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Facts
The assessee claimed a deduction of ₹48,02,550/- under Section 80G for donations, which was denied by the Assessing Officer. The AO reasoned that these donations constituted Corporate Social Responsibility (CSR) contributions and were thus not eligible for deduction. The first appellate order also upheld this disallowance.
Held
The Tribunal, relying on precedent, held that contributions towards CSR expenses are eligible for deduction under Section 80G of the Income Tax Act. It clarified that the disallowance of such expenses under Section 37(1) does not inherently impede their eligibility under Section 80G, except for specific statutory exclusions, which were not applicable in this case.
Key Issues
Whether contributions made towards Corporate Social Responsibility (CSR) expenses are eligible for deduction under Section 80G of the Income Tax Act, despite their ineligibility for deduction under Section 37(1) of the Act.
Sections Cited
Section 143(3), Section 144B, Section 80G, Section 37(1), Section 144C, Section 12A, Section 135, Section 80G(2)(a)(iiihk), Section 80G(2)(a)(iiihl)
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Income Tax Appellate Tribunal, DELHI BENCH “C” DELHI
Before: SHRI PRADIP KUMAR KEDIA & SHRI SUDHIR PAREEK
The captioned appeal filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [‘CIT(A)’ in short] dated 02.11.2023 arising from the assessment order dated 20.09.2022 passed by the Assessing Officer (AO) under Section 143(3) r.w. Section 144B of the Income Tax Act, 1961 (the Act) concerning Assessment Year 2020-21.
As per the captioned appeal, the assessee has challenged the first appellate order and the assessment order on the ground that deduction claimed under Section 80G of the Act of ₹48,02,550/- has been wrongfully denied on the ground that such donations represents contributions towards Corporate Social Responsibility (CSR) of the assessee-company and therefore, not eligible for any deduction.
The issue is no longer res integra and has been adjudicated in favour of the assessee by the Co-ordinate benches of Tribunal. We find support for such view from the decision rendered in the case of Mankind Pharma Ltd. vs. DCIT, concerning A.Y. 2018-19 order dated 01.05.2024. The relevant paragraphs dealing with the issue in Mankind Pharma (supra) is reproduced hereunder:
“44. Ground No.4 concerns disallowance of deduction under Section 80G of the Act amounting to Rs.6,38,13,601/-.
The AO observed that the assessee has claimed deduction to the extent of Rs.6,38,13,601/- under Section 80G of the Act. The AO noted that the assessee has filed the list of mostly private institutions/trust/university to whom the assessee has made contribution during the year under consideration aggregating to Rs.12,76,27,202/- in the computation of income while carrying out the total contribution of Rs.12,87,88,979/- towards Corporate Social Responsibility (CSR) in terms of Explanation-2 to Section 37(1) of the Act. The AO thus observed that the assessee has wrongly claimed deduction of 50% of CSR expenses Rs.12,87,82,979/- under Section 80G of the Act towards outgo/expenses which are otherwise not eligible for business expenses deduction. The AO accordingly denied the claim of deduction under Section 80G of the Act connected to expenses incurred on account of CSR. The DRP endorsed the action of the AO while issuing directions under Section 144C of the Act.
The assessee before us submitted that during the financial year under consideration, the assessee has incurred an expenditure of Rs.12,87,83,000/- in aggregate being donations and contributions to various charitable institutions and funds. Such contributions made to implementing agencies for undertaking CSR activities and registered under s. 12A and 80G of the Act, have not been claimed as business expenditure being in the nature of CSR expenses in view of Explanation-2 to Section 37(1) of the Act. Operation of section 37 and section 80G being mutually exclusive, a deduction of Rs.6,38,13,601/-[ being 50% of such contributions] was claimed under Section 80G of the Act which was wrongly disallowed by the Revenue Authorities. The claim under 80G was denied on the ground that such expenditure being in the nature of CSR as per terms of Section 135 of the Companies Act, 2013, and thus not an allowable expenditure under the head ‘business and profession’ as per Section 37(1) of the Act and hence also not entitled to be covered for deduction under Section 80G of the Act.
46.1 In this context, the ld. counsel submits that there can be no quarrel that as per Explanation-2 to Section 37 of the Act, the deduction towards expenditure incurred on CSR activities referred to in Section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of ‘business or profession’. However, disallowance of such expenses/ outgo in view of stipulations made in section 37 of the Act does not put any fetters on the eligibility under other provisions of the Act viz. Section 80G of the Act. The claim is eligible for deduction under S. 80G unless statutorily prohibited. The ld. counsel contends that there being no bar in law to claim deduction under Section 80G of the Act notwithstanding its ineligibility under Section 37(1) of the Act, the denial of deduction under s. 80G is wholly misconceived and unjustified action.
46.2 The Ld. Counsel submits that section 80G of the Act allows a taxpayer to claim deductions in respect of contributions made to certain charitable Institutions and Funds etc. Further, sub-Section (2)(a) of Section 80G of the Act enumerates Funds to whom contributions are eligible for such deduction.
46.3 Adverting to such list enumerated, the Ld. Counsel points out that Clause (iiihk) and (iiihl) of the Act of sub-section (2)(a) of section 80G of the Act are peculiar and provides for specific instances where CSR expenditure not eligible under s. 37, is also not to be allowed as deduction under s. 80G too. The relevant position of section 80G(2)(a) of the Act is reproduced hereunder:
(iiihk) the Swachh Bharat Kosh, set up by the Central Government, other than the sum spent by the assessee in pursuance of Corporate Social Responsibility under sub-section (5) of section 135 of the Companies Act, 2013 (18 of 2013); or (iiihl) the Clean Ganga Fund, set up by the Central Government, where such assessee is a resident and such sum is other than the sum spent by the assessee in pursuance of Corporate Social Responsibility under sub-section (5) of section 135 of the Companies Act, 2013 (18 of 2013); or 46.4 The learned counsel thus submitted that as corollary to the legislative fiat, save and except cases falling in exceptions under 80G(2)(a)(iiihk) & (iiihl), the assessee is duly eligible for deduction under s. 80G subject to fulfilment of conditions, unhindered by ineligibility under s. 37 of the Act.
46.5 The assessee referred to the decisions rendered by the Co-ordinate Bench in the case of National Seeds Corporation Limited vs. ACIT, First American (India) Private Limited [ITA No. 1762/Bang/2019; Societe Generale Securities India Pvt. Ltd. [TS-770-ITAT-2023 (Mum)]; Goldman Sachs Services Private Limited [IT(TP) A No. 2355/Bang/2019 to buttress its claim that in the similar facts the claim of deduction on CSR expenses have been allowed under Section 80G of the Act notwithstanding ineligibility for claim for the purposes of deduction under Section 37 of the Act. The ld. counsel thus urged for reversal of the action of the Revenue Authorities.
The ld. DR for the Revenue however referred to and relied upon the view taken by the AO and DRP.
We have heard the rival submissions. The controversy revolves around the deductibility of donations and contributions to Funds/bodies registered under s. 12A of the Act on the counters of s. 80G of the Act where CSR contributions are not eligible for deduction under s. 37 of the Act.
48.1 We find that the issue is no longer res integra. S. 135 of the Companies Act, 2013 read with FAQs dated 25/08/2021 issued by the Ministry of Corporate Affairs GOI (MCA) provides for different modes of incurring CSR expenses. One of the specified modes is ‘ Contribution to Funds route’, which inter alia allows the assessee to make contributions to various funds specified in Schedule VII of the Companies Act. The contributions to such funds, qualified to be in the nature CSR expenses under Companies Act, is not eligible for deduction as business expenditure in view of statutory exclusion carved out by Explanation-2 to Section 37(1) of the Income Tax Act, 1961. However, such exclusion extends only to the extent of computing business income under Chapter IV-D of the Act. As per the scheme of the Act, in the absence of any non-obstante clause, there does not appear to be any bar for the assessee to claim benefit under Section 80G, bracketed under Section VIA of the Act, if such contributions are eligible for deduction otherwise. The exclusions provided in 80G (2)(a)(iiihk) & (iiihl) qua certain specific contributions such as ‘Swachh Bharat Kosh’ and ‘Clean Ganga Fund’ rather exhibits the legislative intent loud and clear. Thus on a plain reading, it is evident that the assessee would be ordinarily entitled to deduction on contributions made to funds and bodies registered under s. 12A of the Act regardless of stipulations made in s. 37(1) of the Act barring the exclusion codified in s. 80G(2)(a)(iiihk) & (iiihl). As a corollary to delineations made in the preceeding paragraphs, s. 37 and S. 80G, appear mutually exclusive subject to exceptions provided in sub-clause (2)(a)(iiihk) & (iiihl) of S. 80G of the Act.
48.2 Hence, the exception carved out by way of Explanation 2 to s. 37 (1) prohibiting claim of CSR expenses as business expenditure, by itself, will not serve as any kind of impediment for the purposes of claim of deduction under s. 80G of the Act.
The Co-ordinate benches have affirmatively adjudicated the issue as quoted on behalf of the assessee (supra). In consonance with the view taken by the Co- ordinate Benches referred to on behalf of the assessee, we are inclined to accept the plea raised on behalf of the assessee. The contribution made in question are not shown to be falling in exclusions provided in (iiihk) or (iiihl) of sub-section 2 clause (a) of S. S. 80G of the Act. The action of the Revenue Authorities is thus not sustainable in law. The claim of deduction on CSR expenses on the touchstone of Section 80G is thus allowed.
Ground No.4 of the appeal of the assessee is allowed.”
In consonance with the view expressed in Mankind Pharma (supra), we see palpable merit in the plea of the assessee on the subject matter of dispute. We accordingly set aside the first appellate order passed by the CIT(A) and direct the AO to allow deduction under Section 80G on CSR expenses in accordance with law notwithstanding ineligibility of such expenses for the purposes of deduction under Section 37(1) of the Act.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 08/05/2024