CORPORATE SOCIAL RESPONSIBILITY (Section 135)

General

Section

Rules

Which company is
required to constitute
CSR committee:

Keep In Mind

Exclusion of Companies
[Rule 3(2) of the
Companies (CSR) Rules,
2014]

Composition of the
Committee (Rule 3 &
5(1) of the Companies
(CSR) Rules, 2014)

Duties of CSR
Committee Section
135(3)

Contents of the CSR

Policy [Rule 6 of the
Companies (CSR) Rules,
2014]
Contents of the CSR
Policy [Rule 6 of the
Companies (CSR) Rules,
2014]

Duties of the Board in

relation to CSR [Section
135(4)]:

Amount of contribution
towards CSR [Section
135(5)]:

Keep In Mind [Rule 4 of

the Companies (CSR
Policy) Rules, 2014].

Net Profit

Net Worth

Example:
 Solution:

CSR Reporting (Rule 8):

Penal Provisions

Example:

Solution:

Example:

Solution:
 CORPORATE SOCIAL RESPONSIBILITY (Section 135)

The Companies Act, 2013 lays down the provisions requiring corporates to mandatorily spend a prescribed percentage of their profit
upliftment in discharge of their social responsibilities.

135 of Companies Act 2013

The Companies (CSR Policy) Rules, 2014

According to section 135(1), every company having

Net worth of rupees 500 crore or more, or
Turnover of rupees 1000 crore or more or
A Net profit of rupees 5 crore or more
during the immediately preceding financial year shall constitute a Corporate Social Responsibility Committee.

* In case of specified IFSC public & IFSC private company, section 135 shall not apply for period of 5 years from the commencemen
public company
* As per Rule 3(1) of the Companies (Corporate Social Responsibility) Rules, 2014-

Every company including its holding or subsidiary, and a foreign company defined under clause (42) of section 2 of the Act having
India, which fulfills the criteria specified in sub-section (I) of section 135 of the Act shall comply with the provisions of section 135 o

Provided that net worth, turnover or net profit of a foreign company of the Act shall be computed in accordance with balance sheet
prepared in accordance with the provisions of clause (a) of sub-section (1) of section 381 and section 198 of the Act.

Every company which ceases to be a company covered under subsection (1) of section 135 of the Act for three consecutive financial

* constitute a CSR Committee; and comply with the provisions contained in sub-section (2) to (5) of the said section,till such time it
section (1) of section 135.

Committee should consisting of three or more directors, out of which at least one director shall be an independent director.Provided
company or a private company which is not required to appoint an independent director under sub-section (4) of section 149, it shall h
more directors.
If a private company having only two directors on its Board shall constitute its CSR Committee with two such directors.
With respect to a foreign company covered under these rules, the CSR Committee shall comprise of at least two persons of which one
clause (d) of sub-section (1) of section 380 of the Act (It is required by foreign company to give the name and address or the names an
resident in India authorised to accept on behalf of the company service of process and any notices or other documents required to be s

The Board’s report under sub-section (3) of section 134 shall disclose the composition of the CSR Committee.

The CSR Committee shall -

* formulate and recommend to the Board, a CSR Policy which shall indicate the activities to be undertaken by the company in areas o
* Recommend the amount of expenditure to be incurred on the activities; and
* Monitor the CSR Policy of the company from time to time.

* List of CSR projects or programs which a company plans to undertake falling within the purview of the Schedule VII of the Act, s
such project or programs and implementation schedules for the same; and
* Monitoring process of such projects or programs:
* Provided that the CSR activities do not include the activities undertaken in pursuance of normal course of business of a company.
* Provided further that the Board of Directors shall ensure that activities included by a company in its CSR Policy are related
Schedule VII of the Act.
* The CSR Policy of the company shall specify that the surplus arising out of the CSR projects or programs or activities shall not
company.

The Board of every company referred to in sub-section (1) shall—

* After taking into account the recommendations made by the CSR Committee, approve the CSR Policy for the company and disclose
and also place it on the company’s website, if any, in such manner as may be prescribed; and
* Ensure that the activities as are included in CSR Policy of the company are undertaken by the company.

The Board of every company shall ensure that the company spends, in every financial year, at least two per cent of the averag
during the three immediately preceding financial years, in pursuance of its CSR Policy.

* Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount ear
* Provided further that if the company fails to spend such amount, the Board shall, in its report, specify the reasons for not spending t

*Companies may build CSR capacities of their own personnel as well as those of implementing agencies through institutions with est
three financial years but such expenditure including expenditure on administrative overhead shall not exceed 5% of total CSR expend
financial year
* Contribution of any amount directly or indirectly to any political party under section 182 of the Act, shall not be considered as CSR
* The CSR projects or programs or activities that benefit only the employees of the company and their families shall not be considere
* The CSR projects or programs or activities undertaken in India only shall amount to CSR expenditure. {Rule 4(4)}
* The CSR activities shall be taken by the company as per its CSR Policy, as projects or programmes or activities excluding activities
normal course of business.
* A company may also collaborate with other companies for undertaking projects or programs or CSR activities in such manner that t
companies are in a position to report separately on such projects or programs in accordance with these rules.
* The Board of a company may decide to undertake its CSR activities approved by the CSR Committee, through
a company established under section 8 of the Act or a registered trust or a registered society, established by the company, either sing
or
a company established under section 8 of the Act or a registered trust or a registered society, established by the CG or SG or any ent
Parliament or a State legislature:
Provided that- if, the Board of a company decides to undertake its CSR activities through a company established under section 8 of th
registered society, other than those specified in this sub-rule, such company or trust or society shall have an established track record o
programs or projects; and the company has specified the projects or programs to be undertaken, the modalities of utilisation of funds o
the monitoring and reporting mechanism.

Net Profit shall not include such sums as may be prescribed, and shall be calculated in accordance with section 198
“Net profit” shall not include the following:
* Any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise; and
* Any dividend received from other companies in India, which are covered under and complying with the provisions of section 135 o
It is further provided that in case of a foreign company covered under these rules, net profit means the net profit of such company as
in terms of clause (a) of sub-section (1) of section 381 read with section 198 of the Act [Rule 2(f)].

As per Section 2(57) means the aggregate value of the paid-up share capital and all reserves created out of the profits and securities p
aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited
reserves created out of revaluation of assets, write-back of depreciation and amalgamation.

The company had fair valued its property, plant and equipment in the current year which was mistakenly taken into retained earn
accounts. Please advise whether this fair valuation would be covered in the net worth of the company as per the legal requirements.
As per sec 2(57) of the Companies Act 2013, any reserves created out of revaluation of assets doesn’t form part of net worth.Eve
valuation to the retained earnings in its books of accounts, the resultant credit in reserves (by whatever name called) would be in the
revaluation of assets’ which is specifically excluded in the definition of ‘net worth’ in section 2 (57) and hence should be excluded by

* The Board’s Report of a company covered under these rules pertaining to a financial year commencing on or after the 1 April 2014
CSR.
* In case of a foreign company, the balance sheet filed under section 381(1)(b) shall contain an Annexure regarding report on CSR.

The Companies Act requires that—

(i)         The Board’s report shall disclose the composition of the Corporate Social Responsibility Committee as per subsection (3) of s
(ii)        If the company fails to spend such amount (i.e. at least two percent of the average net profit), the Board shall disclose and spe
amount in its report as per Clause (o) of sub-section (3) of section 134.
As per section 134 of Companies Act, 2013 if the Company fails to disclose such information, it shall be punishable with fine, which
which may extend to 25,00,000/- and every officer of the company who is in default shall be punishable with imprisonment for a term
with fine which shall not be less than 50,000/- but which may extend to 5,00,000/- or with both.

Example: XYZ Ltd is a listed company having turnover of 1200 crores during the financial year 2017-18. The CSR committee of th
and recommended a CSR project which was approved by the Board. The company finalised the project under its CSR initiatives wh
net profit of the company for last three financial years. Will such excess expense be counted in subsequent financial years as a part of

Answer: In terms of Section 135(5) of the Companies Act, 2013, the Board of every company to which section 135 is applicable, sh
in every financial year at least 2 percent of average net profits of the company made during the three immediately preceding fina
policy. There is no provision for carry forward of excess expenditure to the next year(s). The words used in the section are ‘at least’.
would be considered as voluntary higher spending.

ADV Ltd is engaged in the business of construction and has various projects which are under execution in Delhi-NCR region. Th
projects, particularly in Southern part of India based on an understanding that the margins are very high over there.During the year
got covered within the requirements of CSR. Considering the nature of its business, company has a large employee base and it dec
related to construction which would benefit its employees and would indirectly also help the business of the company. Please advise o

As per the requirements of CSR, the projects or programs or activities that benefit only the employees of the company and their fam
activities in accordance with section 135 of the Act. Accordingly, in the given case, the activity planned by the company related to it
the benefit of its employees would not be considered as part of CSR requirements.
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Activities specified under Schedule VII:

Activities which may be included by companies in their CSR Policies (i.e. Activities as specified under Schedule VII) are as follows

Eradicating hunger, poverty and malnutrition, promoting health care including preventive health care and sanitation including contrib
Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water;
Promoting education, including special education and employment enhancing vocation skills especially among children, women, elde
abled and livelihood enhancement projects;
Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day
other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;

Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agro forestry, conservation o
maintaining quality of soil, air and water including contribution to the Clean Ganga Fund set up by the Central Government for rejuve

Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; se
promotion and development of traditional arts and handicrafts;
Measures for the benefit of armed forces veterans, war widows and their dependents;
Training to promote rural sports, nationally recognised sports, paralympic sports and Olympic sports;
Contribution to the Prime Minister’s National Relief Fund or any other - fund set up by the Central Government for socio-economic d
and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women;
Contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Gov
Rural development projects;
Slum area development. [For the purposes of this item, the term ‘slum area’ shall mean any area declared as such by the Central Gove
Government or any other competent authority under any law for the time being in force.]

The MCA vide General Circular No. 21/2014 dated 18 June 2014 has provided many clarifications with regard to provisions o
Responsibility under section 135 of the Companies Act, 2013 which are as under:

The statutory provision and provisions of CSR Rules, 2014, is to ensure that while activities undertaken in pursuance of the CSR poli
Schedule VII of the Companies Act 2013, the entries in the said Schedule VII must be interpreted liberally so as to capture the essenc
enumerated in the said Schedule.
It is further clarified that CSR activities should be undertaken by the companies in project/ programme mode. One-off events such as
charitable contribution/ advertisement/ sponsorships of TV programmes etc. would not be qualified as part of CSR expenditure.
Expenses incurred by companies for the fulfillment of any Act/ Statute of regulations (such as Labour Laws, Land Acquisition Act etc
CSR expenditure under the Companies Act.
Salaries paid by the companies to regular CSR staff as well as to volunteers of the companies (in proportion to company’s time/hours
CSR) can be factored into CSR project cost as part of the CSR expenditure.
“Any financial year” referred under sub-section (1) of section 135 of the Act read with the Companies CSR Rule, 2014, implies ‘any
financial years.
Expenditure incurred by Foreign Holding Company for CSR activities in India will qualify as CSR spend of the Indian subsidiary if, t
routed through Indian subsidiaries and if the Indian subsidiary is required to do so as per section 135 of the Act
‘Registered Trust’ would include Trusts registered under Income Tax Act 1956, for those States where registration of Trust is not man
Contribution to Corpus of a Trust/ society/ section 8 companies etc. will qualify as CSR expenditure as long as the Trust/ society/ sec
created exclusively for undertaking CSR activities or where the corpus is created exclusively for a purpose directly relatable to a subj
VII of the Act.