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Income tax on csr expenses

Tax queries 2853 views 1 replies

Manoj Kumar Karna

Proprietor

57 Points Posted on 12 August 2016

Dear Expert,

My client is taking Unipol from one of the NGO having registration under section 80 G of IT Act on hiring basis and given the same to his client by adding some margin. The above said transaction is duly supported by valid agreement between parties. This Unipol is being used for print advertising in the form of hording. The NGO is not raising any invoice and whenever payment is being made by my client, NGO has issued Donation receipts. Presently my client is deducting TDS @ 2%. Now NGO has approached to my client for not deduction of TDS on this type of transaction and request to show it as CSR expenses. My client is not covered under CSR obligatory list. My querry in this regard is that:-

NGO is giving donation receipts are sufficed for claiming expenses?
Is it allowable expenditure under Income Tax Act?
Whether TDS is applicable on payment made to NGO?

Thanks in Advance

CA Manoj Kr Karna

Replies (1)

CA Harshal Totla

Chartered Accountant

2229 Points Posted on 12 August 2016

Aa per section 135 of the companies act,2013 read with Companies (CSR Policy) Rules,2014 any activity undertaken in the normal course of business does not amounts to CSR activity. The above transaction clearly amounts to commercial transaction in the normal course of business of assessee. Hence, it is clearly a non-CSR activity.
Moreover, had it been a CSR activity then also it is not allowable under Income tax as per explanation 2 to section 37(1).
Now coming on your questions:
Looking into the crux of transaction, the amount given to NGO is consideration towards goods provided by it, so it can't be a donation under the purview of section 80G as per my understanding. It is a normal business expenditure in the course of business.
Whether tds is liable to be deducted u/s 194C? The said transaction doesn't comes under the definition of 'work' covered under section 194C. So, in my opinion no need to deduct TDS. Experts can correct me if i am wrong.