*Provisions of Section135(1) as notified till date:
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.
Provisions of Companies ( Corporate Social Responsibility Policy) Rules 2014, Rule No. 3(2) Corporate Social Responsibility as notified till date:
Every company which ceases to be a company covered under subsection (1) of section 135 of the Act for three consecutive financial years shall not be required to -
(a) constitute a CSR Committee; and
(b) comply with the provisions contained in sub-section (2) to (5) of the said section,
till such time it meets the criteria specified in sub-section (1) of section 135.
Explanation:
Once a company is covered under Section 135(1) it can only avail exemption if any of the criteria is not met for three consecutive years.
Further if a company is covered under Section 135(1) (because it met any of the 3 criterion), provisions of Section 135 (1) to (5) will have to be complied with, even if any of the criteria amount falls below the thresh hold limit during any particular financial year.
Exemption is available only, after three consecutive years of not meeting the criteria have passed.
Answer to your question:
- Does the Company still need to set aside funds for CSR activites? Yes. The Company will have to keep complying with Section 135 (1) to (5).
- Does this mean that the Company needs to spend 2% of the average net profits of the preceding 3 financial years, at least for a period of next 3 financial years (even if the Co. does not qualify for CSR in the upcoming years)? Yes. Thought criteria is not met with in FY-2017-18, but the company was covered last year, (even a single year of coverage will fulfil the condition of “any of the three preceding financial years” as given in General Circular No. 21/2014, dated: 18.06.2014). Further in this case three consecutive years of not meeting the criteria will be FY-2017-18, FY-2018-19 and FY-2019-20 and thus the Company will be required to spend 2% of the average net profits of the preceding 3 financial years, at least for a period of next 2 financial years (as first FY 2017-18 of has gone by, complying with the provisions) even if it does not qualify for CSR in the upcoming years (FY-2018-19 and FY-2019-20).
Hope this was usefull please share your comments.
*Disclaimer: Opinion expressed here is my personal opinion and should not be construed as legal advice for any purpose what so ever it may be.
CAclubindia
