Page 38 - Banking Finance June 2017

ARTICLE

to create a better work environment, rather than as forced table activity in India but also gives companies varying tax
expenditure. benefits. Both tax and CSR consultants are now putting their
heads together to chalk out a CSR strategy for India Inc
In the event, any misgivings have begun to thin out and which would also provide the best tax efficiency.
company secretaries in corporate India have started to view
Companies Act 2013 - which has replaced the six-decade- The fine print
old legislation governing the way corporate function - as a For instance, writing a cheque towards the PM's National
godsend since it elevates them to a new plane of corporate Relief Fund (PMNRF) would entitle the donor company to a
governance. Also, there is the additional professional oppor- deduction of the entire donation amount from its taxable
tunity of secretarial audits coming their way. profits. On the other hand, if a company has constructed a
school building in a village, no tax benefit may be available
The new rules effective 2014 - 15 also require listed firms - at least not without long-drawn litigation.
to set up a CSR committee of their board members, which
will include at least one independent director. However, the While both the donations towards PMNRF and promotion
worry for company secretaries is that they will have to use of education are activities that qualify as CSR spends under
their judgement more often. Minority shareholders will have the new Companies Act, the tax benefits could vastly differ.
reason to smile as the new law seeks to improve the
redressal mechanism available to them. One can use class And, the new law does not stipulate penalties for non-com-
action law suits to seek justice for any wrongdoings by com- pliance, though companies are required to justify any short-
pany promoters or their auditors or consultants. comings in this regard. "It is no surprise that the imposition
of such obligations has not been well received by a large
At the end of the day, the corporate entity stands to ben- section of the corporates," says Shardul Shroff, managing
efit the most. For, the new company law will help catapult partner of law firm Amarchand Mangaldas, who also points
Indian firms to the international stage through the merger out, "While the new Act does give companies leeway in case
and acquisition (M&A) route. With the new company law, they are unable to make such contributions, most compa-
domestic companies can go ahead with their M&A activity nies fear the obligation will eventually snowball into becom-
abroad without facing legal hurdles in India by setting up ing a mandatory provision."
overseas listing vehicles.
To make the industry feel comfortable with the new law,
Industry body Ficci says that the new Company law will revo- Pilot says that a few areas prescribed under the law are only
lutionize the administration and management of businesses suggestive in nature and should not be seen as a restrictive
in times to come. Its President Naina Lal Kidwai hopes that list. "We have left the canvas very wide as we thought it
there are "no inconsistencies in various laws since consis- would not be proper to make it restrictive," he says. Also,
tency and certainty in laws helps in effective functioning of corporate entities were asked to give preference to their
business". local area of operations for such CSR activities, while those
not being able to spend the required amount would need
So, come April 1, 2014, all companies with turnover of Rs to specify reasons for the same in their annual CSR reports.
1,000 crore and more -- or a net worth of Rs 500 crore and
more or net profit of Rs 5 crore and more -- will have to As an immediate impact, the CSR economy in India will grow
spend at least 2 per cent of their three-year average profit manifold, say experts. By one estimate, registered compa-
every year on CSR activity. Effective next fiscal (2014-15), nies in India will spend Rs 18,000 crore on CSR activities
Pilot has made it amply clear that "this money would not alone, according to Pavan Kumar Vijay of Corporate Profes-
come to the Centre. It is the companies' money and they sionals Capital Pvt Ltd, a legal and financial services firm,
can spend in line with the decision taken by the CSR com- who notes, "Companies will now be required to spend on
mittee of their boards. But they must report the same." structured activities rather than religious causes and the like,
which would mean that there is big scope for CSR consult-
Many believe that this will not only boost corporate chari- ing, and we expect this activity to grow."

38 | 2017 | JUNE | BANKING FINANCE

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