Warner Ltd. is an Indian company with a net profit of ₹4, 7, 6 and 7 crores respectively in the last four years. Net profit for each of last four years included a dividend of ₹1 crore received from WB Ltd. which is an In

As per section 135 of the Companies Act 2013, the CSR provision is applicable to companies which fulfills any of the following criteria during the immediately preceding financial year: Companies having net worth of rupees five hundred Crore or more, or Companies having turnover of rupees one thousand Crore or more or Companies having a net profit of rupees five Crore or more Explanation to section 135 provides that for the purposes of this section "net profit" shall not include such sums as may be prescribed, and shall be calculated in accordance with the provisions of section 198. The Section 198 of the Companies Act, 2013 read with CSR Rules have clarified the manner in which a company's net profit will be computed to determine if it fits into the 'spending' norm. In order to determine the 'net profit', dividend income received from another Indian company (which are duly covered under and complying with the provisions of Section 135 of the Companies Act, 2013) or profits made by the company from its overseas branches have been excluded. Moreover, the 2% CSR is computed as 2% of the average net profits made by the company during the preceding three financial years. Here, assuming that WB Ltd is duly covered under Section 135 of Companies Act, 2013 and is also complying with the said provisions, the dividend received by Warner Ltd from WB Ltd shall be deducted from the Net Profit of Warner Ltd so as to compute "net profit" & "average net profit" for the purpose of Section 135 of Companies Act, 2013. Hence, based on above assumption, Warner Ltd's net profit shall be considered as rupees ₹7 Crore minus ₹1 Crore (dividend from another Indian company) = rupees ₹6 Crore in the preceding financial year, thus making it liable to comply with Section 135. It will therefore be required to spend on CSR Activities The CSR amount to be spent/created is 2% of Rupees ₹6 crores + ₹5 crores + ₹6 crores = ₹17/3 = rupees ₹5.67 Crore (average profit of the preceding three years) i.e. 2% of Rs. ₹5.67 Crore being ₹11.33 Lakhs.