Corporate social responsibility

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Virag Jain (Querist)

11 February 2015 A Company has "Net Profits before Tax" of Rs. 6 crores and Net Profit after Tax as Rs. 4.5 crores as on 31st March 2014.

By Plain reading of Section 135 and reading with rules mentioned thereunder it is not clearly specified whether CSR is applicable on NET PROFIT After Tax Or Before Tax.

Also section 198 is not applicable here.

Kindly Advise.

c.bakshi

c.bakshi (Expert)

12 February 2015 you have to consider "average net profit" and calculate the profit by following the provisions of 198 of companies act, 2013. NoWhere in the act specify about the non applicability of this section

Virag Jain

Virag Jain (Querist)

12 February 2015 Section 135 read as follows:

135. Corporate Social Responsibility.
Sub section(1) Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a

"net profit of rupees five crore or more"

during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

Sub section(5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year,

"at least two per cent. of the average net profits"

of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.

Explanation.—For the purposes of this section ― "average net profit" shall be calculated in accordance with the provisions of section 198.

Section only says while calculating Avg. Net Profit of 3 Years, while you spend, you have to take Net Profit as per Section 198 for sub sec. (5) of sec. 135 and not for sub sec. (1) of sec. 135.

What Net Profit is to be taken in for sub sec. (1) of sec. 135, whether before tax or after tax.

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