PublicationsCorporate Social Responsibility and Tax Evasion

January 25, 20210

This analytical paper broadly talks about companies’ methods for misusing CSR funds to evade tax in India. The research paper is divided into two categories: misuse of CSR funds by PSUs and the relationship between CSR and tax evasion. Further, a wide-ranging assessment of tax evasion based on morality and immorality is done to understand the subject better. The research paper relies on statutory provisions, case laws, and case studies to conclude this subject matter. The conclusion is reached by analyzing various secondary data collected from multiple journals, articles, magazines, newspaper articles, academic research papers, media coverage, and other reliable web sources. The paper focuses on the factors that lure companies (mainly Public Sector undertakings) to misuse CSR funds and how companies get involved in tax evasion in the name of CSR, despite its being morally/socially irresponsible and an illegal act?


Corporate social responsibility (CSR) is neither a legal nor a business responsibility that is to be fulfilled by the corporations, but rather it is something beyond these concepts which helps to preserve the crucial relationship of the company with its customers. India is the first country[1] that has introduced CSR as a legal obligation under s. 135 of the companies Act, 2013.[2] It is to be fulfilled by all the holding companies, subsidiary companies, and the Branch or project offices of foreign companies in India. Co that come under the domain of s. 135 has to mandatorily keep at least 2% of their average net profit in the name of CSR expenditure.[3] CSR is a social and moral responsibility of the company towards a society that directly affects its reputation. ‘It is the key factor for the company’s success and survival, which boosts its performance.’[4]

It is believed that CSR influences a firm’s performance positively and helps maintain the competition; this is true till the time CSR is not misused for the personal gain of shareholders or the management of the company. When CSR is misused for personal benefit, the company is at stake as the corporate veil can be lifted to reveal the true colour and destroy the reputation & success.

A companies’ primary objective is to maximize the wealth of shareholders. However, one should not forget that profits are earned through smooth operations and by selling or manufacturing goods and services for society at large. Therefore, if a company aims at making profits in the long run, taking care of public welfare becomes an important objective. One way to do this is via paying taxes, which is seen as a part of CSR to pay back the society by contributing to its development. Nonetheless, companies adopt strategies that help them curtail the payment of taxes in India. One of the techniques which these firms adopt – is to evade taxes through contributions to CSR funds.[5] CSR is a viable option for companies as tax deductions for certain activities can be availed under the Income Tax Act, 1961.[6] Thus, despite such exclusion given by the legislation, companies get involved in tax evasion, and they find one of the easiest methods of doing it is through CSR activities.


The government authority excessively controls public Sector Undertakings (PSUs) in India due to its majority shareholding. As a result of which a large portion of their funds is under government control. Fulfilling CSR by PSUs is a politicized affair as these activities are controlled by the government[7]. These CSR funds of PSUs are used to multiply the funds of the government’s bodies and management rather than fulfilling their obligation towards society.[8] In a case study by transparency International India, it was seen that PSUs, while fulfilling their CSR duties, tend to be biased towards their shareholders, government officials, and ministers. Thus, this bias by the PSUs leads to the misuse of CSR funds.[9] An example of abuse by PSUs of CSR funds is – ‘A PIL was filed against several PSUs (including SAIL) and former steel minister for misusing CSR Funds by violating the guidelines issued by Department of Public enterprises (DPEs) regarding CSR activities.’[10]

Cases on misuse of CSR Funds by PSUs-

  1. NALCO case[11] – National Aluminum Company Limited (NALCO) is a Navaratna operating in mining, metal, and power. The government of India (GOI) holds 51.5% equity in the company. In 2012, a case was filed against NALCO by the company’s in-house vigilance department for misusing CSR funds by transferring Rs 3 crore funds to a private university under the name of CSR activities. Rs 3 crore, which was meant to be spent on CSR activities, was donated to a private university named Centurion University for Technology and Management (CUTM), set up in 2010. The intent behind such donation was the partnership with the university for setting up an Indian Institute of Technology (IIT) under the public-private partnership. Moreover, NALCO used CUTM University as its partner for running an Industrial Technical Institute (ITI) at the Marichamal area of Koraput’s for 4.25 crores. As per the agreement between the two, all the money on ITI would be spent through the university.
  1. CAG report on SAIL[12] – Steel Authority of India Limited (SAIL) is a Maharatana and India’s biggest steel-making company. The government of India owns 75% equity of the company. In 2011 CAG released a report of CSR activities undertaken by SAIL during 2004-10. In its CSR policy, SAIL stated to contribute 2% of its net profits for CSR activities. Thus, for undertaking CSR activity, they contributed to social development through medical camps, medical facilities, free education, etc. SAIL arranged medical camps with free treatment (including free medicines) to fulfill their social responsibility towards society. But after investigation, it was found out by CAG that SAIL only spent 18% of the expenditure which was reserved for medical facilities, and the majority was spent on ‘other activities’ than medicines under the name of medical camps. These ‘other activities’ included hiring choppers for steel minsters and PR (Public relations) activities defeating medical camps’ primary purpose.

This issue of CSR funds misuse by PSUs was recently observed in the PM CARES Fund.[13] to help people fight against the COVID-19 pandemic.  Ministry of Corporate Affairs (MCA) through a gazette notification, amended the Schedule VII Item (viii) of the Companies Act, 2013 for including the donation done by the corporates in PM CARES to be covered under CSR activities of the companies. In contrast, State relief funds which were earlier covered under CSR activities were expelled from this list of Schedule VII. These donations done under PM CARES fund are 100% exempted from tax and are qualified for the benefits of section 80G of the Income Tax Act, 1961[14]. So, currently, PM CARES fund is in controversy as, despite already existing State relief funds, there was an introduction of a new Fund in the name of PM Cares. The legislative intent behind the introduction of s. 135 was to provide funds for local communities and local welfare.

However, PM CARES fund is diverting those funds meant for local welfare into a dark hole where not even a speck of light can enter.[15] 38 PSUs contributed to this fund, which covered 70% of the fund’s corpus (total contribution of 21,000 crores by these PSUs)[16]. These PSUs instead of protecting public money during these difficult times are competing amongst themselves by donating higher amounts, which were public funds to PM CARES (COAL – 221 crores, HPCL – 120 crores).[17] It is suspected that these PSUs are misusing CSR funds and contributing a humungous amount just for the sake of diverting public money from PSUs to the government. In my opinion, the donation of this enormous amount by PSUs might be for tax evasion as these donations are 100% exempted from tax.

The first time anybody hears the term tax evasion, it gives folks the idea of some corporate scandal. A tax expenditure is always treated as a burden to their firm and it is expected to be administered in a way that helps them reduce such liability. This practice of reducing the burden of tax generally prevails more with corporate taxation. So, companies for implementing this practice, hire tax consultants and then embark on CSR funds that are tax-deductible and try to evade tax (as they donate money in the name of CSR to charitable trusts mostly owned by them or relatives). Eventually, if their practices get caught up, and their corporate veil gets lifted, they are held liable for committing tax evasion.

There are several corporate tax evasion methods, such as- underreporting income, overstating deductions, hiding money from the government through illegal accounting schemes, etc.[18] However, one of the infamous practices adopted by firms is transferring their money under CSR activities to charitable trusts (which is a tax-deductible activity) owned by them or family members, so eventually, money comes to them without paying any taxes. This plotting of a company to avoid taxes through charitable trusts comes under illegal evasion of tax. One of the recent examples – A.R. Rahman[19], a famous Oscar-winning Indian singer, (in September 2020) charged for tax evasion in Madras H.C. for routing his income of around Rs. 3 crores via one of his charitable trusts.[20]


There is a very thin line between tax evasion and tax planning. Tax planning helps to reduce tax liability through legal means without ignoring any Income tax provisions. It is an umbrella term that usually helps the firms get rid of tax evasion. In contrast, tax evasion is reducing taxes by increasing the number of deductions, exemptions, etc. It is considered an illegal act. This narrow difference between tax evasion and tax planning was explained in the landmark judgment of Vodafone International Holdings B.V. v. Union of India (UOI),[21] in which it was said that tax planning is legitimate. It is within the law framework, and it cannot be held illegal/impermissible activity, whereas tax evasion means using sham ways for an unlawful gain of income. The advantage of the thin line between tax evasion and tax planning is mostly taken by MNCs (Multinational companies). They try to avoid paying taxes by establishing their subsidiary companies in tax haven countries to pay lesser taxes[22]. Such conduct by these MNCs is opposed to CSR as paying taxes is one of the social obligations that every company should do to pay back to society. Therefore, companies should look out before indulging in any activity. The thin line between tax planning and tax evasion can sometimes land them into being suspected of inadvertent tax evasion. In contrast, this thin line can protect them from being declared of committing the misconduct of tax evasion in some cases.

Companies comply with CSR as it is a legal obligation, hadn’t it been a legal obligation, then most of the companies wouldn’t have adhered to it. Companies fulfill CSR activities to maintain their reputation but escape from paying taxes. They consider tax a significant business cost, which they try to minimize by reducing tax expenditure and maximizing shareholder wealth. Instead, they should pay taxes first. Paying tax has now evolved to be a part of CSR[23]. Companies must repay the society from whom they are earning profits. Companies consider fulfilling CSR as a burden and do not think of it as their moral obligation. Companies that are moral in their conduct will abide by CSR as they are scared of losing their reputation, so they pay taxes. The ‘Family companies mostly follow this ethical conduct as their objectives are united since they have adequate powers to control the company’s management. The family has a more significant share in ownership[24]. These companies are comparatively more ethical as they are concerned about preserving family legacy and reputation, so paying taxes is more of a moral-legal obligation for them.

In comparison, companies that are less concerned about their reputation are a little immoral towards their conduct. Such firms are known as ‘Management controlled companies[25]. As they have separate ownership and management, these companies have more scope of minimizing tax as there might be a conflict of interest between managers and owners (agency problem). As they are less scared for their loss of reputation, their tax savings are obtained mostly by adopting the risky tax evasion method.  Thus, diminishing tax costs would help the managers expand shareholder’s value. These tax savings derived from dangerous tax-saving measures can also benefit the management if they are compensated for their work. Therefore, these companies’ conduct is considered immoral when they are involved in the illegal Activities of tax evasion. One such example is –

  • Satyam Scam case[26]– Satyam Computers-Service Limited was an Indian Information Technology service providing company based in Hyderabad. In 2009, Ramalinga Raju, the CEO confessed that the company’s corporate accounts were falsified, and assets were inflated (cash and bank balance were inflated); thus, he committed fraud of Rs 7000 crores. Later, Tech Mahindra purchased the majority shareholding of the company and renamed it Mahindra Satyam. Before this biggest corporate scandal, the Income-tax (IT) department issued a notice to the company after disallowing tax exemptions seeking ₹17 billion tax for years 2003-04 till 2008-09[27]. Satyam Computers filed false income tax returns and fabricated invoices but chose not to pay tax despite having sufficient means to pay taxes. The IT department served several notices by they didn’t comply with it. Such an action by the company was declared tax evasion as they deliberately chose not to pay taxes.


CSR is the responsibility that every company should fulfil, despite it being a legal obligation for them or not, as the idea of CSR is not to mobilize funds but to promote social activities which concern the environment of the local area where the company is located. The company earns a profit and works smoothly by selling their goods to society. Similarly, paying fair taxes is one of the aspects of CSR. Instead of fulfilling their social responsibility (CSR) by paying taxes, companies evade taxes through CSR for their profit maximization as tax rates are high in India. Statistics show that in 2018, around 46% of the companies didn’t report their CSR spending[28]. Nearly half of India’s companies do not report their CSR, and numerous companies evade taxes through CSR for maximizing shareholder wealth.

Although leading companies claim to be socially responsible, the emphasis of their CSR activities is on environmental, labor, etc. issues, and not paying tax has rarely been featured. But paying taxes is an obligation under CSR, which most of the companies overlook. Failure to pay taxes can undermine the company’s legitimacy in the same way that abuse of labor or environmental disasters must have affected the company. People escape from tax liability as the tax rates are very high in India. They find an easier way to escape from tax through tax evasion instead of paying taxes. Thus, according to scholar’s government should reduce corporate tax to make more corporates pay taxes[29].


[1] Anubhav Pandey, ‘Corporate Social Responsibility and its Origin in India- Ipleaders’ (iPleaders, 2021) <> accessed 19 January 2021.

[2] companies-act-2013.pdf (

[3] ‘Companies Must Utilize the Full 2% On CSR – Centre for Advancement Of Philanthropy’ (Centre For Advancement of Philanthropy, 2021) <> accessed 19 January 2021.

[4] Issam Laguir, Raffaele Staglianò and Jamal Elbaz, ‘Does Corporate Social Responsibility Affect Corporate Tax Aggressiveness?’ (2015) 107 Journal of Cleaner Production.

[5] Hemant Sindhwani, ‘Corporate Social Responsibility; Philanthropy with Tax Burden or Image Making with Taxmanagement’ (, 2021) <> accessed 19 January 2021.

[6] Tax Laws & Rules > Acts > Income-tax Act, 1961 (

Deductions of tax concerning CSR activities can be mainly availed under section 30-37 of the Income Tax Act, 1961.  Any CSR expenditure which is allowed deductions under s. 30-36, can’t be disallowed under section 37(1).

[7] Anil Dhaneshwar and Pooja Pandey, ‘Status of Corporate Social Responsibility Among PSUs In India’ (2015).

[8] Taxguru LLP, ‘Failure of CSR In India’ (TaxGuru, 2021) <> accessed 19 January 2021.

[9] India, T. I. ‘A Case Study On the misuse of CSR funds. New Delhi: Transparency International India’ (2014).

[10]‘Misuse of CSR Funds: PIL In HC Seeks Action Against Ex-Minister’ (The Economic Times, 2015) <> accessed 4 October 2020.

[11] ‘Nalco Probed for Misuse Of CSR, PD Funds – Indian Express’ (, 2012) <> accessed 4 October 2020

[12]‘Performance Audit on Corporate Social Responsibility of Steel Authority of India Limited and Rashtriya Ispat Nigam Limited’ (CAG 2011).

[13] NH Desk, ‘Clear Absence of Transparency in Every Aspect Of PM CARES Fund Disturbing: Over 100 Ex-Bureaucrats Write To PM’ (National Herald, 2021) <> accessed 19 January 2021.

[14] Section 80G – Deduction in respect of donations to certain funds, charitable institutions, etc.

[15] Kasmin Fernandes, ‘PM CARES Fund Is an Oxymoron Where CSR Donations Disappear – The CSR Journal’ (The CSR Journal, 2020) <> accessed 4 October 2020.

[16]‘PM CARES Fund Received Rs. 2,105 Crores from Psus, IE Filed Queries’ (The Voix Tribune, 2020) <> accessed 4 October 2020.

[17] ‘Rtis Reveal Psus Contributed Rs 2,105 Crores To PM-CARES, Most Dipped into CSR Funds'(The Wire, 2020) <> accessed 19 January 2021.

[18] Tax Evasion, ‘Tax Evasion: Methods of Tax Evasion’ (DotNepal: Jobs in Nepal, Loksewa Aayog Preparation, Career Counselling, 2021) <,operating%20business%20transaction%20under%20different%20names%20More%20> accessed 19 January 2021.

[19] Rahman received Rs 3 crore for composing ringtone of Libra company (UK-based) in 2010-2011. It has been suspected that as per the contract between them, Rahman directed the company to transfer his payment directly to the foundation which is managed by him.

[20]‘I-T Dept Moves Madras HC Against Alleged Tax Evasion By AR Rahman – Times Of India’ (The Times of India, 2020) <> accessed 4 October 2020.

[21] (2012) 6 SCC 613

[22] ‘Many Mncs Use Profit Shifting Strategy to Evade Tax: Report’ (The Economic Times, 2013) <> accessed 4 October 2020.

[23] Doron Narotzki, ‘Corporate Social Responsibility and Taxation: An Evolving Theory’ [2016] Reprinted from Tax Notes.

[24] Suzanne Landry, Manon Deslandes and Anne Fortin, ‘Tax, CSR, And Ownership’ (2013) Volume 14, No. 3 Journal of Accounting Ethics & Public Policy.

[25] Suzanne (n16)

[26] ‘Case Study on Satyam Computer Services Limited (SCSL)’ (Your Article Library) <> accessed 4 October 2020.

[27]Gadgets Now, ‘Mahindra Satyam Gets Attachment Order From I-T Dept – Latest News | Gadgets Now’ (Gadget Now, 2012) <> accessed 4 October 2020.

[28] Pradip Kumar Das, ‘An Insight into Black Money and Tax Evasion – Indian Context’ (2018) 3 JOURNAL OF INTERNATIONAL BUSINESS RESEARCH AND MARKETING.

[29] Nila Rejesh P, ‘Tax Evasion in India – Ways, Effect and Control’ [2014]


Author: Ishika Sharma

Designation: 3rd-year law candidate, Jindal Global Law School


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