DCIT 3(3)(1), MUMBAI vs. SIKKA PORTS AND TERMINAL LIMITED, MUMBAI

The ld. AR on the other hand submitted that for the purpose of allowing deduction under section 80G of the Act, there is no requirement for the assessee to establish that the contribution made is voluntary and not mandatory and therefore the contribution made as per the requirement of section 135 of the Companies Act cannot be denied to benefit of section 80G merely for the reason that it is not voluntary. On the reliance placed by the ld. DR on the circular dated 25.08.2021, the ld. AR submitted that the said circular is not applicable to assessee and that the circular issued prior to the said circular on 12.01.2016 is applicable in assessee's case. The ld. AR drew our attention to Question No.6 of the said circular where it has been stated that "while no specific tax exemption has been extended to expenditure incurred on CSR, spending on several activities like contributions to Prime Minister's Relief Fund, scientific research, rural development project, skil development projects, agricultural extension project, etc. which find place in Schedule-7 already enjoyed exemption under different sections of the Income Tax Act, 1961". Therefore, the ld. AR argued that what gets restricted is the claim of CSR Spending as an expenditure under section 37 and not the claim of exemption/deduction under any other section of the Act. The ld. AR further submitted that though section 135 of the Companies Act mandates the quantum of CSR Spending, it does not mandate to whom and how the amount to be spent and the assessee at its discretion can choose the mode of spending towards CSR Spending. Therefore, the ld. AR argued that the contributions are very much voluntary in nature with respect to the specific donations and therefore, it is eligible for deduction under section 80G of the Act. The ld. AR submitted that section 80G does not put any condition for the donation to be voluntary in nature for the purpose of claiming deduction. The ld. AR drew the attention of the Court to the decision of the Hon'ble Supreme Court in the case of Commissioner of Expenditure, Tax vs. PVG Raju (1975) 101 ITR 465 (SC) where the Hon'ble Apex Court has defined the term 'voluntary' and has held that it is not a pre-requirement for a contribution to be treated as a donation. With regard to the reliance placed by the ld. DR on the decision of the Delhi Tribunal in the case of Agilent Technologies (International) Pvt. Ltd. (supra), the ld. AR submitted that the applicability of provisions of section 80G has not been discussed in detail in the said decision.

We heard the parties and perused the material on records. The assessee during the year disallowed a sum of Rs.33,85,00,000 under section 37 of the Act towards the CSR Spend in compliance with section 135 of the Act. Since the institutions to which the said amounts are given are registered under section 80G of the Act, the assessee claimed 50% i.e.16,92,50,000 of the same as deduction. The argument of the revenue is that the payment are made to comply with the mandate under the Companies Act, and therefore it cannot be treated as donations which are "voluntary" payments. The further argument of the revenue is that when the statute has denied the direct claim of the CSR spend under section 37, the assessee claiming the deduction indirectly under section 80G is against the intention of the legislature and cannot be allowed. The assessee's contention is that there is no restriction under section 80G to the effect that the contribution should be voluntary and that the CSR spend is an application of income which is eligible for deduction from the gross total income of the assessee as per the provisions of section 80G.

The word "donation" has not been defined under the Act. However the Hon'ble Supreme Court in the context of Expenditure Tax Act in the case of P.V.G. Raju (supra) has described the meaning of the word "donation" in the following words 'When a person gives money to another without any material return, he donates that sum. An act by which the owner of a thing voluntarily transfers the title and possession of the same from himself to another, without any consideration, is a donation. We do not require lexicographic learning nor precedential erudition to understand the meaning of what many people do every day, viz., giving donations to some fund or other, or to some person or other.' Indeed, many rich people out of diverse motives make donations to political parties. The hope of spiritual benefit or political goodwill, the spontaneous affection that benefaction brings, the popularization of a good cause or the prestige that publicized bounty fetches -these and other myriad consequences or feelings may not mar a donation to make it a grant for a quid

Therefore to examine if CSR spending of the assessee would be a donation it is essential to examine whether the donations given by the assessee to M/s.Reliance Foundation and M/s Shyam Kothari Foundation without any material return and without any consideration and whether it was a grant for quid pro quo. It is not the case of the revenue that the assessee has made contributions to these institutions with an intention get something in return. The only contention of the revenue is that the contributions are made as part of a mandate and not voluntary. However, the Hon'ble Supreme Court in the above case has laid down the basic principle that a payment made without any material return and without any consideration and not for quid pro quo is a donation. Therefore in our considered view, the payment made whether voluntarily or as part of a mandate does not negate the intention of the contribution made. The reliance placed by the ld DR on the decision of Agilent Technologies (International) Pvt. Ltd (supra) is factually distinguishable. The DRP whose order was upheld in the said case, had placed reliance on the decision of the Hon'ble High Court in the case of DCIT vs Hindustan Darr Oliver Ltd (1994) 45 TTJ Mumbai 552 where the payment made was held as not a donation since it was found that the intention behind making the donation was to get reserved seats in the college run by the institute to whom the payments are made as part of CSR spending. As already mentioned, the revenue is not contending that the assessee in the present case has made payments to get something material in return.

Now coming to the intention of legislature while amending the provisions of section 37 whereby the CSR spend are not allowed to be claimed as a deduction under the said section. Finance (No.2) Act, 2014 brought in the amendment to section 37 by inserting Explanation 2 to the said section w.e.f.01.04.2015. It is relevant to look at the provisions of section 37 of the said Act which read as under "37. (1)Any expenditure (not being expenditure of the nature described in sections 30 to 36 [* * *] and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Explanation 2.—For the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession. "

The "Explanatory Notes to the provisions of Finance (No.2) Act, 2014" issued by the Central Board of Direct Taxes vide its Circular No.01/2015 dated 21.1.2015 explaining the aforesaid amendment, read as under: "13. Corporate Social Responsibility (CSR) 13.1 Corporate Social Responsibility (CSR) Under the Companies Act, 2013 certain companies (which have net worth of Rs.500 crore or more, or turnover of Rs.1000 crore or more, or a net profit of Rs.5 crore or more during any financial year) are required to spend certain percentage of their profit on activities relating to Corporate Social Responsibility (CSR). Under the existing provisions of the Act expenditure incurred wholly and exclusively for the purposes of the business is only allowed as a deduction for computing taxable business income. 13.2 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. 13.3 The provisions of section 37(1) of the Income-tax Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Income-tax Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditures cannot be allowed under the existing provisions of section 37 of the Income-tax Act. Therefore, in order to provide certainty on this issue, it is proposed to clarify that for the purposes of section 37(1) any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and hence shall not be allowed as deduction under section 37. However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Income-tax Act shall be allowed deduction under those sections subject to fulfilment of conditions, if any, specified therein. 13.4 Applicability:-This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years." (emphasis supplied)

The intention behind insertion of the explanation as explained above is that 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 and that 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. However, it is pertinent to note that in para 13.3 above, it has been mentioned that though, the expenditure incurred towards CSRs is not an expenditure incurred for the purpose of business, if the spend is of the nature described in section 30 to section 36 of the Act deduction shall be allowed under those sections subject to fulfillment of conditions, specified therein. For example if the contribution is made to a scientific research association, or to a university or to a college or other institution to be used for scientific research etc., which are approved under section 35 of the Act as part of CSR spending then deduction can be allowed subject to the fulfillment of conditions prescribed under section 35 of the Act. This explanatory note though self-contradictary i.e. denying deduction under section 37 but allowing the assessee to claim deduction under section 30 to 36, also makes it clear that there is no bar regarding the admissibility of CSR expenditure under any other provision of the Act, except under section 37(1) of the Act. In other words, the intention of the legislature is not to restrict the right of the assessee to claim deduction towards the CSR spend if the payment is otherwise allowable under a specific provision of the Act. Further wherever the intention is to restrict the claim of deduction under any other provisions of the Act the same is explicitly provided for to that effect by the legislature. This view is supported by the Explanatory Memorandum Finance Bill 2015 which brought in the specific restriction for claiming deduction under section 80G of the Act towards the CSR spend towards donation to Swachh Bharat Kosh and Clean Ganga Fund. Therefore we are unable to appreciate the contention that the CSR spend being claimed as a deduction under section 80G of the Act is against the intention of the legislature which restricts the same to be claimed as a deduction under section 37 of the Act.

This clarification being issued by the Ministry of Corporate Affairs, Government of India clarifies that donation covered under CSR Expenses which not are eligible for the deduction under section 80G of the Income-tax Act, 1961, but are allowed under different sections. Ergo, there is nothing that if any expenditure is disallowable u/s 37 the same cannot be allowed under other provisions of Act, if the conditions of allowability are satisfied. Thus, allowing the claim of deduction u/s.80G by the ld. AO cannot be held to be unsustainable in law or amounts to erroneous and prejudicial to the interest of the Revenue. Thus order of the Ld. PCIT is reversed on this point.

Thus, we hold that ld. PCIT is not correct in law in cancelling the assessment order by the ld. AO on this issue. Accordingly, the order of the ld. PCIT is quashed. Consequently, the appeal of the assessee is allowed.

In view these discussions and considering the judicial precedence in this regard, we are of the view that there is no infirmity in the order of the CIT(A) in allowing the deduction under section 80G to the assessee towards donations made to M/s.Reliance Foundation and M/s.Shyam Kothari Foundation by placing reliance on the decision of the coordinate bench in the case of M/s. Naik Seafoods Pvt Ltd Vs. Pr.CIT (ITA No.490/MUM/2021). Accordingly the grounds raised by the revenue are dismissed.

The AO during the course of assessment noticed that the assessee has made large investments during the year under consideration and accordingly called on the assessee to show cause why disallowance under section 14A r.w.r 8D cannot be made. The assessee submitted that during the year under consideration the assessee has not earned any exempt income and therefore the provisions of section 14A cannot be invoked. The assessee placed reliance on various judicial precendence in this regard. The AO however did not accept the submissions of the assessee and held that the amendment to section 14 by Finance Act 2022 is clarificatory having retrospective impact. Accordingly the AO proceeded to make a disallowance of Rs.22,205 under section 14A r.w.r 8D.

We heard the parties and perused the material on record. The Hon‟ble Delhi High Court in the case of Principal Commissioner of Income-Tax (Central) -2 Vs. M/s Era Infrastructure India Ltd: [ITA No. 204 of 2022, decided on 20.07.2022] has held that the amendment to section 14A is prospective to be applicable from AY 2022-23 and onwards. Similar view has been consistently held by the coordinate bench. Considering the judicial precedence we are of the view that the CIT(A) has correctly deleted the disallowance made by the AO under section 14A of the Act. The grounds of the revenue raised in this regard are dismissed.

For AY 2018-19 the revenue has raised grounds pertaining to CIT(A) allowing deduction under section 80G towards CSR spend and deleting the disallowance made under section 14A by the AO. After hearing the parties and on perusal of records, we notice that the facts pertaining to these issues are identical to the facts of issues in AY 2020-21. Therefore in our considered view, our decision of the AY 2020-21 is mutatis mutandis applicable to AY 2018-19 also. Accordingly the grounds raised by the revenue contending these two issues are dismissed

In result the appeals of the Revenue for AY 2020-21 and AY 2018-19 are dismissed.