CSR exp. incurred by making donations is eligible for deduction under sec. 80G: ITAT

Case details: JMS Mining (P.) Ltd. v. PCIT - [2021] 130 taxmann.com 118 (Kolkata - Trib.)

Judiciary and Counsel Details

• • P. M. Jagtap, Vice-President and A.T. Varkey, Judicial Member.
  • S.K. Tulsiyan , Adv. for the Appellant.
  • Dinesh Aibor , Jayal Sawkuie, CIT for the Respondent.

Facts of the Case

The assessee-company was a mining service provider engaged in the business of management and operation of mines. The assessee claimed deduction under section 80G on account of donation of sum of certain amount which was given to Shree Charity Trust and a sum of certain amount which was given to Pt. Jasraj Music Academy Trust as contribution towards Corporate Social Responsibility (CSR) activities. The Assessing Officer (AO) allowed same.

However, the Principal Commissioner invoked revision jurisdiction under section 263 on ground that the action of the AO to allow deduction of CSR expenses under section 80G was erroneous because CSR expenditure could not be allowed as per express prohibition given under Explanation 2 to sub-section (1) of section 37. Aggrieved-assessee filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that from a plain reading of the Explanation 2 to section 37(1) says that expenditure incurred towards CSR activities shall not be allowed as ‘business expenditure’ and shall be deemed to have not been incurred for the purpose of business. The embargo created by this Explanation 2 inserted in section 37 by the Finance (No. 2) Act, 2014 was to deny the deduction for CSR expenses incurred by companies, as and by way of regular business expenditure while computing ‘income under the head business’.

It can be seen that this Explanation 2 to section 37(1), which denies deduction for CSR expenses by way of business expenditure, applies only to the extent of computing ‘business income’ under Chapter IV-D. The said Explanation cannot be extended or imported to CSR contributions which are otherwise eligible for deduction under any other provision or Chapter, to say donations made by charitable trust registered under section 80G.

Further, the Parliament intended certain restrictions to only CSR expenditure in respect of two donations included by an assessee as CSR expenditure, i.e., Swachh Bharat Kosh and Clean Ganga Fund. It has impliedly not made any prohibition/restriction in respect of the claim of CSR expenses in other cases if it is otherwise eligible under section 80G.
In this context, it was found that the assessee had made donation by RTGS through bank, which was received by Shree Charity Trust, which was approved under section 80G(5)(vi). Further assessee had made payment to Pt. Jashraj Music Academy Trust which was also approved under section 80G(5)(vi). Therefore, the assessee’s claim for deduction of CSR expenses/contribution under section 80G was to be allowed.

Case Review

• • Malabar Industries Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 83 (SC) (para 14) followed.

List of Cases Referred to

• • Goldman Sachs Services (P.) Ltd. v. Jt. CIT [2020] 117 taxmann.com 535 (Bang. – Trib.) (para 6)
  • Allegis Services (India) (P.) Ltd. v. Asstt. CIT [IT Appeal No. 1693 (Bang.) of 2019, dated 29-4-2020] (para 7)
  • FNF India (P.) Ltd. v. Asstt. CIT [IT Appeal No. 1565 (Bang.) of 2019, dated 5-1-2021] (para 8)
  • Malabar Industries Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 83 (SC) (para 14).