New Delhi, November 19, 2022: The rulings on Input Tax credit (ITC) on CSR-expenditure are contradictory with the latest one from Telangana AAR that has favoured ITC on CSR related purchases. In a recent move, the Authority of Advance Rulings (AAR), Telangana, in the case of M/s Bambino Pasta Food Industries Private Limited has ruled that Income Tax Credit (ITC) can be availed on Corporate Social Responsibility (CSR) expenses.
As per Telangana AAR, “The expenditure made towards corporate social responsibility under Section 135 of the Companies Act, 2013, is an expenditure made in the furtherance of the business. Hence, the tax paid on purchases made to meet the obligations under corporate social responsibility will be eligible for input tax credit under CGST and SGST Acts.”
Bambino Pasta Food Industries Private Limited (the applicant) donated oxygen plant to AIIMS hospital Bibinagar, as part of the CSR activity, for the benefit of patients. For this, the applicant bought PSA oxygen plant and incurred expenses for spare parts. Furthermore, the company moved to AAR for clarity if ITC is available on CSR expenditure.
After observing all facts and arguments, AAR said that tax paid on purchases made to meet the CSR obligation will be eligible for ITC under GST.
However, this is contrary to the other rulings by different AARs at different time periods.
For instance, in case of Polycab Wires Pvt Ltd, the Kerala AAR said that the applicant distributed electrical items free of cost and no money was collected for it. Thus, ITC would not be available as per Section 17(5) (h) of CGST Act, 2017.
Against this in another episode, Uttar Pradesh AAR in case of Dwarikesh Sugar Industries Limited ruled out that that ITC shall be available on expenses incurred to comply with the requirements of CSR.
Commenting on the matter, Harpreet Singh, Partner (Indirect taxes) at KPMG was quoted saying to the Business line, “Pursuant to the specific restriction on availing credit under Section 17(5) (h) of the CGST Act and the fact that both under CSR rules and Income tax Act, CSR activities are considered as non-business expenses, availment of input GST credit on CSR spends has been contentious. “This is true, even though some recent rulings under GST and under erstwhile service tax have given an affirmative answer on availability of credit and thus, tend to give hope to taxpayers on its availment.”
What does Section 135 of Companies Act, 2013 say?
According to Section 135 of Companies Act, 2013, a company with net worth of Rs 500 crore or turnover of Rs 1,000 crore or a net profit of Rs 5 crore or more in the immediately preceding financial year will have to spend at least 2 per cent of the average net profits made during the three immediately preceding financial years on CSR. A company that does not abide by the Act will attract penalty under Section 135 which may go upto a maximum of Rs 1 crore.
Stay tuned to thecsruniverse.com for many more stories on CSR and sustainability.
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