Facts of the Case

The Revenue filed an appeal under Section 260A of the Income-tax Act, 1961 challenging the order dated 08.09.2022 passed by the Income Tax Appellate Tribunal in ITA No. 5589/Del/2018 for Assessment Year 2015–16.

The respondent assessee, Indian Broadcasting Foundation, is a not-for-profit company incorporated under Section 25 of the Companies Act, 1956 and registered under Section 12A of the Act. It represents television broadcasters and works for protection of industry interests and dissemination of knowledge. For AY 2015–16, the assessee filed its return declaring Nil income and claimed exemption under Sections 11 and 12 of the Act.

During assessment, the Assessing Officer noted that the assessee had deployed ₹15,00,000 towards equity shares and ₹2,85,00,000 as share application money in Broadcast Audience Research Council (BARC), a subsidiary entity. The Assessing Officer held that such deployment was not in modes prescribed under Section 11(5) and treated it as a violation of Section 13(1)(d), withdrawing exemption under Sections 11 and 12 and taxing the entire surplus at maximum marginal rate.

Issues Involved

Whether deployment of funds by a charitable institution in equity shares and share application money of BARC constituted an investment in violation of Section 11(5) read with Section 13(1)(d) of the Income-tax Act, and whether exemption under Sections 11 and 12 was liable to be withdrawn.

 

Appellant’s Arguments

The Revenue argued that investment in equity shares and share application money squarely fell within the meaning of “investment” under Section 13(1)(d) and was impermissible unless made strictly in modes prescribed under Section 11(5). It was contended that the ITAT erred in relying on earlier observations of the High Court made in writ proceedings, which were not decisions on merits. The Revenue further submitted that intention to earn profit was irrelevant and that any investment outside Section 11(5) attracted withdrawal of exemption.

Respondent’s Arguments

The assessee contended that deployment of funds in BARC was not a voluntary investment but was made pursuant to directions of the Ministry of Information and Broadcasting and recommendations of TRAI to create an industry-led audience measurement body. It was submitted that BARC is a not-for-profit entity whose Memorandum prohibits distribution of dividends, and therefore no income or profit could arise. The assessee argued that such deployment was application of income towards charitable objectives and not an investment within the meaning of Section 13(1)(d).

Court Order / Findings

The Delhi High Court noted that identical questions had been decided by it on the same date in ITA No. 469/2023 pertaining to AY 2014–15 in the assessee’s own case. The Court held that deployment of funds in BARC did not qualify as an “investment” under Section 11(5) read with Section 13(1)(d) as it was made pursuant to statutory and regulatory obligations and was not intended to yield income, profit or return.

The Court observed that both the CIT(A) and the ITAT had recorded concurrent findings of fact that the funds were deployed solely to further the assessee’s charitable objectives and that no income was earned from such deployment. The Court held that these findings were based on material on record and did not warrant interference.

The Court further noted that even otherwise, in absence of any income from the alleged investment, withdrawal of exemption on the entire income was unsustainable.

Important Clarification

The Court clarified that for the purpose of Section 13(1)(d), the term “investment” implies a voluntary deployment of funds with an intent to earn income or profit. Where funds are deployed pursuant to governmental or regulatory mandate to further charitable objectives and no income can arise therefrom, such deployment constitutes application of income and does not attract violation of Section 13(1)(d).

Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court upheld the order of the Income Tax Appellate Tribunal and held that the Indian Broadcasting Foundation was entitled to exemption under Sections 11 and 12 of the Income-tax Act for Assessment Year 2015–16, as the deployment of funds in BARC did not constitute an impermissible investment.

Link to download order - https://www.mytaxexpert.co.in/uploads/1769686065_COMMISSIONEROFINCOMETAXEXEMPTIONSVsINDIANBROADCASTINGFOUNDATION.pdf

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