New Delhi: As India Inc braces up for a mandatory social welfare spending regime, Corporate Affairs Minister Sachin Pilot has asked the companies to desist from spending on profit-earning activities to meet these norms.
While he is open to the idea of the companies getting some tax benefits for CSR (Corporate Social Responsibility) spending, the minister has said that it would be against the "letter and spirit" of the new requirement if such activities are seen as yet another avenue for earning commercial profits.
The new Companies Bill, in the process of being notified into a law, requires certain class of companies to shell out at least 2 per cent of three-year average annual profit for CSR activities. The bill has got the President's assent.
As they wait for new rules to take effect, many firms have sought to know whether the money spent on education, healthcare and other welfare related ventures of group entities would qualify for the mandatory CSR spending.
Asserting that CSR spending should not be seen as profit- making opportunity, Pilot told PTI that such activities should bring smiles to people, rather than profits to the company.
When asked whether profitable ventures can be considered as part of CSR, the minister said: "Individually, I believe that it is not the right way to view the concept of CSR".
However, the final decision of what constitutes a CSR would be decided by the committee of the board constituted by the concerned company in that regard, the minister said.
"CSR should be viewed as something that you are doing - whether through cash or or kind, or man-hours, or anything else - to bring smiles to the people's faces and not for your EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation)," Pilot said.
The whole purpose of this innovative legislation to involve corporates into the society's welfare would be defeated if they view CSR spending as "profit making opportunities", he added.
While finer details would emerge after the specific rules for various clauses of the new Companies Bill are formulated, the CSR norms would be applicable to companies having either net worth of Rs 500 crore or more; turnover of Rs 1,000 crore or more; or net profit of Rs 5 crore or more.
The new legislation also requires companies to set up a board-level CSR committee that has three or more directors including at least one independent director.
"...let the final call be taken by the CSR committee on the board of each of these companies and let them disclose to the world that this is what we are doing as CSR. Let it pass the muster of the board," Pilot said.
The minister said he wondered whether activities that help the companies derive commercial profits can in "letter and spirit" be called CSR.
"But, I am not the lord and master of the CSR committee" and it is they who would take the final call," Pilot said.
"If you are devastating the environment, not giving opportunities to communities in making profits, and then you give 2 per cent thinking that you are doing great benefit to the country and the economy, then it is not the right (way) to look at it," he added.
With regard to demands from various quarters that CSR activities should be given tax benefits, Pilot said that he would be open to such an idea but the final decision rests with the Finance Ministry.
"I would be happy if the companies are able to get some taxation benefits out of it (CSR activities). I don't know what kind of structure it might evolve (into) and what might be the proposals that will come to the Finance Ministry. If companies are getting some benefits... I would be open to that idea," he said.
