Corporate Social Responsibility- CSR Policy, Types, CSR Committee and Net Profit Computation

INTRODUCTION

CSR is not a fixed concept but it is a ever changing concept. Different people have different interpretations and approaches to CSR based on goals and values. CSR is also influenced by demands of various shareholders, stakeholders, customers, employees, society etc. 

CSR takes on different forms depending on the industry such as supporting social causes, donation to charities, volunteer work, involvement in various social work, creating value for the shareholders and customers. CSR represents a certain commitment for management of social, environmental and economic effects which should be in line with public expectations. This means that a company takes into consideration the effect of its actions and decisions on the environment and well-being and so it aims to operate in such a way that it does not harm the society or the environment.

CSR POLICY

A CSR Policy states the activities which are undertaken by a Company as per Schedule VII and the amount which is spent on these activities. This policy mandates that the surplus which comes out of the CSR projects or programs and will not form part of business profit of the Company. The CSR activities should not be the same which is done by the Company in its normal course of business. The following key points should be kept in mind while drafting a CSR Policy:-

1. CSR Policy should be placed in the Company's website.

2. CSR Policy should monitor the projects or programs.

3. CSR activities mentioned in the Policy should be undertaken by the Company.

4. CSR Policy should be made in such a way that it aids in identification, execution and monitoring of CSR Projects.

5. CSR Policy should describe the surplus amount which is involved in CSR activities.

6. CSR Policy should take into account the CSR Committee's recommendations as to how the amount will be spent on CSR activities.

TYPES OF CSR

There are four types of CSR which are as follows:-

1. Economic Responsibility- This responsibility encapsulates the idea that a business is responsible towards its society ensuring economic advantage to both the regions where products are purchased and marketed. This responsibility also entails that a company should provide goods and services which meet the needs of its customers, create jobs, provide compensation for employees and generate profits for its investors and shareholders. The aim is not only to provide profits but also to make sure that the business positively impacts the environment and people. Without this responsibility, a company cannot survive and by fulfilling this responsibility the company is will increase its reputation, trustworthiness and competitiveness in the market.

2. Philanthropic Responsibility- This responsibility means that a company should voluntarily make charitable donations, support local charities etc. which contribute to the well-being and development of the society. This responsibility is a discretionary social responsibility because it is the company's choice to give back to society without expecting anything in return. By completing this responsibility, the company creates a positive impact.

3. Ethical Responsibility- This responsibility means that a business is expected to behave a certain as per society standards and not necessarily by law. By fulfilling this responsibility, the company attracts ethical employees, customers, investors etc. who share the same values and principles. This responsibility involves following moral standards that determine the actions of a company's business.

4. Legal Responsibility- This responsibility presents the idea that a company should follow the law and all applicable regulations, court orders and ethical standards. A company will not engage in any illegal activity that harms its consumers, investors, competitors or the society at whole. The company will be held liable for punishment if it fails to meet its legal responsibilities. This responsibility reflects the expectation of the society to obey the law. Without this responsibility, a company will lose its legitimate rights and may face legal sanctions or penalties.

CSR COMMITTEE

Every company to which CSR is applicable should form a CSR Committee which should consist of three directors out of which one director should be an independent director. An unlisted public company or a private company should have a CSR Committee without any independent director. In case of a foreign company, the CSR Committee will comprise of two people out of which one person should be an Indian Resident nominated by the foreign company and is authorized to accept documents on behalf of the foreign company. The following are the duties of the CSR Committee:-

1. The CSR Committee shall formulate a CSR Policy which in turn will include the activities as per Schedule VII.

2. CSR Committee will recommend a certain amount as expenditure to be incurred on CSR activities.

3. CSR Committee will establish a mechanism for implementing CSR projects or activities as undertaken by the company.

4. CSR Committee will monitor CSR Policy from time to time.

NET PROFIT

Computation for net profit for CSR should be done as per Section 198 of Companies Act, 2013. This section provides that while computing net profits, credit should be given for subsidies and bounty received from the government or any public authority. Credit cannot be given to the following:-

1. Amount spent on notional and unrealised gains and revaluation of assets.

2. Capital profit including profits from the sale of undertaking.

3. Profits on sale of forfeited shares.

4. Any change in the amount of an asset or liability recognised in equity reserves including surplus in profit and loss accounts for an asset's or liability's measurement at fair value.

5. Profits by way of premium shares unless the company is an investment company.

6. Profits from the sale of fixed assets or immovable property of a capital nature unless the company consists of buying and selling any assets or property.

The following amounts cannot be deducted while computing net profits:-

1. Any change in amount of an asset or a liability in equity reserves including surplus in profit and loss accounts for the measurement of asset or liability at fair value.

2. Loss of capital including loss on sale of the undertaking and does not include excess of written down value of any asset which is sold or destroyed or discarded over its sale proceeds or its scrap value.

3. Any voluntary damages, compensation or payments.

4. Income tax and super tax payable under the Income Tax Act, 1961.

REPORTING OF CSR 

CSR reporting is the practice of reporting a company's performance towards CSR providing transparency on the company's impact on the environment and society. CSR reporting is done in the following ways as per the Companies Act, 2013:-

1. Board's report for financial year starting on or after 01/04/2014 includes the annual report on CSR.

2. In case of a foreign company, the balance sheet will contain an Annexure regarding CSR Report.