1. India is perhaps the first country to statutory require companies to undertake corporate Social Responsibility (CSR). The provisions in Section 135 are to be read with Companies (Corporate Social Responsibility Policy) Rules, 2014 (CSR Rules).

2. Section 135(1) of Companies Act, 2013 and Rule 3(1) and Rule 3(2) of the Companies (CSR) Rule, 2014

The Section applies to every Company including its holding or subsidiary and a foreign company defined under section 2(42) of the Act having its branch office or project office in India, which fulfils any one of the following criteria set in section 135(1), if such company in any financial year has:

1. Networth of rupees five hundred crores or more, or
2. Turnover of rupees one hundred crores or more; or
3. A net profit of rupees five crores or

The requirement applies irrespective of the nature of activities carried on by the Company.

The company meeting the above financial criteria to constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

3. Meaning of Net Worth, Turnover and Net Profit

‘Networth” is defined in Section 2(57) and means the aggregate value of the paid up share capital and all reserves created out of profits and securities premium account, after deducting the aggregate value of accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet but does not include reserves created out revaluation of assets, write back of depreciation such amalgamation.

“Turnover” is defined under section 2(91) means the aggregate value of realization of amount made from the sale, supply or distribution of goods or on account of services rendered or both, by the company during a financial year.

“Net Profit”: It shall be calculated as per the provisions of Section 198 of the Companies Act, 2013 for the purposes of section 135.

“Net Profit” has been defined in Rule 2(b) of the Companies Corporate Social Responsibility Policy, Rules, 2014 to mean the net profit of the Company as per its financial statement prepared in accordance with the applicable provisions of the Act, but shall not include the following namely,

1. Any profit arising from any overseas branch or branches of the company whether operated as a separate company or otherwise; and
2. Any dividend received from other Companies in India, which are covers under and complying with the provisions of Section 135 of 2013

However, the net profit  in respect  of a financial year to which the relevant statements were prepared in accordance with the provisions of the companies Act, 1956 shall not be required to be recalculated in accordance with the provisions of the Act;

Further, in case of a foreign company covered under these Rules, net profit means the net profit of such company as per profit and loss account prepared in terms of Section 381(1)(a) read with Section 198 of the Act.

Section 198: Calculation of profits requires making adjustments to the profit or loss as derived from the profit and loss account of the financial statement.

4. Interpretation of Rule 3(2) of Companies (CSR) Rules 2014:

Sub-section (1) requires any of the three financial criterions to be determined during the financial year. However, General Circular No.21/2014,  MCA has clarified that “Any Financial Year” referred to in sub-section (1) of Section 135 of the Act read with Rule 3(2) of Companies CSR Rule, 2014, implies “any of the three preceding financial years” Rule 3(2) of Companies (CSR) Rules, 2014 specifies that every company, which ceases to be a company covered under Section 135(1) of the Act for three consecutive financial years shall not be required to:

• Constitute a CSR committee;
• Comply with provisions contained in sub-section (2) to (5) of the said section, till such time that it meets with criteria as set in sub-section (1) of section

In order to determine the applicability, the company would need to ascertain fulfilment of any of the three financial criterion in following manner:

Any of the financial criterion fulfilled in either of the three years			CSR provisions applicable for
2011-12,	2012-13,	2013-14	2014-15
2012-13,	2013-14,	2014-15	2015-16

5.  Role of Corporate Social Responsibility Committee Section 135(3):

Corporate Social Responsibility Committee shall formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company, recommend the amount of expenditure to be incurred on the Corporate Social Responsibility activities and monitor the Corporate Social Responsibility activities and monitor the Corporate Social Responsibility Policy of the Company from time to time.

The activities to be undertaken by the company are as under:

1. Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art, setting up of public libraries, promotion and development of traditional arts and handicrafts.
2. Ensuing environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and
3. Promoting gender quality and empowering women and hostels for women and orphans, setting up old age homes, day care centers and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward
4. Promoting Education including special education and employment, enhancing vacation skills among children, women elderly and differently abled and livelihood enhancement projects;
5. Eradicating hunger and poverty and malnutrition, promoting health care including preventing healthcare and sanitation and making available safe drinking
6. Measures for the benefit of armed forces veterans’ war evidence and their
7. Training to promote rural sports, nationally recognized sports and para-Olympic sports and Olympic
8. Contribution to Prime Minister’s National Relief Fund or any other fund set up by the Central Government or the State Governments for Socioeconomic development and relief and funds for the welfare of the Scheduled castes, the Scheduled tribes, other backward classes, minorities and women, and,
9. Contributions or funds provided to technology incubators located within academic institution which are approved by the central
10. Rural development
11. Slum area development

Explanation: For the purpose of this item, the term “slum area” shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.

6. Board of Directors and Corporate Social Responsibility Policy:

The Board of Directors of every company shall approve the Corporate Social Responsibility Policy as recommended by Corporate Social Responsibility Committee. The Board shall also disclose contents of such policy in its report and also place it on the company’s website  and ensure that the activities as are included in the CSR policy of the Company are undertaken by the Company.

Thus onus is placed on the Board of Directors of a Company to approve the policy, place it on the website of the Company and ensure that the activities mentioned therein are undertaken by the Company.

7. Contribution towards corporate Social Responsibility activities: The Board of every Company shall ensure that in every financial year, the Company spends at least 2 percent of the average profits of the Company made during the three immediately preceding financial years towards Corporate Social Responsibility “Average” net profit shall be calculated in accordance with the provisions of Section 198. Whilst the net profit to ascertain applicability is net profit as per the financial statements.

The Company should give preference to local area and areas around it where it operates for spending the amount one corporate social Responsibility activities.

The Board shall specify in its report the reasons for not spending the amount, if the company fails to spend such amount.

8. Expenditure on CSR is at mandatory

The expression used in the section is “shall ensure”. It suggests that there is a mandate to spend 2% of average net profits of last three years on CSR activity. Proviso to Section 135(5) repairs the Board to specify the reasons for not spending the amount, where the company has failed to do so.

CSR expenses is an item of expenses for the company which needs to be charged to the statement of profit and loss amount.

9. Availability of CSR expenditure for tax deduction:

Expenditure on CSR activities is non- deductible for tax purposes unless falling within sections 30 to 36 of the Income-tax Act, 1961.