- A Constitution Bench ruling of the Supreme Court in the matter of Madras Bar Association v. Union of India and Another has upheld the constitutionality of the provisions of Companies Act 2013 relating to National Company Law Tribunal subject to certain conditions regarding qualifications, term and structure of the committees. This allows setting up of a body, meant to replace the Company Law Board (CLB), the Board for Industrial and Financial Reconstruction (BIFR) and the Appellate Authority for Industrial and Financial Reconstruction (AAIFR). As a result of this judgment, the remaining provisions of the Act may now be notified.
- The Finance Act, 2015 has amended the test of determination of residence of offshore companies in India. A company shall be said to be resident in India if its Place of Effective Management, in that year, is in India ,i.e, the concept of Control or Management (wholly in India) is replaced with Place of Effective Management.
“Place of Effective Management” means a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole, are in substance made.
- The Institute of Chartered Accountants of India (ICAI) issued a guidance note on Accounting for Expenditure on Corporate Social Responsibility Activities covered under section 135 of the Companies Act, 2013 in accounting for its corporate social responsibility (CSR) expenses.
- To ensure transparent financial reporting, this guidance note requires a company to debit (charge) its profit and loss account (P&L Account) with the CSR expenses incurred by it during the year. Further, such expenses are to be shown as a separate line item in the P&L account.
- Any shortfall in meeting the minimum CSR requirements need not be provided in the P&L Account. Similarly, any excess spent over the minimum CSR requirement cannot be carried forward and adjusted in the next fiscal.
Programmes or projects or activities, that are carried out as a pre-condition for setting up a business, or as part of a contractual obligation undertaken by the company or in accordance with any other Act, or as a part of the requirement in this regard by the relevant authorities cannot be considered as a CSR activity within the meaning of the Act. Similarly, the requirements under relevant regulations or otherwise prescribed by the concerned regulators as a necessary part of running of the business, would be considered to be the activities undertaken in the ‘normal course of business’ of the company and, therefore, would not be considered CSR activities.
An asset whose control has been transferred by the company for purposes of CSR will be charged as expenditure in its Profit and Loss Account. For instance, the expenditure incurred on a school building and transferred to the Gram Panchayat for running and maintaining the school.