Escorts Skill Development Vs CIT (Exemptions) 

ITA No. 527/Del/2017

Dated  26/04/2019

Since common questions of facts and law have been raised in both the aforesaid appeals, the same are being disposed off by way of composite order to avoid repetition of discussion.

2. The Appellant, Escorts Skill Development (hereinafter referred to as the ‘assessee/applicant’) by filing the present appeal sought to set aside the impugned orders both dated 29.12.2016 passed by the Commissioner of Income-tax (Exemptions), Chandigarh on the grounds inter alia that :-

“ITA NO.527/DEL/201 7

1. That the learned CIT (Exemptions) erred in rejecting the application filed u/s 80G(5)(vi) of the Income-tax Act, 1961 consequent to his declining to grant registration u/s 12A of the Income-tax Act to the appellant trust.

2. That the learned CIT (Exemptions) erred in rejecting the application u/s 80G without looking at the merits of the matter and merely rejecting the application on the ground that the application for registration u/s 12A has been rejected.”

“ITA NO.528/DEL/2017

1. That the learned CIT(Exemptions) erred in rejecting the application for registration u/s 12A of the Income-tax Act, 1961 merely on assumptions, presumptions and apprehensions, without appreciating the factual, legal and statutory position for grant of registration.

2. That the learned CIT(Exemptions) failed to appreciate that activities of the appellant, inter alia, include the main activity of ‘providing vocational training’ in various fields under the skill development programme of Government of India to create skilled manpower in the country and is covered under both ‘education’, & ‘advancement of any other object of general public utility’ as provided in Section 2(15) of Income Tax Act.

3. That the learned CIT(Exemptions) erred in rejecting the application u/s 12A on the ground that the appellant company has been formed specifically to carry out the CSR obligations of the parent company. He failed to appreciate that the ‘vocational training’ is a part of the permitted CSR activities notified by the Government of India which can be carried out by the company on its own or through a Trust / Society / Section 8 company.

4. That the learned CIT(Exemptions) has failed to carry out the mandatory requirement of satisfying himself about the objects and genuineness of the activities of the appellant institution but instead going beyond his mandate by looking into the purposes of creation of the appellant institution and declining the registration primarily for same reason.”

3. Briefly stated the facts necessary for adjudication of the controversy at hand are : the applications moved by the assessee company in Form No. 10A and 10G for registration under section 12AA of the Income-tax Act, 1961 (for short ‘the Act’) and approval u/s 80G of the Act respectively have been rejected by the ld. CIT on the grounds inter alia that the primary aim for forming the company by the assessee/applicant u/s 8 of the Companies Act, 2013 is merely to comply with the requirement of Corporate Social Responsibility (CSR); that the company has been formed to implement the CSR activities of financing/parental company; that the composition of applicant company is restricted and to that extent is not amenable to the public charity; that it does not ensure to have been formed to extend benefit to the general public and as such, does not partake the meaning of public charitable company; that there is no rationale for seeking further exemption on the basis of some activities when the skill development activities undertaken by the applicant are already subsidized by the Government of India and that the activities of training also do not fall under any limb of charitable activities defined u/s 2(15) of the Act. Consequently, the ld. CIT (E) also declined the approval u/s 80G of the Act.

4. Feeling aggrieved, the assessee/applicant company has come up before the Tribunal by way of filing the present appeals by challenging the impugned orders passed by ld. CIT.

5. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.

6. Undisputedly, applicant company has been registered u/s 8 of the Companies Act, 2013 by the Central Government after being satisfied that the same has been constituted with charitable objects etc. It is also not in dispute that vide reply dated 07.12.2016, applicant produced before the ld. CIT (E) audited finance for the period ending 31.03.2016, receipt and payment account for the financial year 2015-16, copy of agreement dated 09.11.2016 executed with the National Skill Development Corporation, acknowledge of Income-tax return for AY 2015-16 & 2016-17 along with computation of income and copies of bank statement since its inception. It is also not in dispute that the applicant company is a part and parcel of Escorts Limited who is main member of the applicant company. It is also not in dispute that the corpus fund in totality has been contributed by the predominant stakeholders. It is also not in dispute that the Director of the applicant company, Shri G.B. Mathur is also on the Board of Directors of Escorts Limited. It is also not in dispute that the applicant company is working solely with the funds provided by its main contributor, M/s. Escorts Ltd. while fulfilling their CSR obligation.

7. Before proceeding further, we would like to examine aims and objects of the applicant company which are extracted for ready perusal as under :-

“3.(A) The objects for which the company is established are:

To establish and run in India or abroad educational institutions like school, college, apprentice training, practical training classes, vocational training, boarding facilities, GO, gurukuls, teaching classes, placement services, libraries, hostels, canteens, science and non-science stream labs and workshops of all professions and of all allied nature of classes and to conduct courses for under graduate, graduates and post graduate degree and diploma in the subjects and branches of all types of disciplines/faculties such as commerce, hardware, software, computers, science, arts, business management, engineering, science medical industrial, pharmacy, mining, military, music, dance, acting, sports, journalism, and any other field of education and to act as advisors, consultants, promoters, partners or associates for such business and to get affiliated/associated with Indian and/or Foreign Universities, institutes, colleges and grant degrees/diplomas etc on behalf of such affiliated institution, to provide learning solutions and to achieve the object to establish and run educational institutions, and to conduct practical practices/workshops thereof including distance learning programs with or without electronic media or E-business help and to grant franchise of and to run and set up all support facilities for such students including hostels, canteens, mess, enjoyment and recreational facilities and/or to act as advisors, consultants for setting up such institutes/classes and business as may be incidental or necessary for the achievement of the above object.

(B) The objects for doing of all such other lawful things as are incidental or conducive to the attainment of the above objects are:

(i) To purchase, hire or otherwise acquire and maintain suitable buildings, apartments, computer equipments, appliances, furniture and other fittings in any country for its establishments for the objects for which the Company is established;

(ii) To subscribe for, become a member of and cooperate with any other Association, national or international, whether incorporated or not, whose objects are, altogether or in part, similar to those contained in this Memorandum and to obtain from and communicate to any such Association, such information as may be likely to fulfill the objectives of this

(iii) To receive grants, gifts, loans, subscriptions, donations or any other financial contribution in cash and securities and of any property, either moveable of immovable: within the country or/and abroad and, to vary, alter or transfer such investments from time to time. etc.”

8. Bare perusal of the impugned order passed by the ld. CIT (E) goes to prove that registration and approval u/s 12AA and 80G of the Act has been declined on the grounds inter alia that applicant company has been constituted as a captive company by the Escorts Limited in order to redeem their CSR obligation; that there is a close arrangement vide which corporate entity is not only able to redeem its CSR obligation but also at the same time able to control the finances of the applicant company; and that resultantly the money which would not have been otherwise deductible as expenditure is now being claimed exempt and that there is no rationale for seeking further exemption on the same activities being performed by the applicant company under CSR obligation.

9. In the backdrop of the aforesaid facts and circumstances of the case, the ld. AR for the applicant company contended inter alia that the applications u/s 12A and 80G of the Act have been wrongly rejected by the ld. CIT (E) by ignoring the fact that the main activity of the applicant company is providing vocational training in various fields under the “Skill Development Programme of Government of India”; that vocational training is part of CSR activities notified by the Government of India which can be carried out by the applicant company on its own or through a Trust/ Society/Company registered u/s 8 of the Companies Act, 2013 and relied upon the decisions of (i) Nanak Chand Jain Charitable Trust vs. CIT (E), Chandigarh – (2018) 91 taxmann.com197 (Delhi-Trib.); (ii) Process-cum-Product Development Centre vs. Addl. CIT – (2019) 103 taxmann.com191 (Delhi-Trib.); (iii) CIT, Faridabad vs. IILM Foundation Academy – (2016) 75 taxmann.com 214 (P&H); (iv) CIT (E), Chandigarh vs. Shri Shirdi Sai Darbar Charitable Trust (Dharamshala) – (2017) 81 taxmann.com 49 (P&H); and (v) Director of Income-tax (E) vs. M/s. Group Vocational Training Centre Trust in ITA No.199/2015.

10. However, on the other hand, ld. DR for the Revenue relied upon the order passed by the ld. CIT (E) and contended that charitable activities under the garb of CSR activities are mere camouflage to get the registration u/s 12AA and 80G of the Act.

11. By now, it is settled principle of law and fact that CSR activities are public charitable activities per se, which fact is also evident form section 8 of the Companies Act, 2013. At the same time, when we examine the aims and objects of the applicant company in totality, the same are to establish and run educational institution like school, colleges, apprentice training, practical training classes, vocational training, boarding facilities, NGO, gurukuls, teaching classes, etc. in India and abroad which certainly falls under the charitable activities u/s 2(15) of the Act.

12. Applicant company has brought on record Note on Skill Development Initiation, available at pages 23 to 25 of the paper book, wherein it is recorded that applicant company in the past 8 months has got affiliated to Infrastructure Equipment, Construction and Agriculture Sector skill councils and has set up training institute at Faridabad having quality workshops and has delivered training to nearly 200 learners. Applicant company has also partnered with National Small Industry Corporation for imparting training on heavy equipment operators for which they have trained and certified about 30 trainees as Backhoe loader and PNC crane operators who have been placed with its dealers. Applicant company is having candidate data base of about 1000 candidates. The Revenue has not brought on record iota of evidence to prove that the youths trained by the applicant company have not been employed elsewhere. Even otherwise, there cannot be any restrain on a trainee to get the placement as per his convenience.

13. Merely because of the fact that the applicant company has been established to comply with the CSR obligations, the registration u/s 12AA of the Act cannot be denied, particularly when CSR activities are also charitable activities as defined under the Act.

14. Coordinate Bench of the Tribunal in case cited as Process-cum-Product Development Centre vs. Addl. CIT – (2019) 103 com191 (Delhi-Trib.) held that :-

“Where assessee was conducting various skill training programs for students to get placement activities would fall within definition of education under section 2(15), thus entitling it for exemption under section 10(23C)(iiiab).”

15. Identical issue “as to whether registration u/s 12AA of the Act can be denied to a trust merely formed for complying with the CSR obligation of the settler company” has been decided in favour of the assessee/applicant by answering the question in negative in case cited as Nanak Chand Jain Charitable Trust vs. CIT (2018) 91 com197 (Delhi-Trib.).

16. CIT (E) was only required to firstly satisfied himself if the trust has been established for charitable activities and its activities are genuine for the purpose of grant of registration u/s 12AA of the Act, rest of the suspicion and apprehensions raised by the ld. CIT (E) can be taken care of by the Revenue at the time of framing assessment. Moreover, the ld. CIT (E) declined the registration merely on the basis of assumptions and presumptions.

1. Following the decision rendered by the coordinate Bench of the Tribunal in case cited as Nanak Chand Jain Charitable Trust vs. CIT (2018) 91 taxmann.com197 (Delhi-Trib.) and case decided by Hon’ble High Court of Punjab & Haryana in CIT vs. IILM Foundation Academy – (2016) 75 taxmann.com 214 (P&H), we are of the considered view that imparting “skill development training”, by the applicant company which is also a flagship project of the Government of India for sustaining its growth rate and to create the pool of skill worker to further enhance its growth and development is a charitable activity following within the definition education u/s 2(15) of the Act entitling the applicant company for registration u/s 12AA of the Act and consequent approval u/s 80G of the Act, hence both the appeals filed by the applicant company are allowed directing the ld. CIT (E) to provide registration u/s 12AA to the assessee and grant consequent approval u/s 80G of the Act.

17. Resultantly, both the appeals filed by the assessee/applicant are allowed.

Refer Income Tax on Charitable or Religious trust : Free Study Material

Assistant Commissioner of Income Tax
Circle 1(1), Bilaspur ………….…………….Appellant
Vs.
Jindal Power Limited ……..….…….…Respondent
Tanmar, Raigarh 496 107

I.T.A. No.99/BLPR/2012
Assessment year: 2008-09

S. 37(1): Expenditure on Corporate Social Responsibility (CSR), though voluntary, is allowable as business expenditure. Explanation 2 to s. 37(1) inserted w.e.f. 01.04.2015 is not retrospective. It applies only to CSR expenditure referred to in s. 135 of the Companies Act and not to voluntary CSR expenditure

AO View Point :-Fundamental objection of the Assessing Officer is that the
expenses is voluntary, not mandatory and not for business purposes

Held

An attempt was made in the IT Bill of 1961 to lay down the “necessity” of the expenditure as a condition for claiming deduction under s. 37. Sec. 37(1) in the Bill read “any expenditure.. laid out or expended wholly, necessarily and exclusively for the purposes of the business or profession shall be allowed.” The introduction of the word “necessarily” in the above section resulted in public protest. Consequently,
when s. 37 was finally enacted into law, the word “necessarily” came to be dropped. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under s. 10(2)(xv) of the Act if it satisfies otherwise the
tests laid down by law.”

Explanation 2 to Section 37(1), with effect from 1st April 2015, which provides that “for the removal
of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for
the purposes of the business or profession”

The amendment in the scheme of Section 37(1), which has been introduced with effect from 1st April 2015, cannot be construed as to disadvantage to the assessee in the period prior to this amendment. This disabling provision, as set out in Explanation 2 to Section 37(1), refers only to such corporate social responsibility expenses as under Section 135 of the Companies Act, 2013, and, as such, it cannot have any application for the period not covered by this statutory provision which itself came into existence in 2013. Explanation 2 to Section 37(1) is, therefore, inherently incapable of retrospective application any further. In any event, as held by Hon’ble Supreme Court’s five judge constitutional bench’s landmark judgment, in the case of CIT Vs Vatika Townships Pvt Ltd [(2014) 367 ITR 466 (SC)], the legal position in this regard has been very succinctly summed up by observing that “Of the various rules guiding how legislation has to be interpreted, one established rule is that unless a contrary intention appears, legislation is presumed not to be intended to have a retrospective operation.

The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today
and in force and not tomorrow’s backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex
prospicit non respicit: law looks forward not backward.

A retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.”

It may appear to be some kind of a dichotomy in the tax legislation but the well settled legal position is that when a legislation confers a benefit on the taxpayer by relaxing the rigour of pre-amendment law, and when such a benefit appears to hav been the objective pursued by the legislature, it would a purposive interpretation giving it a retrospective effect but when a tax legislation imposes a liability or a
burden, the effect of such a legislative provision can only be prospective. We have also noted that the amendment in the scheme of Section 37(1) is not specifically stated to be retrospective and the said Explanation is inserted only with effect from 1st April 2015.

In this view of the matter also, there is no reason to hold this provision to be retrospective in application. As a matter of fact, the amendment in law, which was accompanied by the statutory requirement with regard to discharging the corporate social responsibility, is a disabling provision which puts an additional tax burden on the assessee in the sense that the expenses that the assessee is required
to incur, under a statutory obligation, in the course of his business are not allowed deduction in the computation of income. This disallowance is restricted to the expenses incurred by the assessee under a statutory obligation under section 135 of Companies Act 2013, and there is thus now a line of demarcation between the expenses incurred by the assessee on discharging corporate social responsibility under such a statutory obligation and under a voluntary assumption of responsibility.
As for the former, the disallowance under Explanation 2 to Section 37(1) comes into play, but, as for latter, there is no such disabling provision as long as the expenses, even in discharge of corporate social responsibility on voluntary basis, can be said to be “wholly and exclusively for the purposes of business”. There is no dispute that the expenses in question are not incurred under the aforesaid statutory obligation. For this reason also, as also for the basic reason that the Explanation 2 to Section 37(1)
comes into play with effect from 1st April 2015, we hold that the disabling provision of Explanation 2 to Section 37(1) does not apply on the facts of this case.

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NOTIFICATION NO. GSR 540(E) [F.NO.05/12/2016-CSR-CELL],

DATED 23-5-2016

In exercise of the powers conferred under section 135 and sub-sections (1) and (2) of section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules further to amend the Companies (Corporate Social Responsibility Policy) Rules, 2014, namely:—

Short title and commencement

1. (1) These rules may be called the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2016.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Companies (Corporate Social Responsibility Policy) Rules, 2014, in rule 4, for sub-rule (2), the following sub-rule shall be substituted, namely:—

“(2) The Board of a company may decide to undertake its CSR activities approved by the CSR Committee, through

Provided that if, the Board of a company decides to undertake its CSR activities through a company established under section 8 of the Act or a registered trust or a registered society, other than those specified in this sub-rule, such company or trust or society shall have an established track record of three years in undertaking similar programs or projects; and the company has specified the projects or programs to be undertaken, the modalities of utilisation of funds of such projects and programs and the monitoring and reporting mechanism”.

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10. Cars donated to Police Dept is CSR exp hence disallowable under section 37(1)

5th Floor, ‘A’ Wing,
Shastri Bhawan, Dr. R. P. Marg
New Delhi -110 001

General Circular No. 05/2016
Dated: 16th May, 2016

To,
All Regional Director,
All Registrar of Companies,
All Stakeholders

Subject: Clarification with regard to provisions of Corporate Social Responsibility under section 135 of the Companies Act, 2013.

In continuation to this Ministry’s General Circular 01 of 2016 dated 12.01.2016, it is clarified that companies, while undertaking  Corporate  Social  Responsibility  activities under provision of the Companies Act, 2013, shall not contravene any other prevailing laws of the land including Cigarettes and other Tobacco Products Act (COTPA), 2003.

2. This issues with the approval of Competent Authority

Yours faithfully,

(Seema Rath)
Dy. Director-CSR-Cell
Tel-01123384657

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1. Guidance Note on CSR (Corporate Social Responsibility )
2. CSR Report Format
3. IT Assesment of CSR Spending
4. Companies CSR Policy Rules 2014
5. Draft on Treatment of Costs Relating to CSR Activities
6. High Level Committee Report on CSR Compliance
7. CSR Activities by Corporate Houses
8. ROC NOTICES U/S. 206 ASKING INFORMATION OF CSR
9. Carry Forward of Unspent CSR Funds
10. Activities by Companies Under CSR

NOTIFICATION [FILE NO.1/18/2013-CL.V], DATED 27-2-2014

In exercise of the powers conferred under section 135 and sub-sections (1) and (2) of section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules, namely:—

Short title and commencement

1. (1)These rules may be called the Companies (Corporate Social Responsibility Policy) Rules, 2014.

(2) They shall come into force on the 1st day of April, 2014.