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 3[the immediately preceding 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.
The Central Government hereby appoints the 19th September 2018, as the date on which the following provision of section 135 of the act shall come into force.
1) In section 135 for sub-section (1),for the words—
Any financial year substituted by the words the immediately preceding financial year.
The meaning of the words ‘during any financial year’ used in section 135(1) was not clear. In the absence of such clarification, differing views are possible as to whether a company should consider net worth/turnover/net profit for the immediately preceding financial year or the current financial year. To address this issue, the 2017 Amendment Act replaces the words ‘during the immediately preceding financial year’.
Hence, the applicability of CSR requirement will be decided based on net worth/ turnover/net profit for the immediately preceding financial year.
2) A proviso inserted in sub-section (1) of section 135—
Provided that where a company is not required to appoint an independent director under sub-section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or more directors.
The 2013 Act contains different criteria for applicability of CSR and appointment of Independent director. Based on the prescribed criteria, a company that is not otherwise covered under the ID appointment requirements may also need to appoint an ID for purpose of inducting into the CSR committee.
The 2017 Amendment Act states that where a company is not required to appoint an ID u/s 149(4), it will constitute the CSR committee with two or more directors.
3) In section 135, for sub-section (3), in clause (a),for the words as specified in schedule VII the following words and figures shall be substituted, namely :-
in areas or subject, specified in Schedule VII.
4) In section 135, for sub-section (5), for the Explanation-
Explanation.—for the purposes of this section “average net profit” shall be calculated in accordance with the provisions of section 198.
The following Explanation shall be substituted, namely:-
Explanation.—For the purposes of this section "net profit" shall not include such sums as may be prescribed, and shall be calculated in accordance with the provisions of section 198.
An explanation to section 135(5) of the 2013 Act states that for the purpose of this section, the average net profit will be calculated in accordance with section 198.
Section 198 deals with calculation of profit for managerial remuneration and requires specific addition/deduction to be made in the profit for the year. In addition to this, the case the CSR rules states that whilst calculating net profit, any profit arising from overseas branches of the company and dividend received from other companies in India covered u/s 135 should be reduced. Since section 198 does not contain these deductions, there was an apparent conflict between the two requirements.
To the issue having regarding calculation of Net profit, the 2017 Amendment Act states that the Central government may prescribe sums which will not be included for calculating net profit of a company u/s 135.
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