Citizens' Issues
Israel launches ground operation inside northern Gaza

Israel carried out overnight air strikes against Gaza’s security headquarters and police stations, in the heaviest bombardment since operations began on 8th July

For the first time, Israel has launched a ground operation inside northern Gaza to silence Hamas rocket fire while thousands of Palestinians fled their homes after the Israeli military threatened to widen its assault that has killed nearly 170 people in six days.


Ignoring global calls for a ceasefire, Israeli troops — thought to be naval commandos — briefly entered Gaza early Sunday and raided a missile launching site. This is the first time Israeli forces have acknowledged they’ve entered Gaza in what appeared to be the ground assault.


Israel has been building up its troops along the border with northern Gaza, fuelling speculation of a possible ground invasion.


During the incursion, which lasted about half-an-hour, both sides exchanged gunfire at the launch site, an Israeli military source said.


Four Israeli troops suffered light injuries, but all the soldiers returned home safely, the source said.


The Israeli jets later dropped leaflets at Beit Lahiya, home to about 100,000 people, warning residents to evacuate their homes ahead of their “short and temporary” campaign to begin.


“The Israeli Defense Forces intend to attack terrorists and terror infrastructures ...” the leaflets said, mentioning a list of areas that will be targeted.


“Israel is currently attacking, and will continue to attack, every area from which rockets are being launched at its territory.”


The Palestinian death toll from the Israeli air strikes hit 168 with another 1,120 people wounded, the emergency services said.


About 17,000 people, fearing for their lives, have taken shelter in installations of the UN agency for Palestinian refugees, UNRWA, its spokesman Chris Gunness said in a statement.


Meanwhile, around 800 Palestinians holding dual citizenship have reportedly begun leaving Gaza via Israel’s Erez Crossing.


Israel carried out overnight air strikes against Gaza’s security headquarters and police stations, in the heaviest bombardment since operations began on 8th July.


A senior security official has said the operation in northern Gaza is necessary because the area accounts for far more rocket attacks than other areas.  


Budget 2014: CSR to Chequebook CSR

The Government’s move to keep CSR activities out of the business expenses periphery, would lead private sector making lump sum donations or contributions to eligible trusts and institutions instead of taking an initiative for actually making a difference to the society

The Finance Bill 2014 has proposed many changes under both, direct and indirect taxes. One such proposal, which is expected to have a major impact on the corporate sector is the exclusion money spent on corporate social responsibility (CSR) by companies, from the classification of business expenditure, resulting in a notional increase in the taxation burden on companies.

Requirement of CSR

Section 135 of the Companies Act, 2013 requires companies with a net worth of Rs500 crore or more / turnover of Rs1,000 crore or more / net profit of Rs5 crore or more, during any of the three preceding financial years, to contribute at least 2% of the average net profits of the company during the three immediately preceding financial years towards CSR activities as listed out in Schedule VII to the Act, 2013.

The draft CSR rules had provided that the tax treatment of CSR spent would be in accordance with the income Tax (I-T) Act as may be notified by Central Board of Direct Taxes (CBDT). However, the same was dropped from the final version of the CSR Rules leaving an ambiguity with respect to the tax treatment of expenditure incurred on CSR activities by companies. In the absence of any clarification, general consensus in the corporate world was to treat it as business expenditure. This would have resulted in deduction of the CSR spent from net profit of the company, thereby reducing its tax liability.

The Change

Section 13 of the Finance Bill, 2014 seeks to amend Section 37 of the Income Tax Act, 1961 (I-T Act) relating to general expenditure by inserting an Explanation II to sub-section (1) of Section 37 which states that:

‘For the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.’

The above amendment will take effect from 1 April 2015 and accordingly will apply to the assessment year (AY) 2015-16 and subsequent years.


The rationale was that companies with specified net worth,  turnover or net profit share a portion of the Government’s burden in meeting social obligations by undertaking CSR activities. If such expenses were to be allowed as tax deduction for these corporates, this would result in subsidizing of around one third of such expenses by the Government by way of tax expenditure.

Are there any exceptions to the prohibition?

Section 37 (1) of the IT Act has been quoted below:

‘Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession’.

This means that expenses falling under sections 30 to 36, which are not capital in nature, would qualify as expended for business or profession and therefore deductable from the income of the company.

Thus expenses falling under any of the sections 30 – 36 would fall out of the restriction.

Further, Section 80G of the I-T Act provides for deduction in respect of donations made to certain eligible funds, charitable institutions and trusts. In case a company contributes to such trusts, which falls within permissible CSR activities listed under Schedule VII of the Act 2013, the same would also qualify as a deduction in calculating the taxable income of the assessee.

The Impact

With the changed scenario in sight, resulting percentage spent by companies on CSR activities would be higher than the required 2% of the average three years’ net profits. Let us understand this by way of an illustration:

The aggregate corporate taxation is 33.9% (taking a surcharge of 10%). Since the CSR spend is not included while calculating the net profit, the actual CSR spending percentage can be derived from the following formula: 2% / 1 – 33.9%. Thus the actual CSR spend of companies come to about 3.02% of the net profits, which is much higher than the required 2%.

Furthermore, since companies can now only avail deductions on such CSR spending pursuant to section 80G of the IT Act, the expenditure on CSR activities is most likely to become a passive chequebook CSR spending, wherein companies would be tempted to make contributions to trusts under section 80G of the IT Act, so as to get the deduction benefit instead of making actual spending on CSR activities.

With the Government’s move to keep CSR activities out of the business expenses periphery, thereby causing no actual benefits to the corporate sector, it has sown the seed of a laid back attitude, whereby private sector would merely make lump sum donations or contributions to eligible trusts and institutions instead of taking an initiative to actually make a difference to society.

Further Inclusions to CSR

Lastly, the Budget of 2014-15 included spending on ‘slum development’ activities as an eligible item for CSR to be undertaken by corporates. This was allowed with a vision to encourage the private sector to supplement the government's efforts to make the cities slum free.

(Shampita Das works as an Associate in Corporate Law Group at Vinod Kothari & Company)



vaibhav mathur

2 years ago

By not allowing tax exemption on CSR spend the government is not encouraging corporations to make this spend. The primary purpose of CSR spend is to encourage corporations to spend in innovative ways. These working models will be pilots that government can then ape. However the design of the law right now is such that corporations will be better of donating to run of the mill trusts and state/ center governed funds.

Deepak Sanan

2 years ago

Tax exempt donations to eligible trusts or entities undertaking activities that qualify under CSR spend, may be a positive development. Since these entities are likely to confer greater benefits through their activities than direct expenditure by a corporate in an area that is not its real business. At the same time the corporate needs to spend less than it would directly. In effect, this provision may actually be a win win.


2 years ago

Though what the author says is correct, the actual spend will be 2.678% and not 3.02%, incase CSR expenditure is not considered while calculating net profits.

Need to link coal mines and power plants through rail lines

Narendra Modi government has promised to deliver electricity 24x7 basis. This is a electrifying and positive assurance, but can only happen when fuel supply arrangements are made and actually kept, so that power plants can deliver the power!

After almost five years in preparation, according to the press, Coal India's subsidiary, Central Coalfields Ltd in Sambalpur, has been able to start its mining operation at Amrapali, which has an estimated initial capacity of 12 million tonnes per year. Considering the shortage we have in the country, this would be a welcome contribution to the power generators.


Coal fired plants in India account for 60% of the power generated in the country and the move to import parity pricing, by the government, would toll heavily on consumers by way of increased tariffs. Domestic coal is about 40% cheaper than imports even after taking into account for heating value and/or quality. The government has assumed that import parity price for coal would boost competition. Unfortunately, it will not, and may just create unhealthy situation in the country.


In the meantime, Coal India has been toying with the idea of making fertilisers in a proposed joint venture with GAIL, Food Corporation of India and Rashtriya Chemicals and Fertilizers Ltd (RCF). All because, they have a huge cash reserve of over Rs60,000 crore. Coal India's plans to get minority shareholders support has not been supported by Institutional Investor Advisory Services India Ltd (IiAS), who has charged this to be an "unrelated diversification". And, rightly so. (Read:IiAS advices voting against Coal India's proposal to amend MoA)


At the moment, out of 100 coal based power generating plants, 47 of them are said to be on a hand-to-mouth existence, in terms of coal supplies and their stocks are running in critical levels. It is reported that thermal power plants with a total power capacity of 28,834 MW are stressed on account of lack of fuel linkages and, in fact, actual supplies.


In his Railway Budget, Minister DV Sadananda Gowda announced three new railway lines, and these are:


Tori-Shivpur-Kathautia .. 91 kms

Jharsaguda-Barpalli-Sardega ..52 kms

Bhupeopur-Raigarh-Mand ..180 kms


These will improve coal linkages and will bring nearly 100 million tonnes of incremental traffic to railways and will also facilitate faster transportation of coal to power plants.


In a separate statement, Chairman of Sambalpur based Mahanadi Coalfields has stated that the completion of Jharsaguda-Barpalli-Sardega link in Odisha would enable their Vasundhara coalfields to increase production by 7 million tonnes a year, where, they are now restricting production to only 10 mta due to evacuation and infrastructure restraints. The mine has green clearance for 17 mta.


If the above three rail links are handled on a war footing, it is estimated that these 323 kms of rail lines can unlock upto 300 mta of coal!


Narendra Modi government has promised to deliver electricity 24x7 basis. This is a electrifying and positive assurance, but can only happen when fuel supply arrangements are made and actually kept, so that power plants can deliver the power!


Mineral-rich states like Jharkhand, Odisha and Chhatisgarh need to get faster railway development work done and overcome the hurdles faced in various "clearances" that have become bottlenecks. These have to be removed within a time frame that the government must now set.


In the meantime, in addition to the work that is planned for railway linkages, expeditious movements for evacuation of coal from pit heads etc, our suggestion would be:


Why not Coal India partner with NTPC or others to set up a power generating unit called: Amrapali Power Ltd within the 5/7 km radius of the mines, thus enabling the mine to send the coal by conveyor belt? In fact, Coal India should set up one power plant at the coal mining sites in each of these states and link them to the national power grid!


This will help meeting the challenge of electricity power supply on 24x7 assured by the Prime Minister. It is doable.


(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)


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