1. Presentation By CA Anil Sharma
Provisions relating to Corporate Social Responsibility in The Companies Act, 2013
Presentation By
CA Anil Sharma

2. Corporate Social Responsibility (CSR)
Chapter IX- Accounts
Sections 135
Schedule VII
The Companies (Corporate Social Responsibility Policy) Rules, 2014
Applicable w.e.f
Monday, September 17, 2018

3. CSR- applicability
Section135 – Provision shall be applicable to a company having
Net worth of Rs. 500 Crores or more or
Turnover of Rs Crores or more or
Net profit of Rs. 5 Crores or more during any financial year.
Monday, September 17, 2018

4. CSR- applicability
Rule 3 of the Companies (CSR Policy) Rules, 2014 provides:
Every company including its holding or subsidiary
A foreign company having its branch office or project office in India
Shall comply with the provisions of section 135 and the Rules, if it fulfils the criteria specified in subsection (1) of section 135.
Monday, September 17, 2018

5. CSR- applicability
Rule 3 (2) of the Companies (CSR Policy) Rules, 2014 provides:
Every company which ceases to be company covered under sub-section (1) of Section 135 for three consecutive financial years
Only then it shall not be required to comply the provisions of sub-sections (2) to (5) of Section 135.
Monday, September 17, 2018

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

7. Net Profit
Defined in Rule 2(f) – Definitions in Companies (CSR Policy) Rules, 2014
“Net Profit’ means
Net profit of a company as per its financial statement prepared in accordance with the provisions of the Act but shall not include:
Any profit arising from overseas branch, (s) whether operated as a separate company or otherwise
Any dividend received from other companies in India which are covered under and complying with the section 135 of the Act.

8. CSR Committee
Once provisions of Section135 become applicable, the company is required to constitute a CSR Committee of the Board.
Committee to consists of three or more members and out of which atleast one shall be independent director (sub-section (1)).
Rule 5 of Companies (CSR Policy) rules, 2014 provides that:
An unlisted public company need not have independent director
A private company having two directors on its Board shall have CSR committee with two directors only
A foreign company shall have atleast two persons of which one person shall be the same as specified under Section 380(1)(d) and another person nominated by the foreign company.
Monday, September 17, 2018

9. CSR Committee
CSR Committee to formulate and recommend policy indicating activities to be under taken by the company as specified in Schedule VII.
Committee to recommend the amount of expenditure to be incurred and
Committee to monitor CSR Policy’s implementation.
Monday, September 17, 2018

10. CSR- quantum of expenditure
Sub-section (5) required the company to spend, in every financial year, at least 2% of the average net profits of the company made during the three immediately preceding financial years.
Average net profit: as per section 198 ( for overall managerial remuneration and corresponding to Section 349 of CA, 1956)

11. Calculation of Net Profit
Profit of a company in any financial year as per Statement of Profit and Loss
To add:
bounties and subsidies received from any Government, or any public authority unless otherwise directed.
Not to add:
profits, by way of premium on shares or debentures of the company,
profits on sales by the company of forfeited shares;
profits of a capital nature including profits from the sale of the undertaking or any part thereof
profits from the sale of any immovable property or fixed assets of a capital unless the business of the company consists, whether wholly or partly, of buying and selling any such property or asset
any change in carrying amount of an asset or of a liability recognised in equity on measurement of the asset or the liability at fair values:
To deduct:
all the usual working charges;
directors’ remuneration;
bonus or commission paid or payable to any member of the company’s staff,
interest on debentures ,mortgages executed by the company and on loans and advances secured by a charge on its fixed or floating assets;
interest on unsecured loans and advances;
expenses on repairs, whether to immovable or to movable property
depreciation to the extent specified in section 123;
any compensation or damages to be paid in virtue of any legal liability
any sum paid by way of insurance against the risk of meeting any liability
debts considered bad and written off or adjusted during the year of account
the excess of expenditure over income, which had arisen in computing the net profits in accordance with this section in any year which begins at or after the commencement of this Act and has not adjusted in any subsequent year
Not to deduct:
income-tax and super-tax payable by the company
any compensation, damages or payments made voluntarily,
loss of a capital nature including loss on sale of the undertaking or any part thereof not including any excess of the written-down value of any asset which is sold, discarded, demolished or destroyed over its sale proceeds or its scrap value;
any change in carrying amount of an asset or of a liability recognised in equity reserves on measurement of the asset or the liability at fair value. .

12. Board’s Responsibilities
To approve CSR Policy recommended by the CSR Committee
Disclose the same in its report & co’s website
To ensure CSR activities as planned are undertaken
To spend minimum amount required to be spent in the financial year
To give preference to the local area and areas around it where it operates
If the required amount is not spent, to specify the reasons for not spending the amount in its report.

13. The Companies (CSR Policy) Rules, 2014
Notification dated 27th February, 2014
“ In exercise of the powers conferred under section 135 and sub-section (1) and (2) of Section 469 of the Act, the Central Government hereby makes the following Rules…”
Issues:
Whether section 135 confers any powers to the Central Govt.?
Whether section 469 can be applied even if the relevant section does not have any scope for ‘as may be prescribed’?
Monday, September 17, 2018

14. The Companies (CSR Policy) Rules, 2014
Definition of CSR:
means and includes but not limited to:
Projects or programs relating to activities specified in Schedule VII to the Act or
Projects or programs relating to activities under taken by the BOD in pursuance of recommendations of CSR Committee as per declared CSR Policy subject to the condition that such policy will cover subjects enumerated in Schedule VII of the Act.
Monday, September 17, 2018

15. The Companies (CSR Policy) Rules, 2014
The company can carry out its CSR activities through:
a registered trust or
a registered society or
a company established under section 8 of the Act or
a company established by its holding or subsidiary or associate company under section 8 or
A registered trust, society or company having established track record of three years in undertaking similar programs or projects
The company can collaborate with other companies in such manner that it is in a position to report separately on such projects or programs
Monday, September 17, 2018

16. The Companies (CSR Policy) Rules, 2014
The projects or programs have to be undertaken in India only.
Programs and projects which benefits only the employees of the company and their families are not considered for this purpose.
Contribution to political parties, directly or indirectly, shall not be considered as CSR activity.
To build CSR capacities, the companies can spent upto 5% of the total CSR expenditure of the company in one financial year
Surplus arising out of CSR activities not to be part of business profits of the company.
Format for annual reporting prescribed.
Monday, September 17, 2018

17. Schedule- VII Projects/programs to be considered as CSR activities:
Eradicating hunger, poverty, malnutrition, promoting preventive health care and sanitation and making available safe drinking water,
Promoting education,
Promoting gender equality, empowering women,
Ensuring environmental sustainability,
Protection of national heritage, art and culture,
Measures for the benefits of armed forces veterans, war widows and their dependants,
Training to promote rural sports, nationally recognised sports, Paralympics sports and Olympic sports,
Rural development projects.
Monday, September 17, 2018

18. Schedule- VII Amended on 27.2.2014 by replacing all ten entries.
Eight projects/programs to be considered as CSR activities.
Contributions to few specified funds shall also be considered as CSR activities.
Monday, September 17, 2018

19. Schedule- VII Can also make contributions to:
Prime minister Relief fund,
Any fund set up by the Central Government for social -economic development and relief or welfare of the schedule castes, the schedule tribes, other backward classes, minorities and women or
Central Government approved technology Incubators at academic institutions.
Monday, September 17, 2018

20. Issues What if company does not incur the required expenditure?
Can amount be accumulated for expenditure in subsequent year(s) in full or in part?
Is there any distinction in incurring capital or revenue expenditure?
How the expenditure shall be reflected in financial statements of the company?