ITAT Delhi Allows Mandatory CSR Expenditure by Cheil India Private Limited Under IT Section 80G

Contents

Tribunal: Income Tax Appellate Tribunal (ITAT), Delhi Bench
Company: Cheil India Private Limited
Issue: Allowability of mandatory Corporate Social Responsibility (CSR) expenditure under Section 80G of the Income Tax Act, 1961.

Nature of CSR Expenditure:
- Cheil India incurred mandatory CSR expenses as per Section 135 of the Companies Act, 2013.
- CSR contributions were made to entities eligible for deductions under Section 80G of the Income Tax Act.
Department’s Argument:
- The Income Tax Department contended that CSR expenditure is an application of income and not an expense incurred for business purposes, thus not deductible.
Taxpayer’s Argument:
- Cheil India argued that CSR contributions made to eligible entities qualify for deduction under Section 80G.
- The company emphasized that CSR expenditure is distinct from business expenditure.

Allowability under Section 80G:
- The tribunal allowed the CSR expenditure as deductible under Section 80G since the contributions were made to eligible charitable institutions.
Clarification on CSR Nature:
- ITAT highlighted that while CSR is not deductible as business expenditure under Section 37(1), it qualifies for Section 80G deduction when contributed to eligible entities.
Compliance with Legal Framework:
- The tribunal emphasized that allowing such deductions aligns with the intent of CSR under the Companies Act and tax provisions.

For Companies:
- CSR contributions to Section 80G-eligible entities can be claimed as deductions, encouraging compliance and philanthropic activities.
For Tax Authorities:
- Distinction must be maintained between CSR as business expenditure and CSR as charitable contributions for deduction purposes.

Section 135, Companies Act, 2013: Mandates CSR spending for qualifying companies.
Section 80G, Income Tax Act, 1961: Provides deductions for donations to eligible charitable organizations.
Section 37(1), Income Tax Act, 1961: Governs business-related expenditures, explicitly excluding CSR expenses.

This ruling reinforces the distinction in tax treatment of CSR contributions based on their purpose and beneficiary eligibility under tax laws.