The Delhi High Court has ruled in favor of the Indian Broadcasting Foundation (IBF), affirming that the organization's deployment of funds in the Broadcast Audience Research Council (BARC) qualifies as an application of income rather than an investment. This decision allows IBF to claim tax exemptions under Sections 11 and 12 of the Income Tax Act, 1961.
Background of the Case
IBF, a not-for-profit entity incorporated under Section 25 of the Companies Act, 1956, aims to protect stakeholders in the television broadcasting sector. It was also registered under Section 12A of the Income Tax Act, which grants tax exemptions to charitable institutions.
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For the assessment year 2014-15, IBF filed its tax returns, claiming a tax exemption. However, the Assessing Officer (AO) denied the benefit, citing IBF’s investment of Rs. 15 lakh in equity shares of BARC and Rs. 45 lakh as share application money. The AO argued that these transactions constituted investments that violated Section 11(5), which specifies approved investment modes for tax-exempt entities.
Arguments Presented
IBF contended that the funds deployed in BARC were made in compliance with the directives of the Ministry of Information and Broadcasting (MIB) and the recommendations of the Telecom Regulatory Authority of India (TRAI). The foundation emphasized that:
- BARC is a not-for-profit entity and does not distribute dividends or surplus to shareholders.
- The funds were used solely to fulfill IBF’s objectives and not for generating income.
- The deployment of funds should be classified as an application of income rather than an investment.
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On the other hand, the Income Tax Department argued that IBF’s investment in BARC was in violation of Section 11(5) and should lead to the withdrawal of exemptions under Sections 11 and 12 of the Act.
ITAT Ruling and High Court’s Judgment
The Income Tax Appellate Tribunal (ITAT) had earlier ruled in favor of IBF, stating that the funds were deployed in compliance with government policy and could not be treated as investments for profit. The Delhi High Court upheld this decision, reinforcing that IBF’s role in BARC was mandated by the Central Government.
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The court observed:
“BARC, being a company registered under Section 25 of the Companies Act, is legally prohibited from distributing any dividends or profits to its shareholders. Additionally, in the event of liquidation, any surplus must be transferred to another company registered under Section 25 of the Companies Act with similar objectives, thereby negating any possibility of personal gain or profit for the Assessee from its deployment of funds.”
The court further emphasized that an investment typically involves the intention to earn returns or profit. Since IBF’s deployment of funds was to meet its charitable objectives and not for profit, it did not qualify as an investment under Section 11(5) read with Section 13(1)(d) of the Act.
Case title: Commissioner Of Income Tax (Exemptions) v. Indian Broadcasting Foundation
Case no.: ITA 469/2023
