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Money given to state govt funds always excluded from CSR framework under companies law

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On Saturday, West Bengal Mamata Banerjee said CSR should not be applicable only for contributions to the Prime Minister’s Relief Fund.

COVID-19 CASES

WorldIndiaConfirmed8,447Deaths273Confirmed1,771,514Deaths108,503New Delhi: Corporates’ contributions to fight coronavirus pandemic through state disaster management authority will be considered as CSR expenditure but money given to funds set up by states, including the Chief Minister’s Relief Fund, have always been kept out of the CSR provision, according to official sources. Against the backdrop of increasing fund requirements in various quarters to deal with the pandemic, the corporate affairs ministry has already said that contribution to the PM-CARES Fund would be considered as CSR under the Companies Act, 2013.

However, since the Corporate Social Responsibility (CSR) framework came into force in April 1, 2014, funds set by state governments, including the Chief Minister’s Relief Fund, were not included in Schedule VII of the Act, the official sources said on Sunday.

Certain class of profitable companies are required to shell out at least two per cent of their three-year annual average net profit towards CSR works in a particular fiscal. Schedule VII of the Act broadly lists areas and activities where CSR contributions can be made.

As per the official sources, on February 27, 2014, the central government amended Schedule VII, including the item relating to funds eligible to receive CSR contributions.

Under the amended Schedule VII, the item relating to ‘eligible funds’ only included Prime Minister’s Relief Fund (PMRF) and any other fund set up by the central government for the purposes stated therein. Accordingly, funds set up by state governments was omitted in the amended Schedule VII, they added.

The Ministry, which is implementing the Act, has also clarified that COVID-19 activities related to promotion of healthcare, including preventive healthcare and sanitation and disaster management would qualify as CSR expenditure.

It has also allowed state governments to mobilise CSR funding to combat the coronavirus pandemic through State Disaster Management Authority route. As a result, companies’ contribution to the state disaster management authority for the specific purpose of combating the pandemic would come under CSR.

On Saturday, West Bengal Mamata Banerjee said CSR should not be applicable only for contributions to the Prime Minister’s Relief Fund.

If CSR does not apply to the CM relief fund and other state funds, it is an attack on federal structure, she had said.

After announcing last month that contributions by companies to PM-CARES Fund to tackle the pandemic would be considered as CSR, the corporate affairs ministry this week came out with a set of FAQs (Frequently Asked Questions) to clarify various aspects.

“If any ex-gratia payment is made to temporary/ casual workers/ daily wage workers over and above the disbursement of wages, specifically for the purpose of fighting COVID-19, the same shall be admissible towards CSR expenditure as a one-time exception,” the ministry said in the FAQs.

This exception is subject to the condition that there is an explicit declaration to that effect by a company’s board that is duly certified by the statutory auditor.

It also clarified that contributions made to State Disaster Management Authority to combat COVID-19 would qualify as CSR expenditure. However, contribution towards ‘Chief Minister’s Relief Fund’ or ‘State Relief Fund for COVID-19’ would not be considered as spending towards CSR work, as per the FAQs.

Among others, the ministry had said that payment of wages to temporary or casual or daily wage workers during the lockdown period would not count towards CSR expenditure.

“Payment of salary/ wages to employees and workers even during the lockdown period is a moral obligation of the employers, as they have no alternative source of employment or livelihood during this period,” it noted.

Similarly, payment of salary/ wages to employees and workers during the lockdown period, including imposition of other social distancing requirements, would also not qualify under the CSR framework.

Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM-CARES Fund) has been set up, which would be utilised to deal with any emergency or distress situation such as the coronavirus outbreak.

Under Section 135 of the Companies Act, 2013, every company having net worth of at least Rs 500 crore, turnover of Rs 1,000 crore or more, or a minimum net profit of Rs 5 crore during the immediately preceding financial year, has to make CSR expenditure.

Source: indiatimes.com

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