Section 135 — Corporate Social Responsibility

Section 135 of the Companies Act, 2013 mandates certain companies to undertake Corporate Social Responsibility (CSR) activities. It applies to companies with a net worth of INR 500 crore or more, a turnover of INR 1000 crore or more, or a net profit of INR 5 crore or more during any financial year. Such companies are required to form a CSR committee to formulate and recommend a CSR policy, which should allocate at least 2% of the average net profits of the company made during the three immediately preceding financial years towards CSR activities. This section is significant as it legally binds companies to contribute to societal development, promoting ethical business practices. The statutory test involves meeting the financial thresholds, and the burden of proof lies with the company to demonstrate compliance through annual reporting. In practice, this section encourages companies to engage in sustainable development and social welfare activities.

Common Litigation Flashpoints

1. Determination of applicable financial thresholds
2. Appropriate allocation and utilization of CSR funds
3. Compliance with CSR reporting requirements
4. Interpretation of permissible CSR activities

Judgments on Section 135 — Corporate Social Responsibility

• M/s. Alubound Dacs India Private Limited vs. Dy. CIT — ITAT, 2024
  CSR expenses mandated by law can be claimed as a deduction under Section 80G if they meet the stipulated conditions.
• Union of India & Anr. vs M/s. Ganpati Dealcom Pvt. Ltd. — SC,
  The 2016 Amendment Act cannot be applied retrospectively as it creates new offences and substantive changes, which cannot be applied to past transactions.
• Aditya Birla Nuvo Limited vs The Deputy Director of Income-tax — HC,
  The beneficial ownership of shares, despite being registered in the name of a permitted transferee, determines the taxability of capital gains in India.
• Engineering Analysis Centre of Excellence Private Limited vs The Commissioner of Income Tax & Anr. — SC,
  Payments for software do not constitute 'royalty' under Section 9(1)(vi) of the Income Tax Act, and thus, no tax is deductible at source under Section 195.