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Is CSR applicable to Charitable Institutions ? A Big Question

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Is CSR applicable to Charitable Institutions ? A Big Question. This article is very much debatable in nature. This changes from point to point, but we have to interpret the Act in the literal manner and in the correct manner as it is prescribed in the law. Normally there are some conditions fulfilling which the company requires to get some social activities carried out in form of CSR. Now the big question is that, is the CSR activities applicable to those who are actually meant for that activities only ?. I have tried to make my view point on the same and it might differ from case to case. Now check more details regarding “Is CSR applicable to Charitable Institutions ? A Big Question” from below…

Is CSR applicable to Charitable Institutions ? A Big Question

Corporate Social Responsibility Complete details

Conditions under Section 135 of the Companies Act, 2013

There are some conditions under these section, which if fulfilled than the company needs to carry out CSR activities, through its own or through some intermediaries. The conditions are as follows:

  1. Companies having Net worth of Rs. 500 crore or more.

OR

  1. Companies having turnover of Rs. 1000 crore or more.

OR

  1. Companies having net profit of Rs. 5 crore or more.

The word here important is “OR”, means if the company fulfilled any of the condition, than they need to spend at least 2% of the Net profit (As calculated under Section 198 of the Companies Act, 2013).

After many debates regarding the role of society in the profitability of the company, the new Companies Act has brought the mandatory application of the money into the Social activities. It was taken from the idea that, as the company is earning because of the society, it should return back something to the society. But I doubt, is the charitable institutions would be liable to make expenditure under CSR activities ?. When reading the language of Section 135, it is silent about the applicability to the non-profit organisations. But there is also no clarification about the exemption of the non-profit organisations under the Act, as the wordings are “all companies.”

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As these companies are solely for the motive of charity and not for earning, these section will not come into the picture, as the conditions stipulated in Section 135 would not cover any of the Section 8 company. The reasons for the Section 8 companies not falling in the above category is as follows:

  1. Net worth of 500 crore or more – As the company incorporated under Section 8 of the Companies Act, would not be having any surplus which would be shared between the shareholders, as the surplus would be required to be used solely and wholly for the purpose of the objectives for which it has been set for. Even if there is net worth, than it is a notional one and not the real one.
  2. Turnover of 1000 crore or more – As the Section 8 companies are not at all set up for the trading of the goods or the manufacturing of the same, there can not be any turnover. The receipts received from the donors or the external interest income from the investment cannot be categorised as turnover under the definition of turnover under Companies Act, 2013.
  3. Net profit of 5 crore or more – The words are to be interpreted in the real sense and other synonyms would be considered. Here the words are very specific that profits, the no-profit organisation organisation are not having profit, they are having the surplus, which is not allowed to be allocated amongst the members or the shareholders but has to be utilised for the purpose for which it has been meant for.

So these issue according to me, would be that the charitable organisations, as there main purpose is only not to do any other activity other than social or charitable, these institutions would not be covered for the mandatory provisions of the CSR.

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About Yash Shah

Yash Shah is passionate article writer and has written more than 100 articles in the field of Finance, Insurance, Stock Market, Company Law, Auditing, Taxation and many others. In case of any queries or suggestions, you can reach the author @ [email protected], you can also catch him on facebook @ yashshah299

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