Page 7 - 31. COMPILER QB - CSR

D. In the given scenario
The MCA has clarified that ‘any financial year’ referred to under sub-section (1) of section 135 of the Act

read with Rule 3(2) of Companies CSR Rule, 2014, implies ‘any of the three preceding financial years’.
A company which meets the ‘net worth’, ‘turnover’ or ‘net profits’ criteria in any of the preceding three
financial years, but which does not meet the criteria in the relevant financial year, is still required to
constitute a CSR Committee and comply with provisions of sections 135 of the Companies Act, 2013.
As per the criteria to constitute CSR committee -

1. Net worth greater than or equal to Rs 500 Crore: This criterion is not satisfied.
2. Sales greater than or equal to Rs 1000 Crore: This criterion is not satisfied.
3. Net Profit greater than or equal to Rs 5 Crore: This criterion is satisfied in the financial year ended March
31, 2017 when the net profit was Rs 8 crore.
Hence, the XYZ Ltd. is required to form a CSR committee.

Q6 (Nov 18 – 4 Marks)
Baby Limited manufactures consumable goods for infants like bath soap, cream, powder, oil etc. As part of its

CSR policy, it has decided that for every pack of these goods sold, Rs0.75 will go towards the "Swachh Bharat
Foundation" which will qualify as a CSR spend as per Schedule VII. Consequently, at the year end, the
company sold 40,000 such packs and a total of Rs 30,000 was recognized as CSR expenditure. However, this
amount was not paid to the Foundation at the end of the financial year. Will the amount of Rs 30,000 qualify

to be CSR expenditure?
SOLUTION
Baby Ltd. has earmarked 75 paise per pack to spend as CSR activities. However, only by earmarking the

amount from such sales for CSR expenditure, the company cannot show it as CSR expenditure. To qualify the
amount as CSR expenditure, it has to be spent. Hence, Rs30,000 will not be automatically considered as CSR
expenditure till the time it is spent on CSR activities i.e it is deposited to ‘Swachh Bharat Foundation’.

Q7 (Jan 21 – 4 Marks)
Sun Shine Limited is a company which seems to be covered under the ambit of CSR rules. As part of its CSR
contribution an amount of Rs. 40,000 p.m. was spent by way of adoption of 2 families of drought hit areas.

The average net profits of immediately preceding the financial year was Rs. 1,80,00,000. Please note that the
company commenced its commercial activities only on the first day of the immediately preceding financial
year. The Accountant of the company says that CSR provisions are not applicable to his company since it is
one year old and in case if it is applicable he wants to carry forward the excess amount spent on account of
CSR activities to future years.

You are required to comment with the figures, whether the contention of the Accountant is correct in context
of CSR provisions?
SOLUTION

As per section 135 of the Companies Act 2013, every company having either
● net worth of Rs. 500 crore or more, or
● turnover of Rs. 1,000 crore or more or

31. 6