INDEX Sl.No. Subject Page No.

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2 INDEX Sl.No. Subject Page No. 1. Introduction 1 2. Philosophy & Objectives 1 3. Interdependence of Commerce And Society 2 4. Benefits of CSR Activities 2 5. CSR Vis-À-Vis Corporate Governance 2 6. Applicability 3 7. CSR Rules 3 8. Sectors in Which CSR Spending is Necessary 4 9. Contours of CSR Activities CSR Committee CSR Policy Consequences of Not Spending Prescribed Levels 6 of Profits on CSR 13. Tax Perspective of Expenditure Incurred on CSR Forensic Audit Role of Professionals Internal Audit CSR Vehicles Section 8 Companies Trusts Foreign Funds Integrated Consortium Model Word of Caution Extract of relevant Provisions of Companies Act 2013 and Income Tax Act, 1961 with amendments. Section 135 of the Companies Act, i. and General Circular No. 21/2014 and General Circular No.36/2014 ii. Companies (Corporate Social Responsibility 18 Policy) Rules, 2014 iii. SCHEDULE VII of the Companies Act, Section 8 of the Companies Act, iv. Formation of companies with charitable objects, etc. v. Section 10 (23C) of Income Tax Act, Incomes not included in total income 26

3 vi. Section 11 of Income Tax Act, Income from property held for charitable or religious purposes. vii. Section 12 of Income Tax Act, Income of trusts or institutions from contributions. viii. Section 13 of Income Tax Act, [Section 11 not to apply in certain cases. ix. Section 35CCA of Income Tax Act, Expenditure by way of payment to associations and institutions for carrying out rural development programmes. x. Section 35CCD of Income Tax Act Expenditure on skill development project. xi. Section 37 of Income Tax Act, General. xii. Section 80G of Income Tax Act, 1961 Deduction in respect of donations to certain funds, charitable institutions, etc Newspaper Clippings Corporate Social Responsibility Spending - 50 Analysis From Balance Sheet of Coimbatore based Companies ***********

4 CORPORATE SOCIAL RESPONSIBILITY INTRODUCTION Section135 read with Schedule VII of the Companies Act, 2013 (the Act) imposes upon profit making companies mandatory social obligations, popularly known as Corporate Social Responsibility [CSR], requiring them to spend a portion of their annual profits [CSR Funds] for achieving social objectives in select sectors. It is not that they are not spending money on projects intended to achieve social objectives. It is not that the Government could abdicate its fundamental responsibility to ensure what it owes to citizens of the country. The Government of India has thought it fit to give a direction to corporate sector to direct a small part of their resources to achieving certain desirable social objectives so that there is some informal integration in such social activities and the results thereof. In this perspective, it is a welcome provision. Mother Teresa said It s not how much we give, but how much love we put into giving. Statement contained in the Notes on Clauses accompanying the Companies Bill Clause 135 This new clause seeks to provide that every company having specified networth or turnover or net profit during any financial year shall constitute the Corporate Social Responsibility Committee of the Board. The composition of the committee shall be included in the Board s Report. The Committee shall formulate policy including the activities specified in Schedule VII. The Board shall disclose the content of policy in its report and place on website, if any of the company. The clause further provides that the Board shall endeavour to ensure that atleast two per cent of average net profits of the company made during three immediately preceding financial years shall be spent on such policy every year. If the company fails to spend such amount the Board shall give in its report the reason for not spending. PHILOSOPHY & OBJECTIVES CSR as a concept is not new to India and many companies have been voluntarily doing various CSR measures for the betterment of the society in the past. While profits have always been the end aim of any commercial enterprise, the self assumed responsibility of doing more to the society has made certain corporate popular, earning them brownie points. The CSR concept stems from the philosophy that a company reaps benefits from the environment in which it operates and the society to which it belongs and hence it is duty bound to provide for the upliftment of the society by doing more than by just giving employment. Thus a corporate is required to see beyond shareholder satisfaction and the CSR activities makes it possible by making the local community an important stakeholder together with government and others.

5 CSR actively promotes the welfare of the society and treats the society as a stakeholder in the company. Hence it is not just the shareholders who stand to benefit from the profits of the company but also the society to which it belongs. CSR activities are not supposed to be seen as charity, but as a fundamental duty with a commitment towards the betterment of the society. INTERDEPENDENCE OF COMMERCE AND SOCIETY CSR provides an excellent opportunity for a company to invest its profits for a valuable cause, the pay back of which will be more valuable and meriting the company as a good corporate citizen. The expenditure budgeted for CSR is not in the nature of a tax or a drain on the resources of the corporate, but an investment towards a better future for the society amidst which we are living. In a way, it highlights the inter-dependence. Incidentally CSR activities genuinely undertaken by a company will naturally help generating goodwill and reputation. BENEFITS OF CSR ACTIVITIES Some of the benefits of CSR are: Makes the company a preferred employer. Retains customers and greatly contributes to the customer loyalty. Makes the customer to believe that he too is contributing to the upliftment of the society. Keeps the work force happy with a sense of achievement and work satisfaction. It acts as a differentiator between the company and its competitor. It also acts as a tool in attracting investments and funding opportunities. It greatly increases the reputation and standing of the company. Incidentally CSR activities give good publicity too. Every stakeholder in such a company can be proud about their indirect contribution to the society. CSR VIS-À-VIS CORPORATE GOVERNANCE Corporate Governance does not just stop in not practicing unethical business practices and being transparent in information sharing about the activities of a company. CSR is considered as an off shoot of good corporate governance. While good corporate governance is considered a merit which is widely perceived in listed companies, CSR permeates to all kinds of companies and thus is wider in its reach. CSR goes one step further in engaging the community in social causes by making the community a preferred stake holder in the company.

6 APPLICABILITY Companies incorporated in India A company within the meaning of the Act, having a net worth of Rs.500 Crores or turnover of Rs.1,000 Crores or net profit of Rs.5 Crores is supposed to spend in every financial year, a specified portion of its net profits on CSR activities. This aspect has been stated in Section 135 of the Act. It says atleast 2% of the average net profits of the company during the three immediately preceding financial years. While calculating the net profit any profit arising from overseas branch(es) of the Company and also the dividend received by the Company out of its investments in India is excluded. Foreign Companies Section 379 of the Act is concerned with Foreign Companies. Section 379 states that foreign companies must comply with the provisions of Chapter XXII of the Act. Section 379 further states that such companies have to comply with such other provisions of the Act as may be prescribed by the Central Government as if such companies were incorporated in India. While a Foreign Company is defined as a company which (a) has a place of business in India; and (b) which conducts any business activity in India, requirements under Section 379 of the Act do not apply to all Foreign Companies. They apply only to those Foreign Companies in which not less than 50% of the paid up share capital is held by one or more citizens of India and one or more companies or bodies corporate incorporated in India, whether singly or in the aggregate. However these aspects have not been made clear in the notification that issued the Rules. It would have been proper to issue a notification under Section 379 of the Act for this purpose. Extending the scope of applicability of Section 135 to all Foreign Companies is not possible under the law merely because they have a branch office or project office in India. As per the Rules, the provisions of Section 135 regarding the mandatory requirement for undertaking CSR activities apply to (a) a Foreign Company having Branch Office in India; and also (b) a Foreign Company having Project Office in India. CSR RULES The Ministry of Corporate Affairs, issued a notification dated 27th February, 2014 and said that Section 135 of the Act will come into force w.e.f. 01st April For this purpose, necessary rules have also been notified. Those rules are known as the Companies (Corporate Social Responsibility Policy) Rules, 2014 (the Rules).

7 SECTORS IN WHICH CSR SPENDING IS NECESSARY MCA has expanded the scope of sectors where CSR activities could be undertaken by companies in compliance of the statutory requirement. The sectors in which CSR funds may be deployed are already stated in Schedule VII to the Act. Now, an amendment to the Schedule VII has introduced certain new sectors viz., protection of national heritage, promotion and training in sports, promotion of benefits to war veterans, war widows and their dependents and promotion of technology incubators in academic institutions, contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women. CONTOURS OF CSR ACTIVITIES a. CSR activities are the ones confined to the amended Schedule VII to the CA, b. CSR activities and the expenditure thereto will have to be carried out only in India. c. Activities which benefit the Company s own employees or their families will not be counted for CSR activities. d. Contribution to political party whether directly or indirectly will not count for CSR activity. e. The expenditure towards building and operating CSR capacities either by the Company on its own or through other institutions having a minimum tract record of three years should not exceed 5% of the total CSR expenditure of the Company in a financial year. CSR COMMITTEE In order to formulate a CSR policy and recommend to the Board of Directors the quantum of amount to be spent and the sectors in which such spend must be made and to monitor the implementation of CSR activities, every company to which these provisions apply must constitute a committee to be known as CSR Committee. In the case of a listed Company, the CSR Committee must consist of three or more directors of which one should be an Independent Director. In case of an Unlisted Public Company or a Private Company, two or more Directors. Independent Director not required. In case of a Foreign Company having Branch Office or Project Office in India, two persons of which one should be a person should be the person appointed to accept service of process and notice under Section 380(1)(d) of the Act.

8 CSR POLICY It is necessary to formulate a CSR Policy. This should be done by the CSR Committee. This policy should be approved by the Board of Directors of the Company. Broadly the CSR Policy may contain the following sections: Statutory Requirement A outline of the CSR Programme Broad Objectives Social Problems and Issues of the Masses around the regions where the Company engaged in Business Statement of the standard of living of people around the region Statement of the environmental or other footprints caused by the activities of the Company Sectors selected for CSR Constitution and Composition of the CSR Committee Composition of the Team appointed for studying the needs from time to time Composition of the Team that is appointed for implementing the CSR Programme Size and Budget Extent of Involvement of Regular Workmen of the Company Incidental Benefits passed on to Regular and other workmen of the Company Accounts and Audit Requirements Partnerships and Consortium Arrangements for Integrated Approach Information Dissemination Posting of Information about CSR Activities of the Company in the website of the Company Reporting to Shareholders through Board s Report Illustrative Grounds why CSR spend may not be undertaken in a particular year Net Profits As per the Rules, "Net profit" means the net profit of a company as per its financial statement prepared in accordance with the applicable provisions of the Act, but shall not include the following, namely :- (i) any profit arising from any overseas branch or branches of the company' whether operated as a separate company or otherwise; and (ii) any dividend received from other companies in India, which are covered under and complying with the provisions of section 135 of the Act:

9 Provided that net profit in respect of a financial year for which the relevant financial statements were prepared in accordance with the provisions of the Companies Act, 1956, (1 of 1956) shall not b required to be re-calculated in accordance with the provisions of the Act: Provided further that in case of a foreign company covered under these rules, net profit means the net profit of such company as per profit and loss account prepared in terms of clause (a) of sub-section (1) of section 381 read with section 198 of the Act. Board s Report The Board s Report should provide an annual report on the CSR activities as per the format provided in the Rules. If a company to which these provisions apply fails to spend the amount earmarked for CSR activities, the reasons for not spending the amount should be mentioned in the Board s Report. As regards foreign company the CSR activities in the prescribed format should form as annexure to the accounts filed under Section 381 of the Act. CONSEQUENCES OF NOT SPENDING PRESCRIBED LEVELS OF PROFITS ON CSR While the section seems to suggest that this stipulation is a mandatory provision, it does not create an offence arising non compliance and further it says companies which have not spent shall disclose in their Board s report the reasons for not spending the amount. In essence, the stipulation expects companies to do voluntary compliance realizing the corporate social responsibility. TAX PERSPECTIVE OF EXPENDITURE INCURRED ON CSR From the point of view of possible tax savings, CSR provisions do not offer any great attraction. The principle with which donations to certain funds and trusts enjoy tax benefits under Section 80G of the Income Tax Act appear to have vanished. There is no doubt that the amount to be spent on CSR could be huge. It could be spent directly on specified activities as stated in Schedule VII to the Companies Act, This direct spending ensures that the chances of the benefits not reaching the desired beneficiaries or not meeting the desired objective are very less. However Section 37 of the Income Tax Act amended by the Finance Act, 2014 contains a separate explanation which categorically states that any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.

10 Under Section 37 of the Income Tax Act, only expenditure incurred wholly and exclusively for the purpose of business is allowed to be deducted in computing the income chargeable under the head profits and gains of business or profession. In view of the said explanation, claiming deduction for expenditure incurred by a company for its CSR purposes under Section 37 does not arise. According to the Finance Act, 2014, CSR expenditure being an application of income is not incurred wholly and exclusively for the purposes of carrying on business. As the application of income is not allowed as deduction for the purposes of computing taxable income of a company, amount spent on CSR cannot be allowed as deduction for computing the taxable income of the company. If any deduction is allowed, companies will enjoy one-third of the same as tax shelter meaning thereby Government indirectly contributing to that extent by foregoing taxes. Actually when CSR expenditure is incurred in view of a provision of law, as prescribed by sub-section (5) of Section 135 of the Companies Act, 1956 which states that the Board of Directors of a company shall ensure that the amount spent on prescribed CSR activities is not less than 2% of average net profits of the company, it can be said with perfect aplomb that the expenditure is wholly and exclusively incurred for the purposes of business or profession. If the amount is not spent, it will be awkward for the company concerned to disclose the reasons for the same in Board s report. In fact, there is another explanation under sub-section (1) of Section 37 of the Income Tax Act which says any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. The undercurrent of this explanation is that if by not incurring of the expenditure, if the company would be committing an offence and thereby incur the wrath of a statute, it would indicate the expenditure is necessarily one incurred for carrying on the business. If Section 135 of the Companies Act, 2013 had introduced a penal clause for penalizing companies not spending on CSR activities, it would have been very difficult for the Income Tax Act to say that the amount spent on CSR will not be allowed as a deduction under Section 37 of the Income Tax Act, However the Finance Minister has clarified that deductions specifically allowed under Sections 30 to 36 of the Income Tax Act, 1961 could be availed. Therefore while deduction cannot be claimed under Section 37 of the Income Tax Act, certain items of CSR expenditure could always be brought within the provisions of Sections 30 to 36 of the Income Tax Act. Between Sections 30 to 36 of the Act, there are as many as 32 sections some of which of course have been already omitted or have become out dated. Practically one a few sections could be applied for making CSR expenditure tax efficient too instead of making it a mere expenditure incurred for ensuring statutory compliance. A perusal of the various provisions of the Income Tax Act, between Sections 30 to 36 of the Act would show as follows:

11 Section 30 of the Income Tax Act could be availed for claiming deduction for tax purposes for any rent, rates, taxes, repairs and insurance paid / incurred in connection with any building or other asset acquired / taken on lease or earmarked for CSR purposes. Section 31 could be availed to claim deduction against expenditure incurred on repairs and insurance in respect of machinery, plant and furniture used for CSR purposes. Section 32 could be availed for claiming deduction towards depreciation on assets used for CSR purposes. Section 35CCD says any expenditure incurred on skill development projects gives the assessee the benefit of claiming 150% deduction in its books. In fact the CSR Rules issued by MCA under Section 135 of the Companies Act, 2013 read with the MCA Circular dated 18th June 2013 clarifies that CSR activities should be undertaken by the companies in project / programme mode. If a company installs water filter in schools at various places, it could claim expenditure on repairs, maintenance, insurance, besides deduction towards depreciation if the asset is shown in its books of account. MCA, by the aforesaid circular dated 18th June 2014, states that any contribution to Corpus of a Trust/ society/ section 8 companies etc. will qualify as CSR expenditure as long as (a) the Trust/ society/ section 8 companies etc. is created exclusively for undertaking CSR activities or (b) where the corpus is created exclusively for a purpose directly relatable to a subject covered in Schedule VII of the Act. Thus if a company is donating money for the CSR purposes to any trust or society, it could only avail benefit of exemption under Section 80G of the Income Tax Act, 1961, if any. Companies may choose to work in tandem with the declared objective of the Government in skill development by spending money on skill development with the meaning of Section 35CCD of the Income Tax Act, To a query, Union Minister for MSME Mr.Kalraj Mishra has stated that the Government is inviting private players to invest in training centres, which would impart training as per market needs. They can also do it as corporate social responsibility. The mantra of this government is public private partnership and there cannot be no better sector for this than the MSME, which would create social and economical infrastructure for the country s growth.

12 FORENSIC AUDIT As substantial funds will be spent on CSR activities by profit making companies and such spends are not going to be covered by the objects for which the Company was incorporated, CSR activity and spending will be merely arising from the statutory requirement. At the best one can describe CSR spending as a necessary spending in consonance with the objects for which the Company is formed though sanctified by law. Therefore there must be a responsible spending and a lot of thought must go into such spending as stakeholders might ultimately hold directors liable if CSR funds are routed for dubious purposes. Companies having the need to spend huge money might prefer to have their own CSR Vehicles rather than donating to trusts, societies and NGos. WHERE companies prefer to donate funds to trusts, societies and NGOs, yearly screening of such entities will be most essential. Therefore there must be an external agency that rates the genuineness of the activities of such trusts, societies and NGOs. Companies may insist that done trusts, societies and NGOs must accept as a precondition for being eligible to receive donations a forensic audit which will ensure that there is a minute track of application of donated funds for the purposes for which such donations have been made. In India, we have had several decades of planned expenditure having been incurred on poverty alleviation programmes and many other such projects with great names and announcements though what ultimately reaches the poor and needy will only be a fraction of what has been spent. Therefore forensic audit will be a very good tool to protect directors in whose hands the decision on every aspect of CSR rests. In the light of the fact that CSR Spend must be properly applied to meet the desired objectives, it is essential to carry out CSR Spend Forensic Audit. ROLE OF PROFESSIONALS Company secretaries, Chartered Accountants, Cost Accountants have a dual role to play. They may have to guide the Companies in which they are employed to identify CSR Areas and if necessary to steer the CSR activities and to co-ordinate with multiple agencies that are either the vehicles through which CSR activities are carried out or they are the beneficiaries or agencies representing beneficiaries. Further such professionals will be able to clear CSR programs and projects and do audit of such expenditure too. INTERNAL AUDIT Section 138 of the Act read with Rule 13 of the Companies (Accounts) Rules, 2014 shows that (a) every listed company; (b) every unlisted public company having a paid up share capital of Rs.50 Crores or more during the preceding financial year; or a turnover of Rs.200 Crores or more during the preceding financial year; or outstanding loans or borrowings from banks or public financial institutions exceeding Rs.100 Crores at any point of time during the preceding financial year; or outstanding deposits of Rs.25 Crores or more at any point of time during the preceding financial year; and (c) every private company having a turnover of Rs.200 Crores or more during the preceding

13 financial year; or outstanding loans or borrowings from banks or public financial institutions exceeding Rs.100 Crores or more at any point of time during the preceding financial year must appoint internal auditors to conduct internal audit of the functions and activities of the company. If a company takes CSR activities as part of their program or as a project directly under the supervision of CSR Committee, as Internal Audit involves audit of functions and activities of companies. There is need to cover within the scope of internal audit CSR activities too. CSR VEHICLES The Board of a company may decide to undertake its CSR activities approved by the CSR committee, through a registered trust or a registered society or a company established under Section 8 of the Act by the company, either singly or alongwith its holding or subsidiary or associate company, or alongwith any other company or holding or subsidiary or associate company of such other company, or otherwise (as amended by the amendment made on 19 th January 2015): It can however be- (i) if such trust, society or company is not established by the company, either singly or alongwith its holding or subsidiary or associate company, or alongwith any other company or holding or subsidiary or associate company of such other company shall have an established track record of three years in undertaking similar programs or projects; (ii) the company has specified the project or programs to be undertaken through these entities, the modalities of utilization of funds on such projects and programs and the monitoring and reporting mechanism. A company any also collaborate with other companies for undertaking projects or programs or CSR activities in such a manner that the CSR committees of respective companies are in a position to report separately on such projects or programs in accordance with these rules. Subject to provisions of sub-section (5) of section 135 of the Act the CSR projects or programs or activities undertaken in India only shall amount lo CSR expenditure

14 SECTION 8 COMPANIES Section 8 of the Companies Act, 2013 (the Act) enables incorporating association as companies provided the company is expected to pursue certain specified objects such as promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other objects. Section 8 Companies are unique in several respects. They are basically bodies corporate with a legal status as a person. They must apply their funds, income and profits, if any, or other income only for the purpose of promoting their objects. A Section 8 company must prohibit the payment of any dividend to its members. The intention to introduce that prohibition must be expressly stated in the articles of association. The Central Government is empowered under the Act to grant a licence to such an association to do away with the requirement for using the words private limited or limited as part of its name which condition is mandatory for other companies. A Section 8 company need not be a company with any share capital. Every member can have a one vote at its general meetings. Provisions such as one annual general meeting per year, board meetings, quorum, minutes, filing of annual returns and audited financial statements with Registrar apply to these companies too. Such companies, if set up for charitable public purposes, are also entitled to special exemptions under the Income Tax Act. Section 8 companies could be managed through a Board known as Executive Committee. Directors of the company are those who are the members of the Executive Committee. Unlike trusts which are not legal entities, Section 8 Company is a legal entity and it owns its properties, funds and profits. All duties of directors will apply to the directors of Section 8 Companies too and it becomes governed under the provisions of the Companies Act and they are supposed to comply with the provisions of the Companies Act, 2013 by filing returns with Registrar of Companies and their financial statements too would require audits by qualified chartered accountants. Such documents will be available for public inspection through the portal of Ministry of Corporate Affairs and therefore their activities will be transparent to a great extent.

15 TRUSTS Charitable trusts which are engaged in various social objectives are the most preferred entities for any social work in a general. There is no defined law that governs their functions and there is no reporting requirements except as may be required under the Income Tax Act. Income Tax Act grants exemption from taxation the income such trusts and in addition donors to such trusts enjoy tax benefits too. In some case where donations are specifically made for infrastructure development, 100% exemption of the amount donated is available. These provisions make it attractive to carry out CSR activities through registered trusts which are entitled such exemptions. Trusts must apply to the Income Tax Department and obtain necessary registrations and secure recognition for various purposes. Trustees are supposed to understand their duties and follow norms. They owe a fiduciary duty to the beneficiaries. They do not own a position of power. They are not the owners of the properties and funds in their custody. They have a play a social role putting personal gains to the back seat. Unless they are devoted to the cause and obligation they had accepted voluntarily as trustees it would be a name sake trust only. FOREIGN FUNDS As per the Rules, Expenditure incurred by Foreign Holding Company for CSR activities in India will qualify as CSR spend of the Indian subsidiary if, the CSR expenditures are routed through Indian subsidiaries and if the Indian subsidiary is required to do so as per section 135 of the Act. It is very important to note that any foreign funds coming to any trust or society or any other entity such as a Section 8 Company by way of foreign donations which is doing CSR Activities or any other charitable or other activities must be received duly in accordance with the applicable provisions of the Foreign Contribution Regulation Act. Trusts, societies and Section 8 Companies that are expected to receive funds (donations) from abroad must necessarily ensure that they are receiving such funds only after being registered for that purpose by the Ministry of Home Affairs. Care must be taken to follow proper procedures. Otherwise, violation of these laws will create difficulties and penal consequences. INTEGRATED CONSORTIUM MODEL Corporate Social Responsibility, it is said, is all set to bring in about 1500 to 2000 Crores of money being available, for being deployed to activities that promote the social welfare of the people. We do not subscribe to the view that Corporate Social Responsibility activity must be understood as contributing to help the provision and under privileged people by dolling out freebies.

16 We suggest companies involve independent professionals to study the footprints they make on the environment and take suitable measures for sustainable development of the entire world. One of the pitfalls of individual companies independently spending the funds earmarked for Corporate Social Responsibility activities is that it is like to be spent without an integrated approach. As such there could be development without creating any uniform level of impact across the country. Spending Corporate Social Responsibility funds according to whims and fancies and passion of the promoters must certainly be avoided. We suggest formation of regional corporate consortiums by the industrial captains so that it is possible to introduce a positive change in the Corporate Social Responsibility landscape. WORD OF CAUTION What is expected of a man of ordinary prudence is more than necessary for every director to follow while discharging his duties as a director. A director is expected to act in good faith for protecting the interests of the company. The legislature in its wisdom did not make spending money of the company on CSR activities mandatory. There is a well defined reason for the same. It is atmost important to ensure first the funds require to meet all commitments and obligations undertaken or proposed to be undertaken by a company. No company is expected to spend money on CSR Activities without saving for the rainy days. No company is expected to spend money on CSR Activities without ensuring compliance of all applicable laws, taking care of its employees, meeting all its payment / repayment obligations towards all its creditors. No company is expected to show CSR spent by creating profits through unethical or unfair or unjustified or illegal means. Therefore, the provisions of the Companies Act requiring every profit making company to spend money on CSR Activities must be construed accordingly and directors have to plan CSR budget keeping in mind the above important tenets of corporate governance.

17 EXTRACTS OF RELEVANT PROVISIONS OF COMPANIES ACT, 2013 AND INCOME TAX ACT, 1961 SECTIONS / RULES

18 Section 135 of the Companies Act, 2013 Corporate Social Responsibility (1) Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director. (2) The Board's report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee. (3) The Corporate Social Responsibility Committee shall, (a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII; (b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and (c) monitor the Corporate Social Responsibility Policy of the company from time to time. (4) The Board of every company referred to in sub-section (1) shall, (a) after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website, if any, in such manner as may be prescribed; and (b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company. (5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy: Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities: Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount. Explanation. For the purposes of this section average net profit shall be calculated in accordance with the provisions of section 198.

19 General Circular No. 21/2014 This Ministry has received several references and representation from stakeholders seeking clarifications on the provisions under Section 135 of the Companies Act, 2013 (herein after referred as the Act ) and the Companies (Corporate Social Responsibility Policy) Rules, 2014, as well as activities to be undertaken as per Schedule VII of the Companies Act, Clarifications with respect to representations received in the Ministry on Corporate Social Responsibility (herein after referred as ( CSR ) are as under:- (i) The statutory provision and provisions of CSR Rules, 2014, is to ensure that while activities undertaken in pursuance of the CSR policy must be relatable to Schedule VII of the Companies Act 2013, the entries in the said Schedule VII must be interpreted liberally so as to capture the essence of the subjects enumerated in the said Schedule. The items enlisted in the amended Schedule VII of the Act, are broad-based and are intended to cover a wide range of activities as illustratively mentioned in the Annexure. (ii) It is further clarified that CSR activities should be undertaken by the companies in project / programme mode [as referred in Rule 4 (1) of Companies CSR Rules, 2014]. One-off events such as marathons/ awards/ charitable contribution/ advertisement/ sponsorships of TV programmes etc. would not be qualified as part of CSR expenditure. (iii) Expenses incurred by companies for the fulfillment of any Act/ Statute of regulations (such as Labour Laws, Land Acquisition Act etc.) would not count as CSR expenditure under the Companies Act. (iv) Salaries paid by the companies to regular CSR staff as well as to volunteers of the companies (in proportion to company s time/hours spent specifically on CSR) can be factored into CSR project cost as part of the CSR expenditure. (v) Any financial year referred under Sub-Section (1) of Section 135 of the Act read with Rule 3(2) of Companies CSR Rule, 2014, implies any of the three preceding financial years. (vi) Expenditure incurred by Foreign Holding Company for CSR activities in India will qualify as CSR spend of the Indian subsidiary if, the CSR expenditures are routed through Indian subsidiaries and if the Indian subsidiary is required to do so as per section 135 of the Act. (vii) Registered Trust (as referred in Rule 4(2) of the Companies CSR Rules, 2014) would include Trusts registered under Income Tax Act 1956, for those States where registration of Trust is not mandatory. (viii)contribution to Corpus of a Trust/ society/ section 8 companies etc. will qualify as CSR expenditure as long as (a) the Trust/ society/ section 8 companies etc. is created exclusively for undertaking CSR activities or (b) where the corpus is created exclusively for a purpose directly relatable to a subject covered in Schedule VII of the Act. 2. This issues with the approval of Competent Authority.

20 General Circular No.36/2014 In continuation of the General Circular No. 21 of 2014 dated , the following clarifications are hereby issued: (i) Rule 4(6) of the Companies (Corporate Social Responsibility Policy) Rules, 2014 as notified on has been amended by notification dated ; and (ii) Consequently, clarification (iv) in General Circular No. 21 of 2014 dated , stands omitted. 2. This issues with the approval of Competent Authority.

21 COMPANIES (CORPORATE SOCIAL RESPONSIBILITY POLICY) RULES, 2014 G.S.R, 129(E).- 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: - 1. Short title and commencement. (1) These rules may be called the Companies (Corporate Social Responsibility Policy) Rules. 20 I 4. (2) They shall come into force on the 1 st day of April, Definitions.- (1) In these rules, unless the context otherwise requires' - (a) "Act" means the Companies Act, 2013; (b) "Annexure" means the Annexure appended to these rules; (c) "Corporate Social Responsibility (CSR)" means and includes but is not limited to: (i) Projects or prograrns relating to activities specified in Schedule VII to the Act or (ii) Projects or programs relating to activities undertaken by the board of directors of a Company (Board) in pursuance of recommendations of the CSR Committee of the Board as Per declared CSR Policy of the company subject to the condition that such policy will cover subjects enumerated in Schedule Vll ofthe AcL (d) "CSR Committee" means the Corporate Social Responsibility Committee of the Board referred to in section 135 of the Act (e) "CSR Policy" relates to the activities to be undertaken by the company as specified in Schedule VII to the Act and the expenditure thereon, excluding activities undertaken in pursuance of normal course of business of a company): (f) "Net profit" means the net profit of a company as per its financial statement prepared in accordance with the applicable provisions of the Act, but shall not include the following, namely :- (i) any profit arising from any overseas branch or branches of the company' whether operated as a separate company or otherwise; and

22 (ii) any dividend received from other companies in India, which are covered under and complying with the provisions of section 135 of the Act: Provided that net profit in respect of a financial year for which the relevant financial statements were prepared in accordance with the provisions of the Companies Act, 1956, (1 of 1956) shall not b required to be re-calculated in accordance with the provisions of the Act: Provided further that in case of a foreign company covered under these rules, net profit means the net profit of such company as per profit and loss account prepared in terms of clause (a) of subsection (1) of section 381 read with section 198 of the Act. (2) Words and expressions used and not defined in these rules but defined in the Act shall have the same meanings respectively assigned to them in the Act. 3. Corporate Social Responsibility, - (1) Every company including its holding or subsidiary, and a foreign company defined under clause (42) of section 2 of the Act having its branch office or project office in Indi4 which fulfills the criteria specified in sub-section (l) of section 135 of the Act shall comply with the provisions of section 135 of the Act and these rules: Provided that net worth, turnover or net profit of a foreign company of the Act shall be computed in accordance with balance sheet and profit and loss account of such company prepared in accordance with the provisions of clause (a) of sub-section (1) of section 381 and section 198 of the Act. (2) Every company which ceases to be a company covered under sub-section (1) of section 135 of the Act for three consecutive financial years shall not be required to - (a) constitute a CSR Committee; and (b) comply with the provisions contained in sub-section (2) to (5) of the said section, till such time it meets the criteria specified in sub-section (1) of section CSR Activities.- (1) The CSR activities shall be undertaken by the company, as per its stated CSR Policy, as projects or programs or activities (either new or ongoing), excluding activities undertaken in pursuance of its normal course of business. (2) The Board of a company may decide to undertake its CSR activities approved by the CSR committee, through a registered trust or a registered society or a

23 company established under section 8 of the Act by the company, either singly or alongwith its holding or subsidiary or associate company, or alongwith any other company or holding or subsidiary or associate company of such other company, or otherwise: Provided that- (i) if such trust, society or company is not established by the company, either singly or alongwith its holding or subsidiary or associate company, or alongwith any other company or holding or subsidiary or associate company of such other company shall have an established track record of three years in undertaking similar programs or projects; (ii) the company has specified the project or programs to be undertaken through these entities, the modalities of utilization of funds on such projects and programs and the monitoring and reporting mechanism. (3) A company nay also collaborate with other companies for undertaking projects or programs or CSR activities in such a manner that the CSR committees of respective companies are in a position to report separately on such projects or programs in accordance with these rules. (4) Subject to provisions of sub-section (5) of section 135 of the Act the CSR projects or programs or activities undertaken in India only shall amount lo CSR expenditure (5) The CSR projects or programs or activities that benefit only the employees of the company and their families shall not be considered as CSR activities in accordance with section 135 of the Act' (6) Companies may build CSR capacities of their own personnel as well as those of their Implementing agencies through Institutions with established track records of at least three financial years but such expenditure including expenditure on administrative overheads, shall not exceed five percent of total CSR expenditure of the company in one financial year. (7) Contribution of any amount directly or indirectly to any political party under section 182 of the Act, shall not be considered as CSR activity. 5. CSR Committees,- (1) The companies mentioned in the rule 3 shall constitute CSR Committee as under.- (i) an unlisted public company or a private company covered under subsection (11) of section 135 which is not required to appoint an

24 independent director pursuant to sub-section (4) of section 149 of the Act, shall have its CSR Committee without such director; (ii) a private company having only two directors on its Board shall constitute its CSR Committee with two such directors: (iii) with respect to a foreign company covered under these rules, the CSR Committee shall comprise of at least two persons of which one person shall be as specified under clause (d) of sub-section (1) of section 380 of the Act and another person shall be nominated by the foreign company. (2) The CSR Committee shall institute a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the company. 6. CSR Policy.- (1) The CSR Policy of the company shall, inter-alia, include the following, namely - (a) a list of CSR projects or programs which a company plans to undertake falling within the purview of the Schedule VII of the Act, specifying modalities of execution of such project or programs and implementation schedules for the same; and (b) monitoring process of such projects or programs: Provided that the CSR activities does 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 Corporate Social Responsibility Policy are related to the activities included in Schedule VII of the Act. (2) The CSR Policy of the company shall specify that the surplus arising out of the CSR projects or programs or activities shall not form part of the business profit of a company. 7. CSR Expenditure,- CSR expenditure shall include all expenditure including contribution to corpus, for projects or programs relating to CSR activities approved by the Board on the recommendation of its CSR Committee, but does not include any expenditure on an item not in conformity or not in line with activities which fall within the purview of Schedule VII of the Act.

25 8. CSR Reporting,- (1) The Board's Report of a company covered under these rules pertaining to a financial year commencing on or after the 1sst day of April, 2014 shall include an annual report on CSR containing particulars specified in Annexure. (2) In case of a foreign company, the balance sheet filed under sub-clause (b) of sub-section (1) of section 381 shall contain an Annexure regarding report on CSR. 9. Display of CSR activities on its website, - The Board of Directors of the company shall, after taking into account the recommendations of CSR Committee, approve the CSR Policy for the company and disclose contents of such policy in its report and the same shall be displayed on the company's website, if any, as per the particulars specified in the Annexure.

26 SCHEDULE VII Companies Act, 2013 (See sections 135) Activities which may be included by companies in their Corporate Social Responsibility Policies Activities relating to: i) eradicating hunger, poverty and malnutrition, promoting health care including preventive health care and sanitation including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water; ii) promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects; iii) promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups; iv) ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water including contribution to the Clean Ganga Fund setup by the Central Government for rejuvenation of river Ganga; v) protection of national heritage, alt and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional arts and handicrafts; vi) vii) viii) ix) 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 development and relief 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 Government; x) rural development projects. xi) slum area development. Explanation. For the purposes of this item, the term slum area shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.

27 SECTION 8 OF THE COMPANIES ACT, FORMATION OF COMPANIES WITH CHARITABLE OBJECTS, ETC. (1) Where it is proved to the satisfaction of the Central Government that a person or an association of persons proposed to be registered under this Act as a limited company (a) has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object; (b) intends to apply its profits, if any, or other income in promoting its objects; and (c) intends to prohibit the payment of any dividend to its members, the Central Government may, by licence issued in such manner as may be prescribed, and on such conditions as it deems fit, allow that person or association of persons to be registered as a limited company under this section without the addition to its name of the word Limited, or as the case may be, the words Private Limited, and thereupon the Registrar shall, on application, in the prescribed form, register such person or association of persons as a company under this section. (2) The company registered under this section shall enjoy all the privileges and be subject to all the obligations of limited companies. (3) A firm may be a member of the company registered under this section. (4) (i) A company registered under this section shall not alter the provisions of its memorandum or articles except with the previous approval of the Central Government. (ii) A company registered under this section may convert itself into company of any other kind only after complying with such conditions as may be prescribed. (5) Where it is proved to the satisfaction of the Central Government that a limited company registered under this Act or under any previous company law has been formed with any of the objects specified in clause (a) of sub-section (1) and with the restrictions and prohibitions as mentioned respectively in clauses (b) and (c) of that sub-section, it may, by licence, allow the company to be registered under this section subject to such conditions as the Central Government deems fit and to change its name by omitting the word Limited, or as the case may be, the words Private Limited from its name and thereupon the Registrar shall, on application, in the prescribed form, register such company under this section and all the provisions of this section shall apply to that company. (6) The Central Government may, by order, revoke the licence granted to a company registered under this section if the company contravenes any of the requirements of this section or any of the conditions subject to which a licence is issued or the affairs of the company are conducted fraudulently or in a manner violative of the objects of the company or prejudicial to public interest, and without prejudice to any other action against the company under this Act, direct the company to convert its status and change its name to add the word Limited or the words Private Limited, as the case may be, to its name and thereupon the Registrar shall, without prejudice to any action that may be taken under sub-section (7), on application, in the prescribed form, register the company accordingly:

28 Provided that no such order shall be made unless the company is given a reasonable opportunity of being heard: Provided further that a copy of every such order shall be given to the Registrar. (7) Where a licence is revoked under sub-section (6), the Central Government may, by order, if it is satisfied that it is essential in the public interest, direct that the company be wound up under this Act or amalgamated with another company registered under this section: Provided that no such order shall be made unless the company is given a reasonable opportunity of being heard. (8) Where a licence is revoked under sub-section (6) and where the Central Government is satisfied that it is essential in the public interest that the company registered under this section should be amalgamated with another company registered under this section and having similar objects, then, notwithstanding anything to the contrary contained in this Act, the Central Government may, by order, provide for such amalgamation to form a single company with such constitution, properties, powers, rights, interest, authorities and privileges and with such liabilities, duties and obligations as may be specified in the order. (9) If on the winding up or dissolution of a company registered under this section, there remains, after the satisfaction of its debts and liabilities, any asset, they may be transferred to another company registered under this section and having similar objects, subject to such conditions as the Tribunal may impose, or may be sold and proceeds thereof credited to the Rehabilitation and Insolvency Fund formed under section 269. (10) A company registered under this section shall amalgamate only with another company registered under this section and having similar objects. (11) If a company makes any default in complying with any of the requirements laid down in this section, the company shall, without prejudice to any other action under the provisions of this section, be punishable with fine which shall not be less than ten lakh rupees but which may extend to one crore rupees and the directors and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than twenty-five thousand rupees but which may extend to twenty-five lakh rupees, or with both: Provided that when it is proved that the affairs of the company were conducted fraudulently, every officer in default shall be liable for action under section 447.

29 SECTION 10 (23C) OF INCOME TAX ACT, INCOMES NOT INCLUDED IN TOTAL INCOME any income received by any person on behalf of (i) the Prime Minister s National Relief Fund; or (ii) the Prime Minister s Fund (Promotion of Folk Art); or (iii) the Prime Minister s Aid to Students Fund; [or] [(iiia) the National Foundation for Communal Harmony; or] [(iiiab) any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by the Government; or (iiiac) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, and which is wholly or substantially financed by the Government; or The following Explanation shall be inserted after sub-clause (iiiac) of clause (23C) of section 10 by the Finance (No. 2) Act, 2014, w.e.f : Explanation. For the purposes of sub-clauses (iiiab) and (iiiac), any university or other educational institution, hospital or other institution referred therein, shall be considered as being substantially financed by the Government for any previous year, if the Government grant to such university or other educational institution, hospital or other institution exceeds such percentage of the total receipts including any voluntary contributions, as may be prescribed, of such university or other educational institution, hospital or other institution, as the case may be, during the relevant previous year. (iiiad) any university or other educational institution existing solely for educational purposes and not for purposes of profit if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed; or (iiiae) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, if the aggregate annual receipts of such hospital or institution do not exceed the amount of annual receipts as may be prescribed; or [(iv) any other fund or institution established for charitable purposes [which may be approved by the prescribed authority], having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States; or (v) any trust (including any other legal obligation) or institution wholly for public religious purposes or wholly for public religious and charitable purposes, [which may be approved by the prescribed authority], having regard to the manner in which the affairs of the trust or institution are administered and supervised for ensuring that the income accruing thereto is properly applied for the objects thereof; (vi) any university or other educational institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be approved by the prescribed authority; or (via) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for

30 philanthropic purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiac) or sub-clause (iiiae) and which may be approved by the prescribed authority: Provided that the fund or trust or institution [or any university or other educational institution or any hospital or other medical institution] referred to in sub-clause (iv) or sub-clause (v) [or subclause (vi) or sub-clause (via)] shall make an application in the prescribed form and manner to the prescribed authority for the purpose of grant of the exemption, or continuance thereof, under sub-clause (iv) or sub-clause (v) [or sub-clause (vi) or sub-clause (via)] : [Provided further that the prescribed authority, before approving any fund or trust or institution or any university or other educational institution or any hospital or other medical institution, under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), may call for such documents (including audited annual accounts) or information from the fund or trust or institution or any university or other educational institution or any hospital or other medical institution, as the case may be, as it thinks necessary in order to satisfy itself about the genuineness of the activities of such fund or trust or institution or any university or other educational institution or any hospital or other medical institution, as the case may be, and the prescribed authority may also make such inquiries as it deems necessary in this behalf:] Provided also that the fund or trust or institution [or any university or other educational institution or any hospital or other medical institution] referred to in sub-clause (iv) or sub-clause (v) [or sub-clause (vi) or sub-clause (via)] [(a) applies its income, or accumulates it for application, wholly and exclusively to the objects for which it is established and in a case where more than fifteen per cent of its income is accumulated on or after the 1st day of April, 2002, the period of the accumulation of the amount exceeding fifteen per cent of its income shall in no case exceed five years; and] [(b) does not invest or deposit its funds, other than (i) any assets held by the fund, trust or institution [or any university or other educational institution or any hospital or other medical institution] where such assets form part of the corpus of the fund, trust or institution [or any university or other educational institution or any hospital or other medical institution] as on the 1st day of June, 1973; [(ia) any asset, being equity shares of a public company, held by any university or other educational institution or any hospital or other medical institution where such assets form part of the corpus of any university or other educational institution or any hospital or other medical institution as on the 1st day of June, 1998;] (ii) any assets (being debentures issued by, or on behalf of, any company or corporation), acquired by the fund, trust or institution [or any university or other educational institution or any hospital or other medical institution] before the 1st day of March, 1983; (iii) any accretion to the shares, forming part of the corpus mentioned in sub-clause (i) [and subclause (ia)], by way of bonus shares allotted to the fund, trust or institution [or any university or other educational institution or any hospital or other medical institution] ; (iv) voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify, for any period during the previous year otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11:] Provided also that the exemption under sub-clause (iv) or sub-clause (v) shall not be denied in relation to any funds invested or deposited before the 1st day of April, 1989, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 if such funds do not continue to remain so invested or deposited after the 30th day of March, [1993] : [Provided also that the exemption under sub-clause (vi) or sub-clause (via) shall not be denied in relation to any funds invested or deposited before the 1st day of June, 1998, otherwise than

31 in any one or more of the forms or modes specified in sub-section (5) of section 11 if such funds do not continue to remain so invested or deposited after the 30th day of March, 2001:] [Provided also that the exemption under sub-clause (iv) or sub-clause (v) [or sub-clause (vi) or sub-clause (via)] shall not be denied in relation to voluntary contribution, other than voluntary contribution in cash or voluntary contribution of the nature referred to in clause (b) of the third proviso to this sub-clause, subject to the condition that such voluntary contribution is not held by the trust or institution [or any university or other educational institution or any hospital or other medical institution], otherwise than in any one or more of the forms or modes specified in subsection (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1992, whichever is later:] Provided also that nothing contained in sub-clause (iv) or sub-clause (v) [or sub-clause (vi) or sub-clause (via)] shall apply in relation to any income of the fund or trust or institution [or any university or other educational institution or any hospital or other medical institution], being profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of account are maintained by it in respect of such business: Provided also that any [notification issued by the Central Government under sub-clause (iv) or sub-clause (v), before the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President, shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years] (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification:] [Provided also that where an application under the first proviso is made on or after the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President, every notification under sub-clause (iv) or sub-clause (v) shall be issued or approval under [sub-clause (iv) or sub-clause (v) or] sub-clause (vi) or sub-clause (via) shall be granted or an order rejecting the application shall be passed within the period of twelve months from the end of the month in which such application was received: Provided also that where the total income, of the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), without giving effect to the provisions of the said sub-clauses, exceeds the maximum amount which is not chargeable to tax in any previous year, such trust or institution or any university or other educational institution or any hospital or other medical institution shall get its accounts audited in respect of that year by an accountant as defined in the Explanation below sub-section (2) of section 288 and furnish along with the return of income for the relevant assessment year, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed:] [Provided also that any amount of donation received by the fund or institution in terms of clause (d) of sub-section (2) of section 80G [in respect of which accounts of income and expenditure have not been rendered to the authority prescribed under clause (v) of sub-section (5C) of that section, in the manner specified in that clause, or] which has been utilised for purposes other than providing relief to the victims of earthquake in Gujarat or which remains unutilised in terms of sub-section (5C) of section 80G and not transferred to the Prime Minister s National Relief Fund on or before the 31st day of March, [2004] shall be deemed to be the income of the previous year and shall accordingly be charged to tax:] [Provided also that where the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) does not apply its income during the year of receipt and accumulates it, any payment or credit out of such accumulation to any trust or institution registered under section 12AA or to any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or

32 sub-clause (v) or sub-clause (vi) or sub-clause (via) shall not be treated as application of income to the objects for which such fund or trust or institution or university or educational institution or hospital or other medical institution, as the case may be, is established : Provided also that where the fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) is notified by the Central Government 40 [or is approved by the prescribed authority, as the case may be,] or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via), is approved by the prescribed authority and subsequently that Government or the prescribed authority is satisfied that (i) such fund or institution or trust or any university or other educational institution or any hospital or other medical institution has not (A) applied its income in accordance with the provisions contained in clause (a) of the third proviso; or (B) invested or deposited its funds in accordance with the provisions contained in clause (b) of the third proviso; or (ii) the activities of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution (A) are not genuine; or (B) are not being carried out in accordance with all or any of the conditions subject to which it was notified or approved, it may, at any time after giving a reasonable opportunity of showing cause against the proposed action to the concerned fund or institution or trust or any university or other educational institution or any hospital or other medical institution, rescind the notification or, by order, withdraw the approval, as the case may be, and forward a copy of the order rescinding the notification or withdrawing the approval to such fund or institution or trust or any university or other educational institution or any hospital or other medical institution and to the Assessing Officer:] [Provided also that in case the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in the first proviso makes an application on or after the 1st day of June, 2006 for the purposes of grant of exemption or continuance thereof, such application shall be [made on or before the 30th day of September of the relevant assessment year] from which the exemption is sought :] [Provided also that any anonymous donation referred to in section 115BBC on which tax is payable in accordance with the provisions of the said section shall be included in the total income :] [Provided also that all pending applications, on which no notification has been issued under sub-clause (iv) or sub-clause (v) before the 1st day of June, 2007, shall stand transferred on that day to the prescribed authority and the prescribed authority may proceed with such applications under those sub-clauses from the stage at which they were on that day:] [Provided also that the income of a trust or institution referred to in sub-clause (iv) or subclause (v) shall be included in its total income of the previous year if the provisions of the first proviso to clause (15) of section 2 become applicable to such trust or institution in the said previous year, whether or not any approval granted or notification issued in respect of such trust or institution has been withdrawn or rescinded;] The following proviso and the Explanation shall be inserted after the seventeenth proviso to clause (23C) of section 10 by the Finance (No. 2) Act, 2014, w.e.f : Provided also that where the fund or institution referred to in sub-clause (iv) or the trust or institution referred to in sub-clause (v) has been notified by the Central Government or approved by the prescribed authority, as the case may be, or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via), has been approved by the prescribed authority, and the notification or the approval is in

33 force for any previous year, then, nothing contained in any other provision of this section [other than clause (1) thereof] shall operate to exclude any income received on behalf of such fund or trust or institution or university or other educational institution or hospital or other medical institution, as the case may be, from the total income of the person in receipt thereof for that previous year. Explanation. In this clause, where any income is required to be applied or accumulated, then, for such purpose the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this clause in the same or any other previous year;

34 SECTION 11 OF INCOME TAX ACT, INCOME FROM PROPERTY HELD FOR CHARITABLE OR RELIGIOUS PURPOSES. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income [(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of [fifteen] per cent of the income from such property; (b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of [fifteen] per cent of the income from such property; (c) income [derived] from property held under trust (i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and (ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India: Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income; [(d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution.] [Explanation. For the purposes of clauses (a) and (b), (1) in computing the [fifteen] per cent of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in section 12 shall be deemed to be part of the income; (2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of [eighty-five] per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount then (i) for the reason that the whole or any part of the income has not been received during that year, or (ii) for any other reason, (a) in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount, and (b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount, may, at the option of the person in receipt of the income (such option to be exercised in writing before the expiry of the time allowed under sub-section (1) of section 139 for furnishing the return of income) be deemed to be income applied to such purposes during the previous year in

35 which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the case referred to in sub-clause (i), during the previous year in which the income is received or during the previous year immediately following, as the case may be, and, in the case referred to in subclause (ii), during the previous year immediately following the previous year in which the income was derived.] [(1A) For the purposes of sub-section (1), (a) where a capital asset, being property held under trust wholly for charitable or religious purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely: (i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of such capital gain; (ii) where only a part of the net consideration is utilised for acquiring the new capital asset, so much of such capital gain as is equal to the amount, if any, by which the amount so utilised exceeds the cost of the transferred asset; (b) where a capital asset, being property held under trust in part only for such purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the appropriate fraction of the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely: (i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of the appropriate fraction of such capital gain; (ii) in any other case, so much of the appropriate fraction of the capital gain as is equal to the amount, if any, by which the appropriate fraction of the amount utilised for acquiring the new asset exceeds the appropriate fraction of the cost of the transferred asset. Explanation. In this sub-section, (i) appropriate fraction means the fraction which represents the extent to which the income derived from the capital asset transferred was immediately before such transfer applicable to charitable or religious purposes; (ii) cost of the transferred asset means the aggregate of the cost of acquisition (as ascertained for the purposes of sections 48 and 49) of the capital asset which is the subject of the transfer and the cost of any improvement thereto within the meaning assigned to that expression in sub-clause (b) of clause (1) of section 55; (iii) net consideration means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.] [(1B) Where any income in respect of which an option is exercised under clause (2) of the Explanation to sub-section (1) is not applied to charitable or religious purposes in India during the period referred to in sub-clause (a) or, as the case may be, sub-clause (b), of the said clause, then, such income shall be deemed to be the income of the person in receipt thereof (a) in the case referred to in sub-clause (i) of the said clause, of the previous year immediately following the previous year in which the income was received; or (b) in the case referred to in sub-clause (ii) of the said clause, of the previous year immediately following the previous year in which the income was derived.]

36 [(2) [Where [eighty-five] per cent of the income referred to in clause (a) or clause (b) of subsection (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely: ] (a) such person specifies, by notice in writing given to the [Assessing] Officer in the prescribed manner, the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed ten years; [(b) the money so accumulatedor set apart is invested or deposited in the forms or modes specified in sub-section (5)]:] [Provided that in computing the period of ten years referred to in clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded:] [Provided further that in respect of any income accumulated or set apart on or after the 1st day of April, 2001, the provisions of this sub-section shall have effect as if for the words ten years at both the places where they occur, the words five years had been substituted.] [Explanation. Any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1), read with the Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or subclause (via) of clause (23C) of section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter.] [(3) Any income referred to in sub-section (2) which (a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or [(b) ceases to remain invested or deposited in any of the forms or modes specified in subsection (5), or] (c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section or in the year immediately following the expiry thereof, [(d) is credited or paid to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10,] shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited or [credited or paid or], as the case may be, of the previous year immediately following the expiry of the period aforesaid.] [(3A) Notwithstanding anything contained in sub-section (3), where due to circumstances beyond the control of the person in receipt of the income, any income invested or deposited in accordance with the provisions of clause (b) of sub-section (2) cannot be applied for the purpose for which it was accumulated or set apart, the [Assessing] Officer may, on an application made to him in this behalf, allow such person to apply such income for such other

37 charitable or religious purpose in India as is specified in the application by such person and as is in conformity with the objects of the trust; and thereupon the provisions of sub-section (3) shall apply as if the purpose specified by such person in the application under this sub-section were a purpose specified in the notice given to the [Assessing] Officer under clause (a) of subsection (2):] [Provided that the Assessing Officer shall not allow application of such income by way of payment or credit made for the purposes referred to in clause (d) of sub-section (3) of section 11:] [Provided further that in case the trust or institution, which has invested or deposited its income in accordance with the provisions of clause (b) of sub-section (2), is dissolved, the Assessing Officer may allow application of such income for the purposes referred to in clause (d) of sub-section (3) in the year in which such trust or institution was dissolved.] (4) For the purposes of this section property held under trust includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the [Assessing] Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes. [(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an insitution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business.] (5) The forms and modes of investing or depositing the money referred to in clause (b) of subsection (2) shall be the following, namely : (i) investment in savings certificates as defined in clause (c) of section 2 of the Government Savings Certificates Act, 1959 (46 of 1959), and any other securities or certificates issued by the Central Government under the Small Savings Schemes of that Government; (ii) deposit in any account with the Post Office Savings Bank; (iii) deposit in any account with a scheduled bank or a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a cooperative land development bank). Explanation. In this clause, scheduled bank means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934); (iv) investment in units of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963); (v) investment in any security for money created and issued by the Central Government or a State Government;

38 (vi) investment in debentures issued by, or on behalf of, any company or corporation both the principal whereof and the interest whereon are fully and unconditionally guaranteed by the Central Government or by a State Government; (vii) investment or deposit in any [public sector company]: [Provided that where an investment or deposit in any public sector company has been made and such public sector company ceases to be a public sector company, (A) such investment made in the shares of such company shall be deemed to be an investment made under this clause for a period of three years from the date on which such public sector company ceases to be a public sector company; (B) such other investment or deposit shall be deemed to be an investment or deposit made under this clause for the period up to the date on which such investment or deposit becomes repayable by such company;] (viii) deposits with or investment in any bonds issued by a financial corporation which is engaged in providing long-term finance for industrial development in India and [which is eligible for deduction under clause (viii) of sub-section (1) of section 36]; (ix) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes and [which is eligible for deduction under clause (viii) of sub-section (1) of section 36]; [(ixa) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for urban infrastructure in India. Explanation. For the purposes of this clause, (a) long-term finance means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years; (b) public company shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956); (c) urban infrastructure means a project for providing potable water supply, sanitation and sewerage, drainage, solid waste management, roads, bridges and flyovers or urban transport;] (x) investment in immovable property. Explanation. Immovable property does not include any machinery or plant (other than machinery or plant installed in a building for the convenient occupation of the building) even though attached to, or permanently fastened to, anything attached to the earth;] [(xi) deposits with the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964);] [(xii) any other form or mode of investment or deposit as may be prescribed.] The following sub-sections (6) and (7) shall be inserted after sub-section (5) of section 11 by the Finance (No. 2) Act, 2014, w.e.f : (6) In this section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset,

39 acquisition of which has been claimed as an application of income under this section in the same or any other previous year. (7) Where a trust or an institution has been granted registration under clause (b) of subsection (1) of section 12AA or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)] and the said registration is in force for any previous year, then, nothing contained in section 10 [other than clause (1) and clause (23C) thereof] shall operate to exclude any income derived from the property held under trust from the total income of the person in receipt thereof for that previous year.

40 SECTION 12 OF INCOME TAX ACT, INCOME OF TRUSTS OR INSTITUTIONS FROM CONTRIBUTIONS. (1) Any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly. (2) The value of any services, being medical or educational services, made available by any charitable or religious trust running a hospital or medical institution or an educational institution, to any person referred to in clause (a) or clause (b) or clause (c) or clause (cc) or clause (d) of sub-section (3) of section 13, shall be deemed to be income of such trust or institution derived from property held under trust wholly for charitable or religious purposes during the previous year in which such services are so provided and shall be chargeable to income-tax notwithstanding the provisions of sub-section (1) of section 11. Explanation. For the purposes of this sub-section, the expression value shall be the value of any benefit or facility granted or provided free of cost or at concessional rate to any person referred to in clause (a) or clause (b) or clause (c) or clause (cc) or clause (d) of sub-section (3) of section 13.] [(3) Notwithstanding anything contained in section 11, any amount of donation received by the trust or institution in terms of clause (d) of sub-section (2) of section 80G [in respect of which accounts of income and expenditure have not been rendered to the authority prescribed under clause (v) of sub-section (5C) of that section, in the manner specified in that clause, or] which has been utilised for purposes other than providing relief to the victims of earthquake in Gujarat or which remains unutilised in terms of sub-section (5C) of section 80G and not transferred to the Prime Minister s National Relief Fund on or before the 31st day of March, [2004] shall be deemed to be the income of the previous year and shall accordingly be charged to tax.]

41 SECTION 13 OF INCOME TAX ACT, [SECTION 11 NOT TO APPLY IN CERTAIN CASES. (1) Nothing contained in section 11 [or section 12] shall operate so as to exclude from the total income of the previous year of the person in receipt thereof (a) any part of the income from the property held under a trust for private religious purposes which does not ensure for the benefit of the public; (b) in the case of a trust for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste; (bb) (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3) : Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution : Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3) in so far as such use or application relates to any period before the 1st day of June, 1970; [(d) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any period during the previous year (i) any funds of the trust or institution are invested or deposited after the 28th day of February, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11; or (ii) any funds of the trust or institution invested or deposited before the 1st day of March, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 continue to remain so invested or deposited after the 30th day of November, 1983; or [(iii) any shares in a company, other than (A) shares in a public sector company ;

42 (B) shares prescribed as a form or mode of investment under clause (xii) of sub-section (5) of section 11, are held by the trust or institution after the 30th day of November, 1983:] Provided that nothing in this clause shall apply in relation to (i) any assets held by the trust or institution where such assets form part of the corpus of the trust or institution as on the 1st day of June, 1973; [(ia) any accretion to the shares, forming part of the corpus mentioned in clause (i), by way of bonus shares allotted to the trust or institution;] (ii) any assets (being debentures issued by, or on behalf of, any company or corporation) acquired by the trust or institution before the 1st day of March, 1983; [(iia) any asset, not being an investment or deposit in any of the forms or modes specified in sub-section (5) of section 11, where such asset is not held by the trust or institution, otherwise than in any of the forms or modes specified in sub-section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, [1993], whichever is later;] (iii) any funds representing the profits and gains of business, being profits and gains of any previous year relevant to the assessment year commencing on the 1st day of April, 1984 or any subsequent assessment year. Explanation. Where the trust or institution has any other income in addition to profits and gains of business, the provisions of clause (iii) of this proviso shall not apply unless the trust or institution maintains separate books of account in respect of such business.] [Explanation. For the purposes of sub-clause (ii) of clause (c), in determining whether any part of the income or any property of any trust or institution is during the previous year used or applied, directly or indirectly, for the benefit of any person referred to in sub-section (3), in so far as such use or application relates to any period before the 1st day of July, 1972, no regard shall be had to the amendments made to this section by section 7 [other than sub-clause (ii) of clause (a) thereof] of the Finance Act, 1972.] (2) Without prejudice to the generality of the provisions of clause (c) [and clause (d)] of subsection (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3), (a) if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in sub-section (3) for any period during the previous year without either adequate security or adequate interest or both; (b) if any land, building or other property of the trust or institution is, or continues to be, made available for the use of any person referred to in sub-section (3), for any period during the previous year without charging adequate rent or other compensation; (c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services; (d) if the services of the trust or institution are made available to any person referred to in subsection (3) during the previous year without adequate remuneration or other compensation;

43 (e) if any share, security or other property is purchased by or on behalf of the trust or institution from any person referred to in sub-section (3) during the previous year for consideration which is more than adequate; (f) if any share, security or other property is sold by or on behalf of the trust or institution to any person referred to in sub-section (3) during the previous year for consideration which is less than adequate; [(g) if any income or property of the trust or institution is diverted during the previous year in favour of any person referred to in sub-section (3): Provided that this clause shall not apply where the income, or the value of the property or, as the case may be, the aggregate of the income and the value of the property, so diverted does not exceed one thousand rupees;] (h) if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year (not being a period before the 1st day of January, 1971), in any concern in which any person referred to in sub-section (3) has a substantial interest. (3) The persons referred to in clause (c) of sub-section (1) and sub-section (2) are the following, namely : (a) the author of the trust or the founder of the institution; (b) any person who has made a substantial contribution to the trust or institution, [that is to say, any person whose total contribution up to the end of the relevant previous year exceeds [fifty] thousand rupees]; (c) where such author, founder or person is a Hindu undivided family, a member of the family; [(cc) any trustee of the trust or manager (by whatever name called) of the institution;] (d) any relative of any such author, founder, person, [member, trustee or manager] as aforesaid; (e) any concern in which any of the persons referred to in clauses (a), (b), (c), (cc) and (d) has a substantial interest. (4) Notwithstanding anything contained in clause (c) of sub-section (1) [but without prejudice to the provisions contained in clause (d) of that sub-section], in a case where the aggregate of the funds of the trust or institution invested in a concern in which any person referred to in subsection (3) has a substantial interest, does not exceed five per cent of the capital of that concern, the exemption under section 11 [or section 12] shall not be denied in relation to any income other than the income arising to the trust or the institution from such investment, by reason only that the [funds] of the trust or the institution have been invested in a concern in which such person has a substantial interest. [(5) Notwithstanding anything contained in clause (d) of sub-section (1), where any assets (being debentures issued by, or on behalf of, any company or corpora-tion) are acquired by the trust or institution after the 28th day of February, 1983 but before the 25th day of July, 1991, the exemption under section 11 or section 12 shall not be denied in relation to any income other than the income arising to the trust or the institution from such assets, by reason only that the funds of the trust or the institution have been invested in such assets if such funds do not continue to remain so invested in such assets after the 31st day of March, 1992.] [(6) Notwithstanding anything contained in sub-section (1) or sub-section (2), but without prejudice to the provisions contained in sub-section (2) of section 12, in the case of a charitable or religious trust running an educational institution or a medical institution or a hospital, the exemption under section 11 or section 12 shall not be denied in relation to any income, other than the income referred to in sub-section (2) of section 12, by reason only that such trust has

44 provided educational or medical facilities to persons referred to in clause (a) or clause (b) or clause (c) or clause (cc) or clause (d) of sub-section (3).] [(7) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof, any anonymous donation referred to in section 115BBC on which tax is payable in accordance with the provisions of that section.] [(8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year.] [Explanation 1. For the purposes of sections 11, 12, 12A and this section, trust includes any other legal obligation and for the purposes of this section relative, in relation to an individual, means (i) spouse of the individual; (ii) brother or sister of the individual; (iii) brother or sister of the spouse of the individual; (iv) any lineal ascendant or descendant of the individual; (v) any lineal ascendant or descendant of the spouse of the individual; (vi) spouse of a person referred to in sub-clause (ii), sub-clause (iii), sub-clause (iv) or subclause (v); (vii) any lineal descendant of a brother or sister of either the individual or of the spouse of the individual.] Explanation 2. A trust or institution created or established for the benefit of Scheduled Castes, backward classes, Scheduled Tribes or women and children shall not be deemed to be a trust or institution created or established for the benefit of a religious community or caste within the meaning of clause (b) of sub-section (1). Explanation 3. For the purposes of this section, a person shall be deemed to have a substantial interest in a concern, (i) in a case where the concern is a company, if its shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than twenty per cent of the voting power are, at any time during the previous year, owned beneficially by such person or partly by such person and partly by one or more of the other persons referred to in sub-section (3); (ii) in the case of any other concern, if such person is entitled, or such person and one or more of the other persons referred to in sub-section (3) are entitled in the aggregate, at any time during the previous year, to not less than twenty per cent of the profits of such concern.]

45 SECTION 35CCA OF INCOME TAX ACT, EXPENDITURE BY WAY OF PAYMENT TO ASSOCIATIONS AND INSTITUTIONS FOR CARRYING OUT RURAL DEVELOPMENT PROGRAMMES. (1) Where an assessee incurs any expenditure by way of payment of any sum (a) to an association or institution, which has as its object the undertaking of any programme of rural development, to be used for carrying out any programme of rural development approved by the prescribed authority; or (b) to an association or institution, which has as its object the training of persons for implementing programmes of rural development; [or] [(c) to a rural development fund set up and notified by the Central Government in this [behalf; or] [(d) to the National Urban Poverty Eradication Fund set up and notified by the Central Government in this behalf,] the assessee shall, subject to the provisions of sub-section (2), be allowed a deduction of the amount of such expenditure incurred during the previous year.] [(2) The deduction under clause (a) of sub-section (1) shall not be allowed in respect of expenditure by way of payment of any sum to any association or institution referred to in the said clause unless the assessee furnishes a certificate from such association or institution to the effect that (a) the programme of rural development had been approved by the prescribed authority before the 1st day of March, 1983; and (b) where such payment is made after the 28th day of February, 1983, such programme involves work by way of construction of any building or other structure (whether for use as a dispensary, school, training or welfare centre, workshop or for any other purpose) or the laying of any road or the construction or boring of a well or tube-well or the installation of any plant or machinery, and such work has commenced before the 1st day of March, 1983.] [(2A) The deduction under clause (b) of sub-section (1) shall not be allowed in respect of expenditure by way of payment of any sum to any association or institution unless the assessee furnishes a certificate from such association or institution to the effect that (a) the prescribed authority had approved the association or institution before the 1st day of March, 1983; and (b) the training of persons for implementing any programme of rural development had been started by the association or institution before the 1st day of March, 1983.] [Explanation. The deduction, to which the assessee is entitled in respect of any sum paid to an association or institution for carrying out the programme of rural development referred to in subsection (1), shall not be denied merely on the ground that subsequent to the payment of such sum by the assessee, the approval granted to such programme of rural development, or as the case may be, to the association or institution has been withdrawn.] [(2B) No certificate of the nature referred to in sub-section (2) or sub-section (2A) shall be issued by any association or institution unless such association or institution has obtained from the prescribed authority authorisation in writing to issue certificates of such nature.] Explanation. For the purposes of this section, programme of rural development shall have the meaning assigned to it in the Explanation to sub-section (1) of section 35CC. (3) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under section 35C or section 35CC or section 80G or any other provision of this Act for the same or any other assessment year.]

46 SECTION 35CCD OF INCOME TAX ACT EXPENDITURE ON SKILL DEVELOPMENT PROJECT. (1) Where a company incurs any expenditure (not being expenditure in the nature of cost of any land or building) on any skill development project notified by the Board in this behalf in accordance with the guidelines as may be prescribed, then, there shall be allowed a deduction of a sum equal to one and one-half times of such expenditure. (2) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provisions of this Act for the same or any other assessment year. SECTION 37 OF INCOME TAX ACT, GENERAL. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head Profits and gains of business or profession. [Explanation.] For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.] The following Explanation 2 shall be inserted after renumbered Explanation 1 to subsection (1) of section 37 by the Finance (No. 2) Act, 2014, w.e.f : Explanation 2. For the removal of doubts, it is hereby declared that for the purposes of subsection (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. (2B) Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party.]

47 SECTION 80G OF INCOME TAX ACT, 1961 DEDUCTION IN RESPECT OF DONATIONS TO CERTAIN FUNDS, CHARITABLE INSTITUTIONS, ETC. (1) In computing the total income of an assessee, there shall be deducted, in accordance with and subject to the provisions of this section, (i) in a case where the aggregate of the sums specified in sub-section (2) includes any sum or sums of the nature specified in [sub-clause (i) or in] [sub-clause (iiia) [or in sub-clause (iiiaa) [or in sub-clause (iiiab)] [or in sub-clause (iiib)] [or in sub-clause (iiie)] [or in subclause (iiif)] [or in sub-clause (iiig)] [or in sub-clause (iiiga)] or [sub-clause (iiih) or] [subclause (iiiha) or sub-clause (iiihb) or sub-clause (iiihc) [or sub-clause (iiihd)] [or sub-clause (iiihe)] [or sub-clause (iiihf)] [or sub-clause (iiihg) or sub-clause (iiihh)] [or sub-clause (iiihi)] [or sub-clause (iiihj)] or] in] sub-clause (vii) of clause (a) [or in clause (c)] [or in clause (d)] thereof, an amount equal to the whole of the sum or, as the case may be, sums of such nature plus fifty per cent of the balance of such aggregate; and] (ii) in any other case, an amount equal to fifty per cent of the aggregate of the sums specified in sub-section (2).] (2) The sums referred to in sub-section (1) shall be the following, namely : (a) any sums paid by the assessee in the previous year as donations to (i) the National Defence Fund set up by the Central Government; or (ii) the Jawaharlal Nehru Memorial Fund referred to in the Deed of Declaration of Trust adopted by the National Committee at its meeting held on the 17th day of August, 1964; or (iii) the Prime Minister s Drought Relief Fund; or [(iiia) the Prime Minister s National Relief Fund; or] [(iiiaa) the Prime Minister s Armenia Earthquake Relief Fund; or] [(iiiab) the Africa (Public Contributions - India) Fund; or] [(iiib) the National Children s Fund; or] [(iiic) the Indira Gandhi Memorial Trust, the deed of declaration in respect whereof was registered at New Delhi on the 21st day of February, 1985; or] [(iiid) the Rajiv Gandhi Foundation, the deed of declaration in respect whereof was registered at New Delhi on the 21st day of June, 1991; or] [(iiie) the National Foundation for Communal Harmony; or] [(iiif) a University or any educational institution of national eminence as may be approved by the prescribed authority in this behalf; or] [(iiig) the Maharashtra Chief Minister s Relief Fund during the period beginning on the 1st day of October, 1993 and ending on the 6th day of October, 1993 or to the Chief Minister s Earthquake Relief Fund, Maharashtra; or] [(iiiga) any fund set up by the State Government of Gujarat exclusively for providing relief to the victims of earthquake in Gujarat; or]

48 [(iiih) any Zila Saksharta Samiti constituted in any district under the chairmanship of the Collector of that district for the purposes of improvement of primary education in villages and towns in such district and for literacy and post-literacy activities. [(iiiha) the National Blood Transfusion Council or to any State Blood Transfusion Council which has its sole object the control, supervision, regulation or encouragement in India of the services related to operation and requirements of blood banks. Explanation. For the purposes of this sub-clause, (a) National Blood Transfusion Council means a society registered under the Societies Registration Act, 1860 (21 of 1860) and has an officer not below the rank of an Additional Secretary to the Government of India dealing with the AIDS Control Project as its Chairman, by whatever name called; (b) State Blood Transfusion Council means a society registered, in consultation with the National Blood Transfusion Council, under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India and has Secretary to the Government of that State dealing with the Department of Health, as its Chairman, by whatever name called; or (iiihb) any fund set up by a State Government to provide medical relief to the poor; or (iiihc) the Army Central Welfare Fund or the Indian Naval Benevolent Fund or the Air Force Central Welfare Fund established by the armed forces of the Union for the welfare of the past and present members of such forces or their dependants; or] [(iiihd) the Andhra Pradesh Chief Minister s Cyclone Relief Fund, 1996; or] [(iiihe) the National Illness Assistance Fund; or] [(iiihf) the Chief Minister s Relief Fund or the Lieutenant Governor s Relief Fund in respect of any State or Union territory, as the case may be : Provided that such Fund is (a) the only Fund of its kind established in the State or the Union territory, as the case may be; (b) under the overall control of the Chief Secretary or the Department of Finance of the State or the Union territory, as the case may be; (c) administered in such manner as may be specified by the State Government or the Lieutenant Governor, as the case may be; or] [(iiihg) the National Sports Fund to be set up by the Central Government; or (iiihh) the National Cultural Fund set up by the Central Government; or] [(iiihi) the Fund for Technology Development and Application set up by the Central Government; or] [(iiihj) the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities constituted under sub-section (1) of section 3 of the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999); or] (iv) any other fund or any institution to which this section applies; or (v) the Government or any local authority, to be utilised for any charitable purpose [other than the purpose of promoting family planning; or]

49 [ [(vi) an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both;] [(via) any corporation referred to in clause (26BB) of section 10; or] (vii) the Government or to any such local authority, institution or association as may be approved in this behalf by the Central Government, to be utilised for the purpose of promoting family planning;] (b) any sums paid by the assessee in the previous year as donations for the renovation or repair of any such temple, mosque, gurdwara, church or other place as is notified by the Central Government in the Official Gazette to be of historic, archaeological or artistic importance or to be a place of public worship of renown throughout any State or States; [(c) any sums paid by the assessee, being a company, in the previous year as donations to the Indian Olympic Association or to any other association or institution [established in India, as the Central Government may, having regard to the prescribed guidelines 56, by notification in the Official Gazette, specify in this behalf] for (i) the development of infrastructure for sports and games; or (ii) the sponsorship of sports and games, in India;] [(d) any sums paid by the assessee, during the period beginning on the 26th day of January, 2001 and ending on the 30th day of September, 2001, to any trust, institution or fund to which this section applies for providing relief to the victims of earthquake in Gujarat.] (3) [Omitted by the Finance Act, 1994, w.e.f ] [(4) Where the aggregate of the sums referred to in sub-clauses (iv), (v), (vi) [, (via)] and (vii) of clause (a) and in [clauses (b) and (c)] of sub-section (2) exceeds ten per cent of the gross total income (as reduced by any portion thereof on which income-tax is not payable under any provision of this Act and by any amount in respect of which the assessee is entitled to a deduction under any other provision of this Chapter), then the amount in excess of ten per cent of the gross total income shall be ignored for the purpose of computing the aggregate of the sums in respect of which deduction is to be allowed under sub-section (1)]. (5) This section applies to donations to any institution or fund referred to in sub-clause (iv) of clause (a) of sub-section (2), only if it is established in India for a charitable purpose and if it fulfils the following conditions, namely : [(i) where the institution or fund derives any income, such income would not be liable to inclusion in its total income under the provisions of sections 11 and 12 [or clause (23AA)] or clause (23C)] of section 10 : [Provided that where an institution or fund derives any income, being profits and gains of business, the condition that such income would not be liable to inclusion in its total income under the provisions of section 11 shall not apply in relation to such income, if (a) the institution or fund maintains separate books of account in respect of such business; (b) the donations made to the institution or fund are not used by it, directly or indirectly, for the purposes of such business; and (c) the institution or fund issues to a person making the donation a certificate to the effect that it maintains separate books of account in respect of such business and that the donations received by it will not be used, directly or indirectly, for the purposes of such business;]]

50 (ii) the instrument under which the institution or fund is constituted does not, or the rules governing the institution or fund do not, contain any provision for the transfer or application at any time of the whole or any part of the income or assets of the institution or fund for any purpose other than a charitable purpose; (iii) the institution or fund is not expressed to be for the benefit of any particular religious community or caste; (iv) the institution or fund maintains regular accounts of its receipts and expenditure; (v) the institution or fund is either constituted as a public charitable trust or is registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India or under section 25 of the Companies Act, 1956 (1 of 1956), or is a University established by law, or is any other educational institution recognised by the Government or by a University established by law, or affiliated to any University established by law, or is an institution financed wholly or in part by the Government or a local authority; [(vi) in relation to donations made after the 31st day of March, 1992, the institution or fund is for the time being approved by the Commissioner in accordance with the rules made in this behalf [; and] [(vii) where any institution or fund had been approved under clause (vi) for the previous year beginning on the 1st day of April, 2007 and ending on the 31st day of March, 2008, such institution or fund shall, for the purposes of this section and notwithstanding anything contained in the proviso to clause (15) of section 2, be deemed to have been, (a) established for charitable purposes for the previous year beginning on the 1st day of April, 2008 and ending on the 31st day of March, 2009; and (b) approved under the said clause (vi) for the previous year beginning on the 1st day of April, 2008 and ending on the 31st day of March, 2009.] [(5A) Where a deduction under this section is claimed and allowed for any assessment year in respect of any sum specified in sub-section (2), the sum in respect of which deduction is so allowed shall not qualify for deduction under any other provision of this Act for the same or any other assessment year.] [(5B) Notwithstanding anything contained in clause (ii) of sub-section (5) and Explanation 3, an institution or fund which incurs expenditure, during any previous year, which is of a religious nature for an amount not exceeding five per cent of its total income in that previous year shall be deemed to be an institution or fund to which the provisions of this section apply.] [(5C) This [section] applies in relation to amounts referred to in clause (d) of sub-section (2) only if the trust or institution or fund is established in India for a charitable purpose and it fulfils the following conditions, namely : (i) it is approved in terms of clause (vi) of sub-section (5); (ii) it maintains separate accounts of income and expenditure for providing relief to the victims of earthquake in Gujarat; (iii) the donations made to the trust or institution or fund are applied only for providing relief to the earthquake victims of Gujarat on or before the 31st day of March, [2004]; [(iv) the amount of donation remaining unutilised on the 31st day of March, [2004] is transferred to the Prime Minister s National Relief Fund on or before the 31st day of March, [2004];] (v) it renders accounts of income and expenditure to such authority and in such manner as may be prescribed, on or before the 30th day of June, [2004].]

51 [(5D) No deduction shall be allowed under this section in respect of donation of any sum exceeding ten thousand rupees unless such sum is paid by any mode other than cash.] Explanation 1. An institution or fund established for the benefit of Scheduled Castes, backward classes, Scheduled Tribes or of women and children shall not be deemed to be an institution or fund expressed to be for the benefit of a religious community or caste within the meaning of clause (iii) of sub-section (5). [Explanation 2. For the removal of doubts, it is hereby declared that a deduction to which the assessee is entitled in respect of any donation made to an institution or fund to which subsection (5) applies shall not be denied merely on either or both of the following grounds, namely : [(i) that, subsequent to the donation, any part of the income of the institution or fund has become chargeable to tax due to non-compliance with any of the provisions of section 11, [section 12 or section 12A]; (ii) that, under clause (c) of sub-section (1) of section 13, the exemption under section 11 [or section 12] is denied to the institution or fund in relation to any income arising to it from any investment referred to in clause (h) of sub-section (2) of section 13 where the aggregate of the funds invested by it in a concern referred to in the said clause (h) does not exceed five per cent of the capital of that concern.]] Explanation 3. In this section, charitable purpose does not include any purpose the whole or substantially the whole of which is of a religious nature. [Explanation 4. For the purposes of this section, an association or institution having as its object the control, supervision, regulation or encouragement in India of such games or sports as the Central Government may, by notification in the Official Gazette, specify in this behalf, shall be deemed to be an institution established in India for a charitable purpose.] [Explanation 5. For the removal of doubts, it is hereby declared that no deduction shall be allowed under this section in respect of any donation unless such donation is of a sum of money.]

52