In this essay we will discuss about Corporate Social Responsibility. After reading this essay you will learn about: 1. Concept of Corporate Social Responsibility 2. Introducing Mandatory CSR under Companies Act, 2013 3. Activities to be Incorporated.
Essay # Concept of Corporate Social Responsibility (CSR):
The corporate sector has responsibility towards its own business entity, shareholders as well as towards society. Thus every corporate unit must have a responsibility for the upliftment of society which is broadly considered as Corporate Social Responsibility (CSR).
Social responsibility of business indicates norms and obligations of decision making authority to take appropriate actions which can protect and improve the welfare of society as a whole along with protecting the interest of business concern.
In present times, the concept is gradually more and more acceptable with changing situations. Thus social responsibility broadly refers to the obligations and duties of business to the society as a whole. According to K.K. Andrew, “Social responsibility may be taken to mean intelligent and objective concern for the welfare of the society.”
Again, the United Nations Industrial Development Organisation (UNIDO) defines Corporate Social Responsibility (CSR) as “a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders”.
Thus CSR is a way through which a company usually attains a balance between economic, social and environmental activities. Thus, spending on CSR by a company is a simple process of giving back to the society in which it is doing its business activity and making profits for its shareholders sincerely.
Essay # Introducing Mandatory CSR under Companies Act, 2013:
Corporate social-Responsibility (CSR) has been made mandatory under Companies Act, 2013 passed in August 2013 which replaced the 57 years old Companies Act, 1956.
As per section 135 of the Act every company having net worth of Rs 500 crore or more or turnover of Rs 1,000 crore or more or a net profit of Rs 5 crore or more during any financial year will have to spend, in every financial year regularly, at least 2 per cent of the average net profits of the company made during the three immediately preceding years.
Here the term ‘net profit’ shall indicate net profit before tax as per book of accounts and shall never include profits earned from branches outside India. Here CSR reporting will have to be done on an annual basis and that too commencing from the financial year 2014-15.
Moreover the modalities suggest that the companies identified for mandatory CSR spending will have to constitute a CSR Committee of the Board which will include three or more directors along with at least one independent director.
This CSR Committee will formulate the CSR policy and recommend to the Board for undertaking activities to be undertaken by the company. It will also earmark the amount of expenditure to be incurred on CSR activities and will also monitor the CSR policy of the company and its implementation regularly.
Essay # Activities to be Incorporated under CSR:
The draft rules suggest the following activities to be included under CSR:
(i) Activities related to eradicating poverty and hunger;
(ii) Activities related to promotion of education;
(iii) Empowerment of women and promoting gender equality.
(iv) Reducing child mortality and improving material health;
(v) Combating human immune deficiency virus and control acquired immune deficiency syndrome, malaria and- other diseases;
(vi) Promoting employment enhancing vocational skills.
(vii) Ensuring environmental sustainability;
(viii) Undertaking social business projects;
(ix) Contributing towards Prime Minister’s National Relief Fund or any other fund set up and managed by either central government or state government for socio-economic development and relief purposes and also to the funds for the welfare of Scheduled Castes, Scheduled Tribes, other backward classes, minorities and women; and
(x) Any other matter as may be prescribed time to time.
In the mean time, a number of companies have welcomed the new mandatory CSR Act and they are of the view that this Act will strengthen their CSR initiative and will permit them to continue with such activities genuinely for a longer period.
However, there are some gray areas within CSR activities. The first confusion is related to whether an activity comes under CSR or not. Sometimes it is found that the boundary between normal business activities and CSR activities is hazy.
The second confusion arises in respect of tax implications of the CSR activities. Whether the CSR spending of certain company will be eligible for tax exemptions or not will be depending on the discretions of related tax authorities. Similarly, arguments are also made against those companies involved in CSR activities on our hand but flouting the norms related to environment, labour welfare etc. on the other.