• Notification Date: 14-11-2022
  • Notification No: N/A

Income Tax Credits Available on CSR: AAR Telengana

The Authority of Advance Rulings (AAR) has recently ruled that Income Tax Credits will be available on Corporate Social Responsibility (CSR). The ruling has been made regarding a case of M/s Bambino Pasta Food Industries Private Limited, the applicant. The Company has applied to seek advanced ruling on whether ITC benefits are available on CSR expenditures made by the company. The applicant is a private limited company involved in the manufacture of Vermicelli and pasta products.

The Counsel for the appellant has stated ITC benefits do not incur voluntarily on CSR expenditures. However, the applicant has stated that it does not qualify as ‘gift’, therefore, Income Tax credits are not restricted under Section 17(5) of the CGST Act, 2017. Besides, non-spending of the CSR funds will directly impact the functioning of the company, since, penal provisions under Companies Act, 2013 will have financial effects. This will also affect the market reputation of the company.

Further, the appellant stated that the company incurs Corporate Social Responsibility (CSR) expenditures under statutory compulsion. It is incurred because of running of business and it certainly cannot be considered as a ‘gift’.

The two-member bench of the Appellate Authority, consisting of Additional Commissioner (State Tax) S.V. Kasi Visweswara Rao and Additional Commissioner (Central Tax) Sahil Inamdar, observed that the companies which have a specific net worth or net profit and expenditure are eligible to avail a minimum of 2% of their net profit towards their CSR under the Companies Act, 2013. Companies failing to do so will attract a penalty under Sub-section 7 of Section 135 of the Companies Act, 2013. The penalty amount may go up to Rs.1 crore. Hence, in order to run a stable business, a company must make these expenditures, failing which will make the business substantially impaired.