Page 9 - 31. COMPILER QB - CSR

SOLUTION

Applicability of CSR:
A company which meets the net worth, turnover or net profits criteria in immediately preceding financial
year will need to comply with provisions of sections 135(2) to (5) read with the CSR Rules.
According to the Act, the Board of every company shall ensure that the company spends, in every financial

year, at least two percent of the average net profits of the company made during the three immediately
preceding financial years or where the company has not completed the period of three financial years since
its incorporation, during such immediately preceding financial years, in pursuance of its Corporate Social
Responsibility Policy.

Analysis of given case:
As per the criteria
1. Net worth greater than or equal to Rs. 500 crore: This criterion is not satisfied.

2. Sales greater than or equal to Rs. 1,000 crore: This criterion is not satisfied.
3. Net profit greater than or equal to Rs. 5 crore: This criterion is satisfied in financial year ended 31 st
March 2020 i.e. immediate preceding financial year.
Hence, the Board has to spend on CSR Activities.

Quantification and mode of utilisation: As per the facts given in the question amount spent on CSR
Activities during the year 2020-2021 pertains to the average net profits of the immediately preceding
financial year i.e. 2019-2020. Accordingly, the company is under the obligation to transfer/expense 2% of Rs.
7.10 crore i.e. 0.142 crore = Rs. 14,20,000 in the year 2020-2021.

Nice Limited has spent Rs. 6,60,000 during the financial year 2020-2021 for developing vocational skills of
local youth which is a permissible activity of Corporate Social Responsibility under Schedule VII to the
Companies Act, 2013. However, expenditure of Rs. 3,50,000 spent on commercial activities at concessional
rate does not qualify as expenditure on CSR activity. Hence, the amount spent of Rs. 6,60,000 by Nice
Limited for financial year 2020-2021 is less than the required expenditure of Rs. 14,20,000 to be spent as

per the provisions of CSR Rules.

Decision:

Since the company fails to spend such amount, the Board has to report the reasons for not spending the
amount as per section 135(5). Further, because the company does not have any on-going project, the
unspent amount of Rs. 7,60,000 (Rs. 14,20,000 – Rs. 6,60,000) will be transferred to a Fund specified in
Schedule VII to the Companies Act, 2013 within a period of 6 months of the expiry of the financial year
2020-2021.

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