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Applicability of csr

Muralidharan (Self Employed) (1034 Points)

30 May 2016

30th May 2016

Dear Members

During the year ended 31st March 2016, a closely held public limited company has arrived at a Net Profit of Rs.6.00 crores. The company was operating from a leased land. The owner of the land had forced the company to vacate the land. For vacating the land the company during year ended 31.03.2016 had received an amount of Rs.5.00 crore as one time compensation from the owner of the land. The said 5.00 crores received is being disclosed in the statement of profit & loss as an execeptional income.

My query is whether the company has to comply with the provisions of Section 135 (corporate social responsibility) for year ended 31.03.2016, since the net profit is more than Rs.5.00 crores. I request the forum members to clarify.

with regards

Muralidharan

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3 Replies

Mandar (Associate) (561 Points)
Replied 30 May 2016

Yes , the Company has to comply with the CSR provision

P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)
Replied 30 May 2016

For the purpose of CSR net profit has to be calculated as per Sec.198. As per Sec.198(3) following items of profit are to be excluded:

(a)		profits, by way of premium on shares or debentures of the company, which are issued or sold by the company;
(b)		profits on sales by the company of forfeited shares;
(c)		profits of a capital nature including profits from the sale of the undertaking or any of the undertakings of the company or of any part thereof;
(d)		profits from the sale of any immovable property or fixed assets of a capital nature comprised in the undertaking or any of the undertakings of the company, unless the business of the company consists, whether wholly or partly, of buying and selling any such property or assets:
		Provided that where the amount for which any fixed asset is sold exceeds the written-down value thereof, credit shall be given for so much of the excess as is not higher than the difference between the original cost of that fixed asset and its written down value;
(e)		any change in carrying amount of an asset or of a liability recognised in equity reserves including surplus in profit and loss account on measurement of the asset or the liability at fair value.

Compensation for vacation of land being of capital nature will be excluded from net profit and CSR provisions will not apply.

Muralidharan (Self Employed) (1034 Points)
Replied 30 May 2016

Dear Sir

Thanks for your reply. You have said that "compensation recd for vacation of land" is "capital in nature" and the same should be excluded for the purpose of arriving at "Net Profit". Could you kindly show light how can I justify that the said receipt is of "capital in nature". It shall be noted that the company is offering the said income (receipt of 5.00 crore) for taxation at full rate of 30% plus applicable surcharge and cess.

with regards

Murali