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CS Professional · CSR and Social Governance · CSR Policy

Meridian Textiles Ltd, a company covered by section 135(1), had average net profit of Rs 40 crore over its three immediately preceding financial years, computed under section 198. Its Board approved a CSR spend of Rs 70 lakh for the year. What is the position under section 135(5)?

The company must spend at least Rs 80 lakh. Section 135(5) fixes the minimum at two per cent of the average net profits of the three immediately preceding financial years, which is 2% of Rs 40 crore. The Board cannot approve a lower figure of Rs 70 lakh.

  1. ARs 70 lakh is sufficient because the Board may fix any amount it considers reasonable
  2. BThe company must spend at least Rs 80 lakh, being 2% of the average net profit of the three preceding yearsCorrect
  3. CThe company must spend at least Rs 1 crore, being 2% of the net profit of the preceding year
  4. DThe company must spend at least Rs 80 lakh, being 2% of the net worth

Explanation

Section 135(5) requires spending of at least 2% of the average net profits of the three immediately preceding financial years. 2% of Rs 40 crore is Rs 80 lakh, so Rs 70 lakh falls short by Rs 10 lakh. Option C uses the wrong base (one year) and the wrong figure.

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