The Delhi ITAT’s decision is expected to have far-reaching consequences for companies engaged in CSR activities.
NEW DELHI (India CSR): The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has recently allowed the deduction of Corporate Social Responsibility (CSR) expenses carried out by Hindustan Coca-Cola Beverages under Section 37(1) of the Income Tax Act 1961. The decision comes as a relief to the beverage manufacturer and trader, which had filed returns for the respective years under Section 1432() of the income tax act.
Background of the Case
The assessing officer had disallowed the CSR expenses incurred by Hindustan Coca-Cola Beverages for the assessment year 2004-05. The company had filed an appeal before the CIT(A) but the disallowance was confirmed. Further, the assessee filed a second appeal before the Tribunal. Neeraj Jain, Aditya Vohra advocates, and Arpit Goyal chartered accountant appeared for the assessee while Mohd. Gayasuddin Ansari appeared for revenue.
Arguments Presented by Both Parties
Counsel for the assessee submitted that the expenditure was incurred on activities like the installation of handpumps, distribution of shoes, uniforms, etc. to school students, and drought relief measures. On the other hand, counsel for the revenue submitted that โExplanation 2 to Section 37(1) of the Act inserted by the Finance Act, 2014, with effect from 01.04.2015 observed the same to be clarificatory in nature and made applicable to the Assessment year. 2004-05.โ
Deliberation by the Tribunal
The division bench of N.K.Billaiya, (Accountant Member) and Anubhav Sharma, (Judicial Member) relied upon the decision of CIT vs. Vatika Townships Pvt. Ltd and observed that Explanation 2 to Section 37(1) of the Act is not retrospective. Accordingly, the Tribunal allowed the appeal in favor of the assessee.
Section 37(1) of the Income Tax Act 1961
Section 37(1) of the income tax act 1961 states that any expenses carried out by the assessee on corporate social responsibility (CSR) activities prescribed under section 135 of the Companies Act, 2013 shall be considered for deduction and shall not be considered expenses incurred by the assessee for the objectives of the company. This provision was introduced to encourage companies to undertake CSR activities and contribute to the welfare of society.
Conclusion
The decision of the Delhi ITAT is expected to have far-reaching implications for companies undertaking CSR activities. The ruling clarifies that such expenses are eligible for deduction under Section 37(1) of the Income Tax Act 1961, and companies should take advantage of this provision to carry out more CSR activities.
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