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TRANSCRIPT
- Anup P. Shah 24th April, 2015
Workshop on Companies Act
Bangalore Branch of SIRC of ICAI
S.135 of Companies Act, 2013 notified
◦ Wef 1-4-2014
◦ 1st Section which had Rules Notified under Cos Act’ 13
Companies (Corporate Social Responsibility Policy) Rules,
2014 notified – Effective from 1-4-2014
PRAVIN P. SHAH & CO. 2
PRAVIN P. SHAH & CO. 3
Company 2% CSR of 3
Yrs Avg.PBT
Actual CSR
for 2013
(Deficit) /
Surplus
Deficit %
Reliance 532 712 180 NA
TCS 351 88 (263) 75%
Infosys 253 10 (243) 96%
ITC 215 106 (109) 51%
Bharti 145 40 (105) 72%
PRAVIN P. SHAH & CO. 4
Estimates Rs. 5,000 – 10,000 cr. / year
◦ 2013 NPAT of Top 1,000 Listed Cos * 2% = Rs. 6,826 cr.
◦ 2013 NPAT of Top 200 Unlisted Cos * 2% = Rs. 720 cr.
◦ Total CSR based on this = Rs. 7,546 cr.
◦ Add CSR from Private Cos.
◦ CSR is 2% of Avg. NPBT
Rs. 10,000 cr. / year likely provided Cos. spend it
MCA’s estimate for FY 2015: Rs. 5,000 cr.
PRAVIN P. SHAH & CO. 5
Expected to rise from Rs. 2500 cr to 8000 cr over 2 yrs
◦ Analysis of Top 100 IT Cos
52% spend via Own Trusts / NGOs
36% spend via NGOs only
12% spend via Own Trusts only
Promoting Educational & Vocational skills is the #1 Cause –
90% of all IT Companies
Followed by Healthcare, Sanitation, Drinking Water
PRAVIN P. SHAH & CO. 6
PRAVIN P. SHAH & CO. 7
If 1 of 3
Conditions
Met
Unlisted
Public
Listed
Co.
Private
Co.
Of the Top 1000 Listed
Companies, 874 Covered
Of the Top 300
Unlisted Cos., 296
covered
CSR Criteria
Turnover>
Rs 1000 cr.
Net worth >
Rs. 500 cr.
Net Profit >
Rs. 5 cr.
PRAVIN P. SHAH & CO. 8
Any one Condition during any Financial Year
Net Worth - 500 Turnover -1000 Net Profit - 5
• Sh Cap + Reserves
from Profits + Sec.
Premium (-) Dr Bal in
P&L (-) Def. Exp (-)
Misc. Exp.
• Excludes Revaluation
Reserves /
Amalgamation
Reserves / Depn.
writeback Reserve
• Aggregate Realisation
made from sale, supply
of Goods / Services /
both in a FY
• Adjustments for
Discounts / Bad Debts
/ Excise / VAT?
• NPBT or NPAT?
• NP computed as per
Financial Statements but
excludes
• Profits of Foreign
Branches; and
• Dividend from IndCo.
to which CSR
applies
• ICAI: NP as per s.198
PRAVIN P. SHAH & CO. 9
NP Turnover Net Worth CSR Yes / No
Co 1 6 60 500 Yes
Co 2 4 900 GR 400, Reval
Res 300
No – Net Worth excludes
Reval Res
Co 3
(Realty)
Nil Nil– per
2012 GN
250 No – As per 2012 GN Inc. not
realised till 3 Conditions met –
can defer Realisation of
Revenue & Income.
Co 4 PBT 5
PAT 4
950 450 ? - Consider PAT or PBT?
PRAVIN P. SHAH & CO. 10
Only Entry but No Exit?
◦ Once 1/3 conditions met is CSR Applicable forever?
If Threshold breached during any FY
CSR applicable forever – No Exit
◦ Gateway Only if either of Two Conditions
Once covered –Relaxation if does not meet criteria for 3
consecutive FYs; OR
Even if covered not applicable Avg NP for 3 years is a Loss
Else CSR even if Loss in Current Year?
PRAVIN P. SHAH & CO. 11
PRAVIN P. SHAH & CO. 12
Year PBT Turnover Networth 3 Yrs Avg. Covered?
2014-15 5 50 100 4 Yes 8 Lakhs
2015-16 (4) 20 101 4.66 Yes 9 Lakhs
2016-17 (3) 20 98 2.00 Yes 4 Lakhs
2017-18 (2) 10 96 (0.66) No – 3 FY
2018-19 (1) 9 95 (3.00) No- 3 FY
2019-20 6 50 101 (2.00) No – Avg loss
2020-21 7 60 108 1.00 Yes 2 Lakhs
PRAVIN P. SHAH & CO. 13
BOD
•CSR Committee to be constituted
•Out of Board of Directors
1 ID
•1 Independent Director a must on CSR
Committee
Report
•Report of Board of Directors must disclose
composition of CSR Committee
PRAVIN P. SHAH & CO. 14
What if Unlisted / Pvt Co. and No ID?
◦ Can have CSR Committee without ID
What if Pvt Co. which has only 2 Directors?
◦ Can have a CSR Committee with only 2 Directors
CSR Committee only of IDs?
◦ Possible but better to have at least 1 WTD
PRAVIN P. SHAH & CO. 15
Formulate
~ CSR Policy out of
Specified Activities
Recommend
~ Expense on CSR
Activities
Monitor
~ CSR Policy of Co.
PRAVIN P. SHAH & CO. 16
◦ Relates to activities in Schedule
◦ Exp. on the same
◦ Must Include the following
List of CSR Projects / Programmes proposed to be
undertaken during Year falling within Sch. VII
Modalities of execution in areas / sectors chosen
Implementation Schedule for same
Monitoring Process of such Projects / Programmes
Specify that any Surplus will not be Profits of the Co.
PRAVIN P. SHAH & CO. 17
PRAVIN P. SHAH & CO. 18
Schedule VII lays down Specified CSR Activities
◦ Schedule states “Activities which may be included in CSR
Policy”
◦ Activities Mandatory or Illustrative?
Spending on Activities not under Sch. VII not CSR Exp.
Clarification:
Sch. Must be liberally interpreted
Capture the essence of subjects in the Sch.
Items in Sch. Are broad-based to cover wide range of
activities
PRAVIN P. SHAH & CO. 19
Schedule VII lays down Specified CSR Activities
Spending on Activities not under Sch. VII not CSR Exp.
MCA’s Clarification:
Sch. Must be liberally interpreted
Capture the essence of subjects in the Sch.
Items in Sch. Are broad-based to cover wide range of
activities which are illustrative in nature
Hence, Schedule is not water-tight – Flexibility allowed
to Cos.
PRAVIN P. SHAH & CO. 20
PRAVIN P. SHAH & CO. 21
New Schedule Remarks
Eradicating Hunger Poverty, Malnutrition;
Promoting Preventive Healthcare and
sanitation; Safe Drinking Water
Good Move to include
sanitation, water. Promoting
Preventive Healthcare imp. for
Pharma Cos.
MCA Official Speak: Wide
enough to include Disaster /
Flood Relief work for J&K –
Food & Water
Mid-day meal Scheme
PRAVIN P. SHAH & CO. 22
New
Sch.
Remarks
-- Old Schedule’s Reducing Child Mortality deleted - UNICEF-India #1:
Higher than Next 4 Together
-- Preventive Healthcare covered but Combating deleted
India is Disease Capital
#3 in AIDS /HIV
#1 in Malaria in South East Asia
#1 in Heart / Lung Disease
What were they thinking?
PRAVIN P. SHAH & CO. 23
◦ MCA Clarification:
Provisions for aids & appliances to the differently abled –
Promoting Healthcare & Preventive Healthcare
Interpret liberally
Hence, Statement + Clarification – Can donate for
combating ailments also and not just for prevention
PRAVIN P. SHAH & CO. 24
New Schedule Remarks
Promotion of Education / Special
Education / Vocational Skills among
children, women, elderly, differently
abled; Promoting livelihood Projects
Road Safety Awareness – Education
Drivers Training / Agri Labourers /
Farmers’ best practices – Vocational
Edn.
Promoting Gender Equality /
empowering women; Setting up homes
for women / orphans, old age homes
and Measures to reduce income
inequalities
Good move. Realty Cos. can
contribute
PRAVIN P. SHAH & CO. 25
New Schedule Remarks
Promotion of
Education
Donations to IIM B for renovating classrooms,
conservation of Bldg, etc
Consumer Protection Redressal . Consumer Awareness
programmes
Technoparks approved by Dept. of Science
Research & Studies on all areas specified in the Schedule
VII
Contribution to
Technology
Incubators in CG
approved Academic
Institutes
PRAVIN P. SHAH & CO. 26
New Schedule Remarks
Ensuring Environmental sustainability:
Welfare of Ecological balance / Flora &
Fauna / Animals / Agroforestry / natural
resources and Quality of soil, water, air
R&D for cost optimum /
ecological friendly practices /
Water Mgmt / Soil conservation
Renewable Energy
Rural Development Projects Meaning – Any project for
devlpmt of rural India
Contribution to PM’s National Relief Fund /
Fund of CG for development of SC/ST,
minorities and Women
Funds by SG deleted
PRAVIN P. SHAH & CO. 27
New Schedule Remarks
Protection of National Heritage / Art /
Culture / Restoring Buildings, Historic sites,
Art; Setting up of Libraries; Promoting
Traditional Arts & Handicraft
Good Move. Media &
Entertainment Cos.
Measures for benefit of Armed forces
veterans, war widows, dependents
Excellent. Defence Industries
Training to promote Rural Sports /
Nationally recognised Sports / Olympic &
Paralympic sports
Many want to promote sports but
what is Training to Promote
Sports? Interpret liberally
PRAVIN P. SHAH & CO. 28
New Sch. Remarks
Slum Area
Development
Slum Area must be so declared by CG / SG / Competent
Authority e.g., SRA
Swach Bharat Kosh Pet project of Government
Clean Ganga Fund Pet project of Government
-- Social Business Projects deleted
-- Such Other Matters as may be prescribed - Power removed
Which Activities are Excluded?
◦ Activities abroad – Charity begins and ends at home
◦ That benefit only employees & families –Never ever mix
charity & commerce – ICAI: Eees can be co-beneficiaries
◦ Amt. paid (directly / indirectly) to a Political party –
Politics is considered to be uncharitable
◦ Activities in normal course of business of Co. –
Be charitable and indulge to everyone, but thyself
PRAVIN P. SHAH & CO. 29
Which Activities are Excluded?
◦ One-off events: Marathons / Awards / Ads /
Sponsorships of TV Programmes / Events
Must be a Project or a Programme
◦ CSR for fulfilling Statutory obligations / Labour Law
compliances
E.g., : CSR under Environmental Act for a Power Co.
Not treated as CSR u/s. 135
Hence, two CSRs
PRAVIN P. SHAH & CO. 30
Which Activities are Excluded?
◦ Establishment functions of CG / SG
E.g.,: Expenditure on Training of Police
◦ Capacity Building of Govt. officials
Both in PPPs & Urban Infrastructure
◦ Sustainable Urban Development
◦ Urban Public Transport Systems
PRAVIN P. SHAH & CO. 31
◦ Cos. can spend CSR on Own CSR staff + staff of
implementing agencies
◦ Including on Admin Overheads
◦ Max. 5% of CSR Exp. in One FY = 2%*5% = 0.1% CSR
◦ Companies are feeling 5% cap very restrictive
Infrastructure / Personnel / Training Programmes
Costs much more than 5%
Thumb Rule – 10% of total CSR Expenditure
Cannot deploy Top Management for CSR due to Cap
PRAVIN P. SHAH & CO. 32
Where to spend?
◦ Within India only
◦ Preference to local area and areas around which it
operates
Local area of Co’s registered office or each of the
operational units of a multi-location company?
PRAVIN P. SHAH & CO. 33
PRAVIN P. SHAH & CO. 34
◦ CSR Spending @ 2% of Average Net Profits of Co. in
Preceding 3 FYs
Even if no Profits in Current Year?
For FY 2015-16: Block is 2012-2015
◦ Manner of computing Avg. NP specified
Here NP is NPBT
◦ Q. For Shortfall in CSR –Provision in A/cs?
ICAI: No
PRAVIN P. SHAH & CO. 35
Deduct / Exclude Deduct / Exclude
Foreign Branch’s Profit Dividend from Co. covered by CSR
Share Premium / Profit on Forfeited Sh. Interest on debentures issued
Capital Gains from Sale of
Undertakings
Interest on Mortgages created / Loans
Gains from sale of Imm. Prop / Fixed
Assets (except if held as SIT)
Depreciation / Bad Debts
Profit on measurement of Asset /
Liability @ Fair Value
Excess of Expense over Income to the
extent not set-off in past
Working Charges / Director’s Remn./
Bonus / Commission to any Employee
Damages payable for Breach of
Contract PRAVIN P. SHAH & CO. 36
Include / Don’t Exclude Include / Don’t Exclude
Normal Income-tax, Cess, Surcharge
= Start with PBT
Subsidy received from CG / SG / Public
Authority
Damages paid voluntarily Loss on remeasurement of Asset /
Liability @ Fair Value
Capital Losses on sale / demolition of
undertakings of the Co.
PRAVIN P. SHAH & CO. 37
◦ Yes. 2% is Floor – No ceiling on spending
◦ Excess would be treated as Charity
Would limits u/s. 181 of Companies Act
Excess over 5% of Avg NP for 3 FY = GM Permission
Contribution to Charitable & Other Funds
CSR Activity not always by contributing to a Fund
Can be Directly undertaken also
ICAI: Excess Spent cannot be c/f to Subsequent Years
Can disclose excess with reasons for not spending
If liability incurred provision to be made
PRAVIN P. SHAH & CO. 38
PRAVIN P. SHAH & CO. 39
Donate to PM / Other CG Funds
Donate to any NGO
Collaborate with Other
Cos.
Set up own Foundation
Carry out Activities
on its Own
PRAVIN P. SHAH & CO. 40
Easiest way of doing CSR
◦ No responsibility on Co.
◦ Simply contribute to PMNRF
◦ Other CG Fund for socio-economic development and
relief of SC / ST / OBC / Minorities / Women
◦ No State Funds – CM’s Earthquake Relief Fund
Tax benefit u/s. 80G for PMNRF
PRAVIN P. SHAH & CO. 41
PRAVIN P. SHAH & CO. 42
COMPANY
TRUST
Donate
CHARITABLE ACTIVITIES
(Covered u/s. 135)
Set up Company itself or an External NGO
Can donate to Regd. Trust / Regd. Society / S.25 Co.
◦ Set up by Co./ Holdco / Sub /Associate / Any Co.
◦ External entity / Trust set up by Promoters / Individuals
Such Trust must have established track record of 3 years
in undertaking similar Projects / Programmes
Experience in similar programmes / projects
Thus, if spending on Education then NGO must have
track record in Educational Activities
PRAVIN P. SHAH & CO. 43
Different Cos. collaborate for CSR activities
◦ CSR Committee of each Co. must be able to report
separately on such Programme / Project
Role of each Co. should be laid down – Inter se allocation
PRAVIN P. SHAH & CO. 44
PRAVIN P. SHAH & CO. 45
Definition
◦ ForCo is a body corporate / company
◦ Incorporated abroad
◦ Has a Place of Business in India
Either by itself; or
Through Agent physically / electronically; and
Conducts any Business in India in any other mode
PRAVIN P. SHAH & CO. 46
CSR Applicability
◦ ForCo which has a Branch Office or Project Office in
India; and
◦ Fulfills criteria laid down u/s. 135(1)
◦ Branch Office
Establishment described as such by the Co.
◦ Project Office – not defined
◦ Which definitions should be considered?
PRAVIN P. SHAH & CO. 47
◦ CSR Activities must be carried on only in India
ForCo cannot spend abroad
CSR Committee of Branch / Project Office in India
2 Persons
One the Resident in India authorised to accept Notices /
Documents on behalf of ForCo
Other any Nominee of ForCo
Report filed by ForCo u/s. 381 to include CSR Report also
PRAVIN P. SHAH & CO. 48
PRAVIN P. SHAH & CO. 49
Would CSR spending be allowed as a Deduction?
◦ Is Appropriation of profit and hence, not allowable?
◦ FA 2014: No Deduction allowable u/s 37(1)
◦ However, Deduction under Other Provisions allowable
PRAVIN P. SHAH & CO. 50
If Co. contributes to an Eligible Project or Scheme
◦ So Notified by CG u/s. 35AC of ITA & R.11K
Approved by National Committee for Promotion of Social &
Economic Welfare
For promoting Social & Economic Welfare / Uplift of Public
◦ Deduction available against Business Income u/s. 35AC
Examples: Lupin Human Welfare & Research Foundation /
Isckon Food Relief / Helpage / Dignity Foundation
PRAVIN P. SHAH & CO. 51
Eligible Project u/R11K CSR Activity under Sch. VII
Schools for Weaker Sections Promoting Edn . / Reducing Inequalities
Road safety / Traffic awareness Promoting Education
Education For Women & Minor Kids
in Rural areas
Promoting Edn . / Gender Inequalities /
Rural Devlp.
Vocational education in Rural area Promoting Education / Rural Develp.
Construction of Roads, Bridges Rural Devlp. / But not if in Urban Area
Upliftment of Rural poor / Urban
Slum Dwellers
Rural Devlp. / Reducing inequalities /
Slum Area Devlp.
Hostel for Women/Sr./ Disabled Reducing Income / Gender Inequalities
Dwelling for the Weaker Sections Reducing inequalities
PRAVIN P. SHAH & CO. 52
Eligible Project u/R11K CSR Activity under Sch. VII
Plating softwood on non-forest land
Environmental Sustainability
Conservation of natural resources
Bacteria induced Fertilizers
Pollution Control
Renewable Energy Systems
Promotion of Sports Promoting Sports
Drinking Water Projects Safe Drinking Water
Relief of the Handicapped Livelihood Enhancement of Differently
abled
PRAVIN P. SHAH & CO. 53
Exp. on Agricultural Extension Project
◦ 1.5 time Deduction on Notified Projects
◦ For training, education & guidance of farmers
Exp. on Skill Development Project
◦ 1.5 time Deduction on Notified Projects
◦ Co in Mfg / Specified Services
◦ Training in a separate facilities in Institute
◦ Approved by National Skill Development Agency
◦ For new Ees or within 6 mts of recruitment
PRAVIN P. SHAH & CO. 54
S.80G available only to Trusts / Co.
◦ Set up for Charitable Purposes
Relief of poor, education, medical relief, preservation of
environment, preservation of monuments / art/history,
advancement of any object of general public utility
Control, supervision, regulation of Notified Games / Sports
◦ Not for benefit of particular religious community / caste
For benefit of SC /ST/OBC /Women / Children not deemed
to be for benefit of religious community / caste
PRAVIN P. SHAH & CO. 55
PRAVIN P. SHAH & CO. 56
Activity in Schedule Falls within s.80G?
Hunger, poverty, malnutrition Relief of Poor
Promoting education Education
Gender Equality, empowering
women
Expl. 1 - Benefit of women not
benefit of community?
Environmental sustainability Preservation of env. / wildlife
Protection of heritage / art/ culture Preservation of monuments, place
of Art / History
Benefit of Armed Forces No
Promote Rural Sports Expl .4 – Promotion of Notified
Games
PRAVIN P. SHAH & CO. 57
Activity in Schedule Falls within s.80G?
Rural Development Projects If relief of poor, education, medical
relief
Preventive Healthcare Medical Relief
Sanitation / drinking water Relief of poor
Old age homes/ day care centres Helping Destitutes - General Public
Utility?
Public Libraries General Public Utility?
Sr. Mode of Spending Tax Treatment
1. Own Activities No deduction u/s. 37(1) but consider s.35AC
2. Contribution to PM’s Fund S.80G- 100% Deduction – No limit of 10% of
ATI applicable to Co.
3. Donation to NGO / S.8 Co. If S.80G obtained by entity - 50% Deduction +
Limit of 10% of ATI of Co.
4. Donation to Own Trust /
S.8 Co.
If S.80G obtained by entity - 50% Deduction +
Limit of 10% of ATI of Co.
5. Pooling of CSR No deduction u/s. 37(1) but consider s.35AC
PRAVIN P. SHAH & CO. 58
PRAVIN P. SHAH & CO. 59
CSR Committee in BoD Report
CSR Policy in BoD Report &
on Website
Ensure CSR Policy
implemented
Ensure CSR @ 2% of Avg. NP in 3 FYs
Give preference to
local areas
Reasons in Report if less
than 2%
PRAVIN P. SHAH & CO. 60
7 Disclosures in BoD’s Report:
Outline of CSR Policy + Projects proposed
CSR Committee Composition
Avg. NP for Last 3 FYs
CSR Exp. @ 2% of Avg. NP
CSR Spent during FY (as per Table given)
If Failure – then why failed in BoD Report
Responsibility – Implementation per CSR Policy of Co.
PRAVIN P. SHAH & CO. 61
PRAVIN P. SHAH & CO. 62
P&L Statement – Sch. III
◦ Expenditure incurred on CSR Activities – Notes to A/c
◦ Nothing more to be disclosed in A/c
◦ Surplus not treated as Profits of Co.
◦ ICAI’s FAQs
If expense gives rise to Asset – show as CSR Asset
All CSR Expense – Separate line item or natural heads
CSR is an Appropriation of P&L
PRAVIN P. SHAH & CO. 63
Annual Return
◦ CSR Disclosure
Amt Spent during FY
Amt Spent as % of Block of 3 FYs
Business Responsibility Report in Annual Report
Top 100 Listed Companies – Listing Agr.
CSR Spending as % of PAT
Activities on which CSR spending has been done
PRAVIN P. SHAH & CO. 64
PRAVIN P. SHAH & CO. 65
Failure to contribute / comply with s.135
◦ No specific Penalty provided
◦ Comply or Explain
◦ Could General Penalty under the Act be invoked?
On Company & Officers in Default
Fine up to Rs. 10,000
Continuing Offence: Up to Rs. 1,000 / day of continuing
default
PRAVIN P. SHAH & CO. 66
◦ Press Reports
MCA in favour of making failure to contribute to CSR a
Punishable Offence with a specific penalty clause
Repeat Offenders should be penalised
Quantum and Nature of Penalty Clause not yet decided
Would have to amend Companies Act, 2013 for a Specific
Penalty Clause
PRAVIN P. SHAH & CO. 67
Failure to report CSR Policy u/s. s.134(3)(o)
◦ Reasons for under spending, etc in BoD Report
◦ Would the explanation be scrutinised?
Would a reasonable explanation suffice?
Reporting Failure
◦ Fine on Company of Rs. 50,000 – 25 Lakhs
◦ Every Officer in Default: Term of up to 3 years AND / OR
Fine of Rs. 50,000 – 5 Lakhs
PRAVIN P. SHAH & CO. 68
ET Ranking for Best Cos. for CSR – 2014
1) Tata Steel
2) Tata Chemicals
3) Mahindras
4) Maruti
5) Tata Motors
6) Siemens
7) L&T
8) Coca-Cola
9) SAIL
10) Infosys
PRAVIN P. SHAH & CO. 69