Capital Asset for CSR

Capital Asset for CSR refers to any tangible or intangible asset created or acquired by a company as part of its Corporate Social Responsibility (CSR) activities under Schedule VII of the Companies Act, 2013. These may include buildings, equipment, or technology developed for educational, healthcare, or community benefit projects. However, such assets cannot be owned by the company. Ownership must rest with a public authority, registered trust, society, or a Section 8 company. The asset should be used solely for CSR purposes, ensuring community benefit and aligning with CSR policy mandates and legal provisions.

Features of Capital Asset for CSR:

• Non-Profit Ownership

Capital asset created under CSR must not be owned by the company itself. As per the Companies (CSR Policy) Amendment Rules, 2021, ownership of the asset should be transferred to a Section 8 company, registered public trust, registered society, or a government authority. This ensures that the asset is used for public welfare and not for commercial gain. The transfer of ownership must be documented and aligned with CSR rules to avoid legal or tax-related issues and to ensure CSR compliance.

• Intended for Community Benefit

The primary purpose of a CSR capital asset is to benefit the community. Assets like hospitals, schools, or vocational centers must directly address social issues such as health, education, or livelihood. They must serve underprivileged or marginalized sections of society. The company must ensure that the asset is operational, maintained, and accessible to the intended beneficiaries. This focus on public welfare reinforces the essence of CSR, which is to give back to society and promote inclusive growth and sustainable development.

• Utilized for Permissible CSR Activities

Capital assets should only be created for CSR activities defined under Schedule VII of the Companies Act, 2013. These include projects related to education, healthcare, rural development, sanitation, and environmental sustainability. Companies cannot include capital assets built for business promotion or employee welfare under CSR. Proper planning and documentation are required to ensure that the asset aligns with CSR objectives and not with business interests, which is a key condition for claiming the expense as CSR-compliant.

• Proper Disclosure and Documentation

Companies must maintain transparent records and disclosures for CSR-related capital assets in their financial statements and annual CSR reports. This includes details such as cost, ownership, location, and purpose. The records ensure accountability and demonstrate that the asset has been created in accordance with the rules. Annual CSR filings submitted to the Ministry of Corporate Affairs (MCA) must clearly identify capital assets and their transfer details to the specified entities. Failure to comply may result in penalties or disqualification of CSR expenditure.

• Prohibition of Personal or Business Use

CSR capital assets cannot be used for business, personal benefit, or employee welfare purposes. The Companies Act strictly prohibits any direct or indirect benefit to the company or its employees (beyond CSR volunteers). For example, a building constructed for educational purposes cannot be used as a training center for the company’s staff. If violated, the company may face disqualification of such expenditure from CSR obligations, leading to regulatory scrutiny and possible penalties under the Companies Act or tax laws.

• Mandatory Transfer in Certain Cases

If a company ceases operations or dissolves the trust/society used for CSR implementation, it is mandatory to transfer the capital asset to another eligible entity within 90 days. This ensures that the asset continues to serve public interests and is not misused or lost. The transfer must be documented and reported to the MCA. This rule preserves the social value of the asset and ensures continuity in public benefit, even if the originating company changes its operations or exits the CSR initiative.