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Supreme Court of India in case of 
Totgars' Co-operative Sale Society Ltd v/s ITO , Karnataka , 322 ITR 283
Section 80P, read with section 56, of the Income-tax Act, 1961 - Deductions - Income of co-operative societies - Assessment years 1991-92 to 1999-2000 - Assessee was a co-operative credit society - Its business was to provide credit facilities to its members and to market their agricultural produce - In many cases, assessee retained sale proceeds of members whose produce was marketed by it and since funds created by such retention were not required immediately for business purpose, it invested same in specified securities and earned interest thereon - Whether, on facts, interest earned by assessee would come in category of 'Income from other sources' taxable under section 56 and would not qualify for deduction as business income under section 80P(2)(a)(i) - Held, yes
Words and Phrases : "The whole of the amount of profits and gains of business", as occurring in section 80P(2)(a), of the Income-tax Act, 1961
Mantola Co-Operative Thrift & Credit Society Ltd.v/s Commissioner of Income-tax* [2014] 50 taxmann.com 278 (Delhi High court)
Section 56, read with section 80P, of the Income-tax Act, 1961 - Income from other sources - Chargeable as (Credit society) - Assessment year 2008-09 - Whether where assessee, a co-operative society, engaged in providing credit facilities to its members, deposited surplus funds in fixed deposits and earned interest thereon, said interest would be assessable as 'income from other sources' and, thus, not eligible for deduction under section 80P(2)(a)(i) - Held, yes [In favour of revenue]
Mutholy Service Co-Operative Bank Ltd Vs The Income Tax Officer, ITA No.11/Coch/2014-  (Asst Year 2010-11), Date of pronouncement- 24th, Sept 2014
In the present case, we find that the assessee has earned interest income on fixed deposits made by the assessee with sub-treasury, Meenachili, Kadappattoor and SBI Pala totaling Rs. 20,21,909/- and the interest income earned on the surplus funds of the assessee cannot be considered as business income so as to be entitled for deduction u/s. 80p(2)(a)(i) of the I.T. Act.   Further, we came across the decision of the coordinate Bench of this Tribunal in the case of Aryad Block Small Scale Coir Fibre Mats Manufacturers Co-operative Society Ltd., in I.T.A.  No.787/Coch/2013 vide order dated 14.8.2014 wherein   it has been held that interest income on fixed deposits made by the assessee in a Co-operative Bank and the interest income earned on the surplus funds of the assessee cannot be considered as business income so as to be entitled for deduction u/s. 80P(2)(a)(i) of the I.T. Act.     Accordingly, the  ground  raised by the  assessee is dismissed.
•   Deduction u/s 80P will be allowed only when there is direct or proximate connection with or nexus to the income and the business carried on by the society. Interest income on deposits made with banks is not attributable to income of co-operative society and outside realm of section80P- [Sri Basaveshwara Credit Co-operative Society Ltd. v. CIT [2014] 47 taxmann.com 189 (Bangalore – Trib.)]
•   The Hon'ble Supreme Court of India in the case of Totgars' Co-operative Sale Society Ltd. Vs Income-tax Officer [2010] 188 Taxman 282 (SC), held that fund not required immediately for business of providing credit facilities and interest earned on such fund would come under the category of 'Income from Other Sources' taxable u/s 56 of the Income-tax Act, 1961 and the same would not qualify for deduction as business income u/s 80P(2)(a)(i) of the Income-tax Act, 1961. In view of the decision of the Hon'ble Supreme Court (supra) Interest income on Fixed Deposit- General amounting to Rs.30,00,659/- ; Interest of Rs. 1,48,752/- on M. S.S.S., Interest on Reserve Fund of Rs.1,54,781/-, Interest on Bad Debt Fund of Rs.1,99,593/- and interest on SBF Loan of Rs. 988/- Totalling Rs.35,04,773/- is treated as 'Income from Other Sources' without allowing deduction u/s 80P(2)(a)(i) of the Income-tax Act, 1961. [National coal development corporation staff co-operative credit Soc. Ltd. vs. DCIT –A.Y. 08-09- ITA No.1564/Kol/2011]

Does standing counsel bothers about the losing the case ? One of senior counsel loses most of the case in high court and then recommends it as fit case for SLP. The reason told by one officer of the department was that , he father is standing counsel in Apex court.
The best way to make these appointments transparent is first define the elgibility criretia, then go for written exams , and only then interview of limited marks.
Somewhere down the line, i feel department should have  adedicated full time and permanenet cadre of legal officers to defend their case in ITATs,High courts and Apex court.

IT: No interest is chargeable under sections 234B and 234C for non-payment of minimum alternate tax in advance

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[2014] 49 taxmann.com 391 (Mumbai - Trib.)

IN THE ITAT MUMBAI BENCH 'D'

Rockline Developers (P.) Ltd.

v.

Income-tax Officer*

RAJENDRA, ACCOUNTANT MEMBER
AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER
IT APPEAL NO. 6382 (MUM.) OF 2013
[ASSESSMENT YEAR 2010-11]
FEBRUARY  21, 2014

Section 234B, read with sections 115J and 234C, of the Income-tax Act, 1961 - Interest, chargeable as (MAT Companies) - Assessment year 2010-11 - Whether no interest is chargeable under sections 234B and 234C for non-payment of minimum alternate tax in advance - Held, yes [Para 4][In favour of assessee]

CASE REVIEW

CIT v. Kwality Biscuits Ltd. [2006] 284 ITR 434 (SC) (para 4) followed.

CASES REFERRED TO

Jt. CIT v. Rolta India Ltd. [2011] 330 ITR 470/196 Taxman 594/9 taxmann.com 36 (SC) (para 3) andCIT v. Kwality Biscuits Ltd. [2006] 284 ITR 434 (SC) (para 4).

S.K. Tyagi, Vimal Punmiya and Himanshu Gandhi for the Appellant. A.C. Tejpal for the Respondent.

ORDER

Dr. S.T.M. Pavalan, Judicial Member - This appeal filed by the assessee is directed against the order of the learned Commissioner of Income-tax (Appeals)-20, Mumbai, dated September 16, 2013 for the assessment year 2010-11.

2. In this appeal, the main ground "B" raised by the assessee relates to the decision of the learned Commissioner of Income-tax (Appeals) in confirming the order of the Assessing Officer levying interest under sections 234B and 234C of the Act to the extent of Rs. 2,90,22,007 and Rs. 45,12,423 (sic) respectively.

3. The relevant facts are that after ascertaining the book profit under section 115JB, the Assessing Officer had disallowed the claim of deduction under section 80-IB(10) as such the book profit was not to be reduced by claim of deduction and thus computed taxable income and tax thereon which was inclusive of interest under section 234B of Rs. 2,90,22,007 and interest under section 234C of Rs. 45,12,432. On appeal, the learned Commissioner of Income-tax (Appeals) confirmed the action of the Assessing Officer relying on the decision of the hon'ble apex court in the case of Jt. CIT v.Rolta India Ltd. [2011] 330 ITR 470/196 Taxman 594/9 taxmann.com 36.

4. Having heard both sides and perused the material on record, it is pertinent to mention that the decision of the hon'ble apex court in the case of Rolta India Ltd. (supra) has been passed on January 7, 2011. However, during the relevant assessment year under consideration, the law on this point has been governed by the decision of the hon'ble apex court in the case of CIT v. Kwality Biscuits Ltd.[2006] 284 ITR 434 (SC) according to which no interest has chargeable under sections 234B and 234C for non-payment of minimum alternate tax in advance. Since this difference in the legal position as applicable to the case of the assessee has not been appreciated by the authorities below, we are of the considered view that the authorities below are not justified in confirming/ levying the interest under sections 234B and 234C of the Act and hence the same are deleted.

5. Since the other issues raised in ground No. "A" becomes merely academic in view of the aforementioned adjudication on the main issue the same is dismissed as requires no adjudication.

6. In the result, the appeal filed by the assessee is allowed.

Whether deduction u/s 54F can be claimed by assessee by selling two house and purchasing one house?

2014 (11) TMI 54 - MADRAS HIGH COURT

Commissioner of Income Tax Versus C. Jaichander

Benefit of investment on capital gains u/s 54EC(1) - Whether the first proviso to Section 54EC(1) would restrict the benefit of investment of capital gains in bonds to that financial year during which the property was sold or it applies to any financial year during the six months period – Held that:- Section 54EC(1) of the Act restricts the time limit for the period of investment after the property has been sold to six months - There is no cap on the investment to be made in bonds. The first proviso to Section 54EC(1) of the Act specifies the quantum of investment and it states that the investment so made on or after 1.4.2007 in the long-term specified asset by an assessee during any financial year does not exceed fifty lakh rupees - from a reading of Section 54EC(1) and the first proviso, it is clear that the time limit for investment is six months from the date of transfer and even if such investment falls under two financial years, the benefit claimed by the assessee cannot be denied - It would have made a difference, if the restriction on the investment in bonds to ₹ 50,00,000/- is incorporated in Section 54EC(1) of the Act itself – thus, the order of the Tribunal is upheld – Decided against revenue.

copy of objections mailed to you.Make changes accordingly to the facts of your case.any help needed , feel free to call.

There are certain judgements.But right  now it willbe difficult to find out them. better file a return and ask for a copy of reasons recorded. Why to fight over such trivial issue ?

That,s correct.let see how the cat jumps.

IT: Income on sale of Certified Emission Reduction/carbon credit which is admittedly a benefit arising out of business of assessee, would fall within definition of 'income' under section 2(24)(vd) and, thus, it is chargeable to tax

IT: Even though income on sale of Certified Emission Reduction/carbon credit would form part of profit and gains of business, yet it cannot be treated as profit 'derived from' industrial undertaking and, therefore, assessee was not entitled for deduction under section 80-IA in respect of said income

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[2014] 47 taxmann.com 416 (Cochin - Trib.)

IN THE ITAT COCHIN BENCH

Apollo Tyres Ltd.

v.

Assistant Commissioner of Income-tax, Cir. 1(1), Kochi*

N.R.S. GANESAN, JUDICIAL MEMBER
AND B.R. BASKARAN, ACCOUNTANT MEMBER
IT (TP) APPEAL NO. 4 (COCH.) OF 2013
[ASSESSMENT YEAR 2008-09]
MARCH  7, 2014
II. Section 2(24) of the Income-tax Act, 1961 - Income - Definition of (Carbon credit) - Assessment year 2008-09 - Whether income on sale of Certified Emission Reduction/carbon credit which is admittedly a benefit arising out of business of assessee, would fall within definition of 'income' under section 2(24)(vd) and, thus, it is chargeable to tax - Held, yes [Para 53] [In favour of revenue]

III. Section 80-IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings (Computation of deduction) - Assessment year 2008-09 - Whether even though income on sale of Certified Emission Reduction/carbon credit would form part of profit and gains of business, yet it cannot be treated as profit 'derived from' industrial undertaking and, therefore, assessee was not entitled for deduction under section 80-IA in respect of said income - Held, yes [Para 57] [In favour of revenue]

IT: Newly inserted proviso to section 2(15) will apply to entities whose purpose is advancement of any other object of general public utility but will not apply to entities engaged in activities in nature of relief to poor, education or medical relief

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[2014] 47 taxmann.com 162 (Gujarat)

HIGH COURT OF GUJARAT

Director of Income-tax (Exemption)

v.

Ahmedabad Management Association*

M.R. SHAH AND R.P. DHOLARIA, JJ.
TAX APPEAL NO. 707 OF 2013†
JUNE  13, 2014

Section 2(15), read with section 11, of the Income-tax Act, 1961 - Charitable purpose - (Proviso to section 2(15)) - Assessment year 2009-10 - Whether newly inserted proviso to section 2(15) will apply to entities whose purpose is advancement of any other object of general public utility and, hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) if they carry on commercial activities but said proviso will not apply in respect of activities in nature of relief to poor, education or medical relief - Held, yes - Assessee-association undertook multifaceted activities comprising of conducting various continuing education diploma and Certificate Programmes, Management Development Programmes, Public Talks, Seminars, Workshops and Conferences - It claimed exemption under section 11 - Assessing Officer held that, considering nature of courses offered, their duration and resultant surplus, activity of assessee was not educational but fell within scope of newly inserted proviso to section 2(15) and denied exemption - Whether since activities of assessee would fall within realm of education which is 'charitable' as per section 2(15), assessee would be entitled to exemption under section 11 - Held, yes [Para 5.7] [In favour of assessee]

Circulars and Notifications : Circular No. 11/2008 dated 19-12-2008.

FACTS

■       The assessee, a public charitable trust, was dedicated to pursue the objects of continuing education, training and research on various facets of management and related areas. It claimed exemption under section 11 on ground that it undertook multifaceted activities comprising of conducting various continuing education diploma and certificate programmes, management development programmes, public talks, seminars, workshops and conferences.
■       The Assessing Officer observed that considering the nature of courses, its durations and resultant surplus from each activity, the activity of the assessee is not educational in nature. The Assessing Officer held that activities of assessee fell within scope of amendment of 'advancement of any other object of general public utility and any other activity' of section 2(15) and, since the aggregate value of receipts were more than Rs. 10 lakhs, proviso to section 2(15) was applicable and the assessee was not entitled for exemption under section 11.
■       The Commissioner (Appeals) confirmed the said order.
■       The Tribunal had held that the activities of the assessee were in the field of education and, therefore, the assessee was eligible for exemption under section 11.
■       On further appeal:
HELD

■       It is required to be noted that all throughout for the previous years, right from the Assessment year 1995-96 till 2008-09 the revenue has considered the activities of the assessee as educational activity and has granted the benefit under section 11. [Para 5.2]
■       However, subsequently and with effect from assessment year 2008-09, proviso to section 2(15) has been added and section 2(15) has been amended by the Finance Act, 2008 by adding the proviso which states that the 'advancement of any other object of general public utility' shall not be a charitable purpose if it involves the carrying on of (a) any activity in the nature of trade, commerce or business; or (b) any activity of rendering any service in relation to any trade, commerce or business for cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity. The revenue has denied the exemption claimed by the assessee under section 11 mainly relying upon the amended section 2(15) by submitting that the case of the assessee would fall under the fourth limb of the definition of 'charitable purpose' i.e. 'advancement of any other object of general public utility' and, therefore, the assessee shall not be entitled to exemption from tax under section 11. [Para 5.3]
■       The activities of the assessee such as continuing education diploma and certificate programme; management development programme; public talks and seminars and workshops and conferences etc., is educational activities and/or is in the field of education. [Para 5.6]
■       So far as the amendment in section 2(15) amended vide Finance Act, 2008 and insertion of proviso to section 2(15) is concerned, as such the same has been explained vide Circular No. 11/2008 dated 19-12-2008. It is clarified that where industries or trade association claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of proviso to section 2(15) owing to the principles of mutuality. From Circular No. 11/2008 dated 19-12-2008 it appears that the newly inserted proviso to section 2(15) will apply to entities whose purpose is advancement of any other object of general public utility and hence such entities will not be eligible for exemption under section 11 or under section 10(23C) if they carry on commercial activities. Thus, on fair reading of section 2(15) the newly inserted proviso to section 2(15) will not apply in respect of relief to the poor; education or medical relief. Thus, where the purpose of a trust or institution is relief of the poor; education or medical relief, it will constitute 'charitable purpose' even if it incidentally involves the carrying on of the commercial activities. Thus, on fair reading of section 2(15) read with Circular No. 11/2008 dated 19-12-2008 it appears that if the case of the assessee does not fall within relief to the poor; education or medical relief and if it falls in advancement of any other object of general public utility and it is found that such activity of advancement of any other object of general public utility involves carrying on of (a) any activity in the nature of trade, commerce or business; or (b) any activity of rendering any service in relation to any trade, commerce or business; for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity, the same shall not be considered for 'charitable purpose' and shall not be entitled to exemption under section 11. [Para 5.7]
■       In the present case, the activities of the assessee would fall within the definition of 'charitable purpose' as per section 2(15) and, therefore, would be entitled to exemption under section 11. [Para 5.8]
CASE REVIEW

Gujarat State Co-operative Union v. CIT [1992] 195 ITR 279 (Guj.) [Para 7] followed.

Ahmedabad Management Association v. Jt. DIT (Exemption) [2013] 35 taxmann.com 150 (Ahmedabad - Trib) (para 7) affirmed.

CASES REFERRED TO

Sole Trustee, Lok Shikshana Trust v. CIT [1975] 101 ITR 234 (SC) (para 2.1), Gujarat State Co-operative Union v. CIT [1992] 195 ITR 279 (Guj.) (para 2.3), Saurashtra Education Foundation v. CIT [2005] 273 ITR 139/[2004] 141 Taxman 26 (Guj.) (para 3.1), State of Orissa v. Mamata Mohanty [2011] 3 SCC 436 (para 3.2), State of Tamil Nadu v. K. Shyam Sunder [2011] 8 SCC 737 (para 3.2) and CIT v. Sorabji Nusserwanji Parekh [1993] 201 ITR 939/66 Taxman 411 (Guj.) (para 4.6).

Mrs. Mauna M. Bhatt for the Appellant. Jigar M. Patel, Mukesh M. Patel and R.K. Patel for the Respondent.

JUDGMENT

M.R. Shah, J. - Being aggrieved and dissatisfied with the impugned judgment and order passed by the Income Tax Appellate Tribunal, 'D' Bench, Ahmedabad (hereinafter referred to as 'the tribunal') dated 22/03/2013 in ITA No. 159/Ahd/2013 for the Assessment Year 2009-10 by which the tribunal has allowed the said appeal preferred by the respondent-assessee holding that the activities of the assessee were in the filed of education and the assessee was eligible for exemption under Section 11(1) of the Income Tax Act (hereinafter referred to as 'the Act') and consequently quashed and set aside the order passed by the Assessing Officer confirmed by the Commissioner of Income Tax (Appeals) assessing the income of the assessee at Rs.1,42,11,129/- with the proposed following substantial question of law;

"Whether the Appellate Tribunal has substantially erred in holding that the activities of the assessee are in the field of education and that the assessee was eligible for exemption under Section 11(1) of the Act?"

2. The assessee-Ahmedabad Management Association is a Public Charitable Trust, which is dedicated to pursue the objects of continuing education, training and research on various facets of management and related areas for the past 50 years. Various activities of the assessee and its revenues are highlighted by the Assessing Officer in paragraph 5 of the Assessment Order;

"The summarized position of the Income & Expenditure of various of the assessee, as submitted by the assessee is as under;

   Nature of Educational Programme   Income (Rs.)   Expenditure (Rs.)
   Continuing Education Diploma & Certificate Programs   3,32,51,021   1,73,50,202
   Management Development Programs   65,73,962   55,18,482
   Public Talks & Seminars   0   11,59,959
   Workshops & Conferences   13,65,659   21,54,199
   Total as appearing in Income & Expenditure Account   4,11,90,642   2,61,82,842

[2010] 189 TAXMAN 110 (DELHI)
HIGH COURT OF DELHI
Commissioner of Income-tax
v.
Sona Koyo Steering Systems Ltd.*
BADAR DURREZ AHMED AND SIDDHARTH MRIDUL, JJ.
IT APPEAL NOS. 1279 OF 2008, 194, 416, 761 AND 788 OF 2009†
FEBRUARY 10, 2010

Section 80-I of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings, etc., after certain dates - Assessment years 1992-93 to 1995-96 and 2000-01 - Whether where assessee has two units, loss of one unit can be set off against profit of other unit to arrive at computation of quantum of deduction that is to be allowed to assessee under section 80-I(1) - Held, no
FACTS
The assessee had two units, namely, a steering unit and an axle unit. In the relevant assessment years, the assessee incurred losses in one unit and profit in the other unit. The assessee claimed deduction under section 80-I. The Assessing Officer, while computing the deduction allowable to the assessee, set off the losses of one unit against the profits of the other unit. The Commissioner (Appeals) also took the same stand as that of the Assessing Officer. On second appeal, the Tribunal accepted the assessee's plea that the two units were independent units and only the profit making unit should be considered eligible for the purpose of computing the deduction under section 80-I, read with the provisions of section 80-I(6).
On the revenue's appeal :
HELD
A plain reading of the provisions of sections 80-I(1) and 80B(5) makes it clear that gross total income referred to in section 80-I has to be computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A. It is, therefore, clear that while computing gross total income, the deductions referred to in Chapter VI-A, which includes section 80-I, are not to be considered. The gross total income of the assessee has to be computed after making all other adjustments of losses and carry forward losses, ignoring the deductions available under Chapter VI-A. There is no dispute with this proposition. [Para 7]
Further, the deduction under section 80-I is to be made in case the gross total income includes any profits and gains derived from an industrial undertaking, etc., in case such profits and gains are included in the gross total income of the assessee. The deduction in the case of a company, in view of the proviso of section 80-I(1), is to be given to the extent of 25 per cent of such profits and gains of such an industrial undertaking. In view of section 80-I(6), which begins with a non obstante clause, quantum of deduction is to be computed as if the industrial undertaking was the only source of income of the assessee during the relevant years. In other words, each industrial undertaking or unit is to be treated separately and independently. It is only those industrial undertakings, which have a profit or gain, which would be considered for computing the deduction. The loss making industrial undertaking would not come into the picture at all. The plain reading of the provision suggests that the loss of one industrial undertaking cannot be set off against the profit of another such industrial undertaking to arrive at computation of the quantum of deduction that is to be allowed to the assessee under section 80-I(1). [Para 8]
The decision of the Supreme Court in the case of Synco Industries Ltd. v. Assessing Officer, Income-tax [2008] 299 ITR 444 / 168 Taxman 224 was strongly relied upon by the revenue. On going through the entire decision, it was found that the Supreme Court was primarily concerned with the question as to whether any deduction could be allowed under Chapter VI-A if the gross total income was 'Nil'. It is in that context that the Supreme Court considered the concept of gross total income and came to the conclusion, following its earlier decision in CIT v. Kotagiri Industrial Co-operative Tea Factory Ltd. [1997] 224 ITR 604 / 91 Taxman 214 , that the gross total income has to be computed in accordance with the Act after adjusting the losses, etc., and that if the gross total income so determined is positive, then the question of allowing deductions under Chapter VI-A would arise, but not otherwise. [Para 10]
The Supreme Court did not at all hold that while computing the deduction under section 80-I(6), the loss of one eligible industrial undertaking is to be set off against the profit of another eligible industrial undertaking. All that the Supreme Court said was that in computing the gross total income of the assessee, the same has to be determined after adjusting the losses and that, if the gross total income of the assessee so determined turns out to be 'Nil' , then the assessee would not be entitled to deduction under Chapter VI-A of the said Act. [Para 11]
In fact, the Supreme Court clearly held that while computing the quantum of deduction under section 80-I(6), the Assessing Officer has to treat the profits derived from an industrial undertaking as the only source of income of the assessee in order to arrive at a deduction under Chapter VI-A. The Supreme Court also held that under section 80-I(6), for the purposes of calculating the deduction, the loss sustained in one of the units is not to be taken into account because sub-section (6) contemplates that only the profit shall be taken into account as if it was the only source of income. [Para 12]
The above discussion makes it absolutely clear that the Supreme Court's decision sought to be relied upon by the revenue, rather than deciding the issue in favour of the revenue, clinched the matter in favour of the assessee. In view of the foregoing discussion, the Tribunal was justified in holding that the loss of one unit could not be set off against the profit of other unit in view of the provisions of section 80-I(1)(6) and section 80B(5). [Para 13]
CASE REVIEW
Synco Industries Ltd. v. Assessing Officer, Income-tax [2008] 299 ITR 444 / 168 Taxman 224 (SC) [Para 13], and CIT v. Dewan Kraft Systems (P.) Ltd. [2008] 297 ITR 305/[2007] 160 Taxman 343 (Delhi) [Para 9] followed.

TWO VIEWS .BOTH ARE GIVEN IN THE SLIDES.FEEL FREE TO CALL ON 9825829075 FOR ANY DOUBT.

1. Introduction
1.1   The Finance Bill, 2014 has brought a very radical and far reaching amendment, as far as CSR expenditures are concerned.
1.2   There was a lot of expectation that as a corollary to the CSR related amendment in the Companies Act there will be a corresponding amendment in the Income Tax Act, allowing CSR expenditures as deductions under section 37.
1.3   On the contrary the Finance Bill as proposed that CSR expenditure shall not be allowed as expenditure under section 37. However, any CSR expenditure which is allowed as deduction under other sections such as section 35 is permissible.
2. CSR Related Amendments
2.1   The Finance Bill, 2014 has proposed to insert a new Explanation in sub-section (1) of section 37 so as to clarify that for the purposes of sub-section (1) of the said section, any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession. This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years. The proposed amendments are as under:
13. In section 37 of the Income-tax Act, in sub-section (1), the Explanation shall be numbered as Explanation 1 thereof and after Explanation 1 as so numbered, the following Explanation shall be inserted with effect from the 1st day of April, 2015, namely:—
"Explanation 2.—For the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.".
2.2   This proposed amendment is a great setback and may defeat the real purpose of bringing CSR related amendments in the Companies Act, 2013. For example a corporate now will be motivated to contribute to those statutory funds were 100% deduction is available. For instance a corporate can implement a CSR programme by contributing to the various development programme. It can also comply with CSR provision by contributing to funds like National Defence Funds or other funds where 100% tax exemptions are available. After the proposed amendments the companies would be motivated to spent CSR money only on those areas where tax exemptions are available. In other words all other areas will virtually become redundant. There is a strong need to revisit this provision and the companies should be allowed to deduct CSR expenses under Section 37.
3. Overview of the Tax Implications
3.1   The Companies Act requires at least 2% of average Net Profit to be spent on CSR. In other words the requirement of Companies Act essentially indicates appropriation of surplus net income for charitable purposes. It does not indicate any statutory charge against the gross income. It may be noted that all expenditures are legal charge against the gross income. On the contrary, CSR expenditure is an appropriation of net income. Therefore, the provisions of the Companies Act create confusion by making CSR a post 'net profit' issue. Ideally, CSR expenditure being a legal requirement should be permitted to be deducted as expenditure under section 37(1) of the Income Tax Act, though there is no statutory clarity in this regard.
3.2   CSR being a statutory requirement should be treated as a valid charitable expenditure, otherwise it would be big disincentive to the Companies. If CSR is not treated as a valid expenditure, then the Companies would be motivated to give funds to only those organisations where they get maximum tax benefit. For instance, Prime Minister Relief Fund, National Defence Fund or organisations notified under Section 35 or 35AC or 80G. Such organisations provide 100% tax benefit. It may be noted that only few organisations such as Prime Minister Relief Fund, National Defence Fund provide 100% benefit, under Section 80G only 50% benefit is available to the donor.
3.3   CSR laws permit expenditure on capacity building of employees and on local area development. Such expenditures, could earlier be directly claimed as CSR expenditures under section 37(1) of the Income Tax Act. In other words, there are certain categories of CSR expenditures which can be charged against income within the existing provisions of the Income Tax Act. However, with the proposed amendments any expenditure under CSR will not be allowed as deduction under section 37.
3.4   There were many case laws where it was held that such expenditures should be treated as admissible expenditure. Now all such judicial precedence will be nullified from a CSR prospective. For instance a company can claim expenditure towards local area development as CSR expenditure. Now with the proposed amendments the company will be motivated to claim such expenditure as normal business expenditures and not CSR expenditures, in the light of the case laws discussed under.
3.5   Afforestation expenses: In the case Orissa Forest Development Corp. Ltd. v. Jt. CIT [2002] 80 ITD 300 (Cuttack), it was held that expenses incurred by the corporation in plantation of new trees was a revenue expenditure, even though there was no statutory obligation on the part of the assessee to incur such an expenditure.
3.6   Drinking water facilities to local residents: In the case CIT v. Madras Refineries Ltd. [2004], 266 ITR 170/138 Taxman 261 (Mad.) it was held that development of local and establishing drinking water facility for local area people was a valid expenditure. It was observed that the concept of business is not static. It has evolved over a period of time to include within its fold the concrete expression of care and concern for the society at large and for the people of the locality, in which the business is located in particular. Being known as a good corporate citizen brings goodwill of the local community, as also with the regulatory agencies and the society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill. Monies spent for bringing drinking water, as also for establishing or improving the schools meant for the residents of the locality in which the business is situated cannot be regarded as actually outside the ambit of the business concerns of the assessee, especially when the undertaking owned by the assessee is one which is to some extent a polluting industry. Hence, expenditure incurred by the assessee for establishing drinking water facilities for the residents in the vicinity of its refinery and for providing aid to the schools run for the benefit of the children of those residents was allowable as deduction.
3.7   Donation can also be claimed under section 37(1): If the contribution made by an assessee is in the form of donations of the category specified under section 80G, but it could also be termed as an expenditure of the category falling under section 37(1), then the right of the assessee to claim the whole of it as allowance under section 37(1) cannot be denied - Mysore Kirloskar Ltd. v. CIT [1987] 166 ITR 836/30 taxman 467 (Kar.).
3.8   Admissibility of donation if proved as relatable to carrying on of business : In the case CIT v. Industrial Development Corp of Orissa Ltd. [2001] 249 ITR 401/115 Taxman 626 (Orissa) the Hon'ble Odisha High Court held that even donation can be treated as business expenditures, provided such donation can be related with the business of the assessee. In this case the donation was disallowed as there was nothing on record to establish that the donation made by the assessee to the Chief Minister's Relief Fund was directly connected with and related to the carrying on of the assessee's business. However, this case provides a landmark ratio of allowing donation as business expenditure. In the case of mining Companies as the funds are specifically for the local area development under CSR, there is no reason why such expenditures should not be allowed under section 37(1).
4. Concluding remarks
4.1   Overall the proposed Finance Bill, 2014 has created a fix with regard to the admissibility of the CSR expenditures. It is the job of the government to align various legislations. The Companies Act mandates various types of CSR expenditures. As discussed above, giving grant to Prime Minister Relief Fund, National Defence Fund is a CSR expenditure at the same time there is a list of priority activities, which the companies should do under CSR. The Hon'ble Finance Minister in his budget speech declared that slum development will also be included as CSR expenditure.
4.2   However, differential tax treatment of the legally permissible CSR expenditure will defeat the very purpose of enacting CSR. Why should a company incur CSR expenditure on priority areas without having any tax benefit, when it can incur the same expenditure with 100% tax deductions. The Government should provide a level playing ground for all kind of CSR expenditure.

. Amendment Proposed
Section 54EC is proposed to be amended by the Finance Bill 2014 by insertion of another proviso in sub-section (1), after the first proviso (now existing) with effect from the 1st day of April, 2015, namely:
"Provided further that the investment made by an assessee in the long-term specified asset, from capital gains arising from transfer of one or more original assets, during the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed fifty lakh rupees."
2. Why was this amendment thought of?
This amendment is proposed to be brought in because in the following cases the ITAT benches have held that the assessee can invest up to Rs. 1 Crore in capital gain bonds under section 54EC which is spread over a period of two financial years at Rs. 50 lakhs in each financial year. However, such investment should be made within a period of 6 months from the date of transfer:
  i) Aspi Ginwala, Shree Ram Engg. & Mfg. Industries v. Asst. CIT [2012] 20 taxmann.com 75/52 SOT 16 (Ahd.)
  ii) Vivek Jairazbhoy v. Dy. CIT [ITA No.236/Bang/2012 vide their order dated 14.12.2012]
iii) Smt. Sriram Indubal v. ITO [2013] 32 taxmann.com 118 (Chennai)
iv) ITO v. Ms. Rania Faleiro [2013] 33 taxmann.com 611 (Panaji - Trib.)
CBDT vide its Circular No. 3/2008, dated 12-3-2008 explains the (existing) proviso introduced by the Finance Act, 2007 as under:
"28.2 The quantum of investible bonds issued by NHAI and REC being limited, it was felt necessary to ensure that the benefit was available to all the investors. For this purpose, it was necessary to ensure that the limited number of bonds available for subscription is also available for small investors. Therefore, with a view to ensure equitable distribution of benefits amongst prospective investors, the Government decided to impose a ceiling on the quantum of investment that could be made in such bonds. Accordingly, the said section has been amended so as to provide for a ceiling on investment by an assessee in such long-term specified assets. Investments in such specified assets to avail of exemption under section 54EC, on or after April 1, 2007 will not exceed fifty lakh rupees in a financial year."
It was sought to be argued from the language used in the aforementioned circular that the cap of Rs. 50 Lakhs in the proviso to section 54EC(1) was only an investment cap and not a deduction cap. In order to get over such argument which appears to be reasonable and the above stated decisions the proposed amendment restricting the claim to Rs. 50 lakhs is brought through necessary amendment to sub-section (1) of section 54EC by adding one more proviso by restricting the total deduction to just Rs. 50 lakhs. The proposed amendment has been carefully worded in such way to cover even cases of transfer of capital asset in the second half of the financial year whereby the assessee gets time till the beginning of the next financial year to make investment under section 54EC of the Act.
3. One Redeeming Feature
However one redeeming feature is that the assessees who resorted to this kind of tax planning by disposing of capital asset in the second half of financial year 2013-14 are still not affected by this proposed amendment as they can invest additional sum in the current financial year (2014-15) provided such investment is made within 6 months from the date of transfer as the proposed amendment would take effect only from the Assessment Year 2015-16 corresponding to the financial year 2014-15. The assessees who would have resorted to tax planning as stated above are liable for capital gains, subject to available exemptions, for the assessment year 2014-15 and as a matter of policy/principle none of the proposed amendments has been given retrospective effect.

No such amendment still came to my eyes.