ITAT allows Income Tax Deduction of CSR Expenses towards provision of Toilet facilities in Govt. Schools

The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) has given Toyota Boshoku Automotive India a significant tax relief in the case of a deduction claim filed by the assessee for CSR costs paid for provision toilet facilities in government schools.

The company contributed Rs.6.10,541/- to the provision of toilet facilities in government schools where the children of assessee employees were enrolled during the relevant assessment year. The assessee claimed the amount as CSR expenses on its income tax returns for the year, claiming that spending the costs enhances productivity and ensures employee loyalty. The assessee’s claim for deduction was refused by the AO because the expenditure had no connection to the assessee’s company.

On behalf of the assessee, it was argued that the expense was incurred in the course of the assessee’s business and hence should be deducted. However, the authorities, including the CIT(A), determined that the expenses were in the nature of corporate social responsibility and hence not permissible under section 37(1) of the Act, as explained in explanation 2.

The Tribunal bench, which included ITAT Vice President N V Vasudevan and Accountant Member B R Bhaskaran, noted that Explanation 2 to Section 37(1) of the Act was added by the Finance Act, 2014 with effect from April 1, 2015, and so did not apply to the Assessment Year 2012-13.

“As a result, the CIT(A) was incorrect in deciding that the expenditure in question was in the nature of corporate social responsibility and thus not deductible. We believe that, based on the nature of the assessee’s expenses, the claimed deduction should be permitted. The assessee’s argument is supported by the ITAT’s Bengaluru Bench ruling in the case of Mysore Sugar Co. Ltd. (above). In the aforementioned case, it was determined that a contribution to the Sugarcane Welfare Trust by an Assessee, a sugar producing company, was incurred for the purpose of generating benefit for the assessee’s business and was admissible as a deduction. As a result, we direct the Assessing Officer to grant the assessee’s claim.”