The Income Tax Appellate Tribunal (ITAT), Ahmedabad, has delivered a significant ruling, stating that Corporate Social Responsibility (CSR) donations made to the Gujarat Chief Minister’s Swachchta Nidhi are eligible for tax deduction under Section 80G of the Income Tax Act, 1961. This judgement is likely to provide much-needed clarity and relief to companies fulfilling their CSR obligations while also seeking tax benefits.
The case involved a company that donated ₹3.57 crore to the Gujarat CM Swachchta Nidhi as part of its CSR expenditure. The company claimed a 50% deduction of the donation under Section 80G in its income tax return. However, the tax authorities initially questioned the eligibility of such deduction, arguing that CSR expenses are a statutory requirement under the Companies Act, 2013, and may not qualify as voluntary donations for the purpose of Section 80G.
Ruling in Favour of Taxpayer
The ITAT, after examining the facts and legal provisions, ruled in favour of the taxpayer. The tribunal observed that there is no specific bar in Section 80G which disallows deduction for donations made as part of CSR obligations. The law only requires that the donation be made to a fund or institution approved under Section 80G, and the Gujarat CM Swachchta Nidhi is such a notified fund. The tribunal relied on similar decisions by other benches, including the Mumbai and Delhi ITATs, which have held that even though CSR expenditure is mandatory, it does not lose its character as a donation if made to an eligible fund.
The ITAT also referred to the Finance Act, 2014, which clarified that CSR expenses are not allowed as business expenditure under Section 37(1) of the Income Tax Act. However, this restriction does not extend to deductions under other sections, such as Section 80G, provided the prescribed conditions are met. The Ahmedabad ITAT’s decision aligns with the broader judicial trend, where tribunals have increasingly allowed 80G deductions for CSR donations made to specified government funds, such as the Prime Minister’s National Relief Fund and now, the Gujarat CM Swachchta Nidhi.
Tax experts note that this issue has been a point of litigation across India, with authorities often denying deductions on the ground that CSR donations are not voluntary. However, tribunals have clarified that the absence of a reciprocal benefit to the donor, and the fact that the donation is made to an approved fund, are sufficient grounds for deduction under Section 80G. There is also no express intent in the law to deny such benefits for all CSR expenditure.
To claim the deduction, companies must ensure that the donation is made to a fund notified under Section 80G and obtain the necessary receipt mentioning the PAN and registration number of the fund. It is also important to note that companies opting for the new concessional tax regime may not be eligible to claim such deductions.
This ruling is expected to encourage more companies to contribute to government-led cleanliness and social welfare initiatives, knowing that their CSR donations can also bring tax savings. It also sets a precedent for similar cases, reducing uncertainty and potential litigation on this issue. The decision is a positive step towards aligning tax incentives with national development goals, especially in areas like sanitation and public health.
