages Private Limited vs PCIT: ITA - No.208/Kol/2022 (Kol Trib.) Power Mech Projects Ltd vs DCIT: ITA - No.155/Hyd/2023 (Hyd Trib.) Supreme Buildestates Pvt Ltd vs DCIT: ITA - No.495/Jpr/2023 (Jpr Trib.) Naik Seafoods Pvt Ltd vs. PCIT: ITA 490/Mum/2021 - (Mum Trib.) Societe Generale Securities India Pvt Ltd vs. PCIT: - ITA 1921/Mum/2023 (Mum Trib.) 7. Learned DR has failed to bring forth any decision to the contrary. Thus, we accept the plea of learned counsel on the basis of case law cited, denial of CSR expenditure u/s 37(1) of the Act is not embargo to claim deduction u/s 80G of the Act. 7.1 Further, we like to observe that as a matter of fact as per Section 135 of the Companies Act, 2013 ('CA 2013), the qualifying Companies as mentioned therein are required to spend certain percentage of profits of last three years on activities pertaining to Corporate Social Responsibility (CSR). The expenditure on CSR, could be by way of expenditure on projects directly undertaken by said companies, such as setting up and running schools, social business projects, etc. Such expenditure would include expenditure otherwise falling for consideration under section 37(1) of the Act. On the other hand, companies, instead of undertaking or participating directly in a project, may choose to give donations to institutions that are engaged in undertaking such projects, which is also a recognized way of compliance of CSR obligation. 7.2 The assessing officer and CIT(A) have relied upon General Circular 14/2021 dated 25.08.2021 issued by MCA and "Explanatory Notes to the provisions of the Finance (No.2) Act, 2014" to hold that donations made as part of CSR expenditure are not allowable as deduction. The foundation of their reasoning being that the donation McKinsey Global Capabilities & Services Pvt. Ltd. is voluntary in nature, while CSR expenditures are under statutory obligations. 7.3 As we take notice of the fact that Parliament legislated that CSR expenses would not be eligible for deduction as business expenditure under section 37 of the Act by inserting Explanation 2 to section 37(1) vide the Finance (No.2) Act, 2014 (applicable from the assessment year 2015-16), which provided that any expenditure incurred by an assessee on the activities relating to CSR referred to in section 135 of the CA 2013, shall not be deemed to be an expenditure incurred by an assessee for the purpose of business or profession and shall not be allowed as deduction under section 37(1) of the IT Act. The intent of Parliament in bringing the aforesaid provision is given in the Explanatory Memorandum to the Finance (No.2) Bill, 2014 and is reproduced as under; “CSR expenditure, being an application of income, is not incurred wholly and exclusively for the purposes of carrying on business, As the application of income is not allowed as deduction for the purposes of computing taxable income of a company, amount spent on CSR cannot be allowed as deduction for .computing the taxable income of the company, Moreover, the objective of CSR is to share burden of the Government in providing social services by companies having net worth/turnover/profit above a threshold. If such expenses are allowed as tax deduction, this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure." (emphasis supplied) 7.4 The aforesaid explanatory memorandum categorically expresses the legislative intent and the rationale of disallowance of CSR expenditure referred to in section 135 of the Companies Act, that such expenditure is application of income and not incurred for the purposes of business. We are of considered view that this in itself justifies the grant of deduction u/s 80G. As CSR expenditure is application of income of the assessee under the Income Tax Act, that means it continues to form part of the Total income of the assessee. Section 80G(1) of the Act provides that in computing the total income of an assessee, there shall be deducted, in accordance with the provisions of this section, such sum paid by the assessee in the previous year as a donation. Further, section 80G(2) lists down the sums on which deduction shall be allowed to the assessee. Section 80G falls in Chapter VIA, which comes into play only after the gross total income has been computed by applying the McKinsey Global Capabilities & Services Pvt. Ltd. computation provisions under various heads of income, including the Explanation 2 to section 37(1) of the Act. Thus, there is no correlation between suo-moto disallowance in section 37(1) and claim of deduction under section 80G of the Act. 7.5 As with regard to the reasoning that CSR expenditure are not voluntary but mandatory in nature due to penal consequences, we are of considered view that voluntary nature of donation is by nature of fact that it is not on the basis of any reciprocal promise of donee. The CSR expenditures are also without any reciprocal commitment from beneficiary being philanthropic in nature. The Act permits deduction of donations as per Section 80G of the Act, even though, assessee is not gaining any benefit out of any reciprocity from donee. Similar is the case of CSR expenditure. Thus the reasoning of learned Tax Authority, the CSR expenditure is mandatory, does not justify disallowance of these expenditures u/s 80G, if other conditions of section 80G are fulfilled. There is no allegation of Revenue that other conditions of Section 80G are not fulfilled. We, thus sustain the ground.”