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2019 (9) TMI 1161 - HC - Companies LawConstitutional validity of Corporate social responsibility (CSR) - Vires of Section 135 of the Companies Act, 2013 - Rules 2 and 3(2) of the Companies (Corporate Social Responsibility Policy) Rules, 2013 - whether CSR is analogous to the imposition of tax - various type of definitions of the term ‘profit’ - validity of circular dated 18.6.18 and its effect as retrospective or prospective - petitioner had also submitted that other Partnership Firms, Sole Proprietorship, Trusts etc. are not brought under the purview of Section 135 of the Companies Act and only the companies are covered, hence the said Section 135 is discriminatory in nature. HELD THAT:- It appears from the provisions of the Companies Act, especially Section 135 thereof and also looking to Entries No.43 and 44 of List-I to the 7th Schedule to the Constitution of India, the respondents are vested with power, jurisdiction and authority to enact Section 135 of the Companies Act. Much has been argued by the counsel for the petitioner about the term ‘net profit’. - Even if any error is committed by the respondents in the calculation of the net profit and in calculation of the corporate social responsibility, the amount to be spent by the company covered under Section 135, that does not mean that Section 135 deserves to be quashed and set aside. Such errors can be corrected either by the authorities under the Companies Act or by the competent Court. There is vast difference between a Sole Proprietorship and a company. There is vast difference between a Trust and a Company. Trusts, Sole Proprietorship, Partnership Firms etc. cannot be compared to a Company. There is a difference in the liability also. For instance, in Sole Proprietorship, the person who is a sole proprietor, is not a separate legal entity, whereas, in case of companies, they are separate legal entity which can be sued and can sue. - Both the tests of equality have been satisfied and hence there is no distinction at all. Hence, the provision of Section 135 of the Companies Act is not violative of Article 14 of the Constitution of India. Regarding applicability of circular of 2018 - Only for the calculation of the average net profit, the earlier years are to be looked into otherwise, the corporate social responsibility starts with effect from 1st April, 2014. There is no substance in the writ petition and Section 135 of the Companies Act, 2013 is not violative of any of the provisions of the Constitution of India - Similarly, the provisions of Rule 2 and 3(2) of the CSR Rules are not violative either of any of the provisions of the Constitution of India or of any of the provisions of the Companies Act, 2013 - Moreover, the Circular No.21/2014, especially para (v) thereof, is also legally valid and deserves not to be quashed and set aside. Petition dismissed.
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