Recently, in a precedent-setting
move, the ITAT (Income Tax Appellate tribunal)
Delhi issued a ruling that allows Indian companies to view their CSR spending
from the taxation standpoint. The verdict that stems from the case Schenker
India Private limited vs ACIT (Assistant Commissioner of Income-tax) clarifies
how you can claim tax deductions for your CSR contributions under section 80G
of the Income Tax Act 1961. Considering this verdict, companies can now reshape
their corporate strategies and perceptions around CSR contributions and
obligations.
Before we go ahead, you must
first know what ITAT is? It’s a quasi-judicial authority in India where an
assessee can challenge the orders passed by the income tax department including
those from Assessing officers, Dispute Resolution Panels and Commissioners of Income
Tax. Its decisions can act as persuasive precedents and can be challenged only
in the High Court.
Background of the case:
Schenker India Pvt. Ltd., a
leading logistics company, files its income tax return for AY 2018-19. The
company declared INR 94,68,29, 620 as its taxable income. However, during
assessment proceedings, the ACIT proposed to disallow a tax deduction of INR
34, 69, 235 claimed by the company under section 80G. This claim was related to
the donations that company made as a part of their CSR expenditure, which was a
total of INR 74,10,470 during the relevant year. This amount included donations
(worth INR 69,38,470) to institutions that are eligible under section 80G.
Issues raised by Appellate Authority:
The main issue was that the CSR payments done by Schenker India Pvt. Ltd. cannot
be claimed under section 80G, which allows for tax deductions for amount spent
through charity and donations. thehe Assessing officer argued that CSR
expenditure is mandatory as under section 135 of companies act, 2013 and thus,
cannot be considered as voluntary donations (to be claimed under section 80G).
Assessee’s arguments:
Schenker India Pvt. Ltd. Puts
forth its arguments based on two facts-
·
Firstly, the section 135 of the Companies Act
does not prohibit anybody to claim the CSR expenditure for deductions under
section 80G. Section 80G is entirely independent of section 37 of Income tax
Act which handles business-related expenses and deductions. Understanding the
fact that the CSR expenses cannot be claimed under section 37, the company
disallowed it from there. The company claimed that though CSR expenditure is
mandatory, it cannot be disqualified from being considered as a donation as
mentioned in section 80G.
·
Secondly, the company also claimed that the CSR
expenditure was done as a philanthropic act and the company is not getting any
benefit out of it. This is the key feature to consider any expense as donation.
Considering the voluntary aspect of the payment, the deductions under section
80G should be allowed.
Support from previous legal precedents:
To support its arguments, the
company also referred to previous decisions of ITAT in different cases.
Firstly, the company highlighted the case of Interglobe Technology Quotient
Pvt. Ltd. vs. ACIT (ITA No. 95/Del/2024), where ITAT observed that though
CSR expenditure are mandatory, it cannot negate its philanthropic or voluntary
character.
Another case of case of Cheil
India Pvt. Ltd. vs. DCIT (2024) was also taken into consideration where
similar issue was raised and tribunal took the decision in favour of assessee
allowing deductions for CSR payments under section 80G.
The Decision:
Schenker India Pvt. Ltd. requested
the Tribunal to consider the legislative intent behind section 80G, which does
not forbid any CSR donations to be eligible for deductions, provided they are
made to eligible institutions.
After hearing both the sides, the
tribunal issued a ruling that CSR spending is application of income and such
applications can qualify under section 80G, provided some conditions are met.
If the law intends to disallow all CSR donations from section 80G, it should
have mentioned there. But it is not. Just because the CSR is mandated by the
law, the donations made under CSR cannot be disallowed for deductions under
section 80G.
The conclusion:
The outcome of this case has set
an important precedent for the other cases and companies facing similar issues.
such decisions paved the way for the clearer guidelines on how CSR donations
can be used for tax purposes so that there will be consistency in the tax
assessments. Further, such ruling also encourages the corporate houses to adopt
more effective measures to include social responsibility in their CSR
contributions.