"No Financial Return or Gain Was Possible": Delhi High Court Dismisses Tax Dept’s Appeal, Says IBF’s BARC Funding Not an ‘Investment’ Under Income Tax Act
Isabella Mariam
The Division Bench of the Delhi High Court, comprising Justice Vibhu Bakhru and Justice Swarana Kanta Sharma, dismissed the appeal filed by the Commissioner of Income Tax (Exemptions) against Indian Broadcasting Foundation. The court upheld the exemption of income granted under Sections 11 and 12 of the Income Tax Act, 1961. It found that the Indian Broadcasting Foundation’s deployment of funds to Broadcast Audience Research Council (BARC) did not constitute an investment within the meaning of Section 13(1)(d) read with Section 11(5) of the Act.
The Indian Broadcasting Foundation (the Assessee) is a not-for-profit company incorporated under Section 25 of the Companies Act, 1956, and registered under Section 12A of the Income Tax Act, 1961. The Assessee was formed on September 27, 1999, with the aim of protecting the interests of stakeholders in the television broadcasting sector. Its objectives include promoting knowledge within the television industry and safeguarding the rights of its members.
For Assessment Year 2014-15, the Assessee filed its return declaring nil income and sought exemption under Sections 11 and 12 of the Act. During scrutiny proceedings, the Assessing Officer (AO) noted that the Assessee had made an investment of ₹15,00,000 in 1,50,000 equity shares of BARC and had also deployed ₹2,85,00,000 as share application money, both of which the AO deemed as non-compliant with Section 11(5).
The AO issued a show cause notice, concluding that the transactions were in violation of Section 13(1)(d) and subsequently denied exemptions under Sections 11 and 12, treating the entire surplus of ₹5,34,24,581 as taxable income under the provisions of Section 164(2).
The Assessee, before the Commissioner of Income Tax (Appeals) [CIT(A)], argued that the deployment of funds was made pursuant to the directions of the Ministry of Information and Broadcasting (MIB) and the recommendations of the Telecom Regulatory Authority of India (TRAI). It stated that BARC was created to provide accurate and transparent television audience measurement data as recommended by TRAI and mandated by the Central Government policy. The Assessee submitted that BARC was registered as a not-for-profit entity and its Memorandum of Association prohibited distribution of dividends or surplus to shareholders.
The CIT(A) noted the earlier observations made by this Court in a writ petition filed by the Assessee, where it was recorded that the deployment of funds was not an act of voluntary investment but was pursuant to the government’s policy. The CIT(A) allowed the Assessee’s appeal and restored the exemption under Sections 11 and 12.
The Revenue challenged this before the Income Tax Appellate Tribunal (ITAT), arguing that the CIT(A) had erroneously relied on non-conclusive observations. The ITAT rejected the appeal and found that the deployment of funds by the Assessee was in furtherance of a policy directive and did not qualify as an investment within the meaning of Section 11(5) read with Section 13(1)(d). The ITAT noted that BARC’s Memorandum of Association expressly prohibits dividend distribution and that BARC was established as a self-regulatory industry-led body following TRAI recommendations and government directives.
The High Court framed two questions of law for adjudication:
- Whether the transactions of purchasing shares and investment by way of share application money were within the meaning of Section 11(5)(vii) of the Income Tax Act, 1961?
- Whether the ITAT was correct in confirming the allowance of exemption under Sections 11 and 12?
The court considered whether the Assessee's deployment of funds was a discretionary investment or a statutory obligation under regulatory policy. Referring to the regulatory framework, the court observed that the Assessee was obligated to participate in the formation of BARC following the recommendations of TRAI’s report dated August 19, 2008, which proposed the establishment of an independent body to generate television audience ratings.
The court examined the Parliamentary Standing Committee’s Fourteenth Report, which supported TRAI’s recommendation, and documented that BARC was to be set up as a not-for-profit Section 25 company with equal representation from broadcasters, advertisers, and advertising agencies.
The judgment records, “BARC was required to be established as an industry-led body based on the recommendations of TRAI and the policy of the Central Government.”
The court examined BARC’s Memorandum of Association, which states its objective as, “to conduct and commission market research and studies... to provide accurate, up-to-date and relevant findings relating to audiences of Television... in a completely transparent and objective manner.”
It also recorded that the Assessee’s deployment of funds aimed to promote these regulatory objectives and was not intended to earn returns, stating, “no financial return or gain was possible from the Assessee’s deployment of funds in BARC.”
The court examined legal definitions of “investment” and relevant precedents to determine the applicability of Section 11(5). It noted that investment in common parlance involves the placement of money with the intention of earning income or profit. Referring to CIT v. Sir Sobha Singh Public Charitable Trust and Anand Charitable Trust v. Commissioner of Wealth-tax, the court stated that an investment requires a deliberate act to acquire income-generating assets.
The court noted that BARC, being a Section 25 company, is legally barred from distributing profits or dividends. Even on liquidation, any surplus would be transferred to another charitable entity, making it impossible for the Assessee to derive any financial benefit.
The Bench concluded, “the application of funds by the Assessee in BARC does not qualify as ‘investment’ under Section 11(5) read with Section 13(1)(d) of the Act, inasmuch as the said deployment was not intended to yield income, profit, or return, but was made pursuant to a statutory and regulatory obligation to further the Assessee’s charitable objectives.”
In light of its findings, the court upheld the ITAT’s decision and stated, “we find no infirmity with the impugned order of the learned ITAT. The Question of Laws are answered in favour of the Assessee and against the Revenue.”
The appeal was dismissed, confirming that the Assessee was entitled to the exemptions under Sections 11 and 12.
Advocates Representing the Parties
For the Appellant: Mr. Abhishek Maratha, Standing Counsel, with Mr. Apoorv Agarwal, Mr. Parth Semwal, Junior Standing Counsels, and Ms. Nupur Sharma, Mr. Gaurav Singh, Mr. Bhanukaran Singh Jodha, Ms. Muskan Goel, Mr. Himanshu Gaur, Mr. Kamakshraj Singh, and Mr. Yamit Jetley, Advocates.
For the Respondent: Mr. Ajay Vohra, Senior Advocate, with Ms. Ishita Farsaiya, Mr. Sparsh Bhargava, Mr. Apoorv Shukla, Mr. Jaidev Prasada, and Ms. Vanshika Taneja, Advocates.
Case Title: Commissioner of Income Tax (Exemptions) vs Indian Broadcasting Foundation
Neutral Citation: 025: DHC:1785-DB
Case Number: ITA 469/2023
Bench: Justice Vibhu Bakhru and Justice Swarana Kanta Sharma
[Read/Download order]
