CSR Expenditure Deductible u/s 37(1) of Income Tax Act: Delhi HC [Read Order]

 The Delhi High Court has held that the Corporate Social Responsibility (CSR) could be deducted under Section 37(1) of the Income Tax Act 1961.

In the instant case, an appeal was filed by the revenue challenging the order of Income Tax Appellate Tribunal.

Puneet Rai, who appeared for the revenue contended that the expenditure incurred by the respondent/assessee towards Corporate Social Responsibility [CSR] could not be deducted under Section 37(1) of the Income Tax Act, 1961.  He also contended the order of the tribunal was erroneous because the tribunal had not checked whether or not the expenditure was in the nature of capital expenditure. He further submitted that the assessee being a public sector undertaking couldn’t claim the capital expenditure as deduction.

According to section 37 to claim deduction under this section expenditure should not be of capital expenditure or assessee’s personal expenses. If these conditions are met then the expense can be deducted under section 37 of Income Tax Act 1961

Vidhi Gupta, who appeared on behalf of the assessee contented that the Section 37 of the Income Tax Act, 1961 inserted by finance Act 2014 clearly provides that Corporate Social Responsibility (CSR) expenses referred to in Section 135 of the companies’ act were not allowed as deduction under Section 37 of the act because the Rule 4(1) of the CSR Rules exclude the activities undertaken in pursuance of the normal course of business of company. He also contended that the expenses were not capital expenditure. And the expenditure was exclusively for the business purposes.

 The division bench of Rajiv Shakder and Tara Vitasta Ganju allowed the CSR expenses as deductible expenditure under S. 37(1) of the Act and held that explanation 2 inserted in Section 37(1) was prospective in nature and therefore not applicable in the assessment years in issue. The bench accordingly allowed deduction of CSR expenditure under Section 37 of Income Tax Act 1961.

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