IBF’s Fund Deployment in BARC Not for Profit: Delhi HC Upholds Tax Exemption [Read Order]

The Delhi High Court,upheld the tax exemption for the Indian Broadcasting Foundation (IBF), ruling that its fund deployment in Broadcast Audience Research Council(BARC) was not a profit-driven investment, but aligned with the organization's charitable objectives and government policy.

The Revenue-appellant,filed this appeal under Section 260A of the Income Tax Act, 1961, against the Income Tax Appellate Tribunal(ITAT)'s order dated 14.09.2020 for AY 2014-15.In this matter Indian Broadcasting Foundation,respondent-assessee,was incorporated as a not-for-profit company and registered under Section 12A of the Income Tax Act. For AY 2014-15, it filed a nil return claiming exemption under Sections 11 and 12.

Affective Ways Of Tax Planning for HUF, Partnership Firm and Will Click here

During assessment, the Assessing Officer(AO) found that the assessee had invested ₹15 lakhs in equity shares and ₹2.85 crores as share application money in BARC, a 100% subsidiary. The AO held that these were not permissible investments under Section 11(5) and treated them as a violation under Section 13(1)(d), denying the exemption and assessing the income at ₹5.51 crore.

The Commissioner of Income Tax(Appeals)[CIT(A)] allowed the exemption, holding that the funds were deployed as per government policy and not as a voluntary investment. The ITAT upheld this view, noting that the funds were used to fulfill the assessee’s objectives and not to earn income.

The Revenue challenged this decision before the High Court.

The Division Bench of Justice Vibhu Bakhru and Justice Swarana Kanta Sharma examined whether the funds deployed by the respondent in BARC were made as a voluntary investment or as part of a government policy.It referred to Sections 11, 12, and 13 of the Income Tax Act, which allow tax exemptions for trusts working for charitable purposes, provided the investments follow the approved modes. Under Section 13(1)(d), such exemptions are denied if the investments are not in prescribed modes.

Know Tax Planning Real Estate Transactions Click here

The bench noted that BARC was created based on Telecom Regulatory Authority of India(TRAI)’s recommendations and government policy to ensure transparent and accurate TV viewership data. The respondent played a key role in forming BARC, not to earn profit but to fulfill its objectives as a not-for-profit industry body. Both the respondent and BARC were registered as not-for-profit entities and were legally barred from distributing profits or dividends.

The ITAT had already held that the fund deployment was not a commercial investment but aligned with the respondent’s purpose. The Court found support for this view in government reports, TRAI recommendations, and the Parliamentary Standing Committee’s findings, all of which backed BARC’s formation as an industry-led, self-regulatory body.

It concluded that the funds were deployed in line with government policy and not for profit-making, and thus supported the ITAT’s view.

Read More:Allegation of Illegal Gratification u/s 13(1)(d) of Prevention of Corruption Act with uncorroborated Evidence is not Conclusive: Karnataka HC

The Court also examined whether funds deployed in BARC’s shares qualified as an 'investment' under Section 11(5) read with Section 13(1)(d) of the Income Tax Act.It referred to various definitions and court rulings, all of which stressed that an investment must be made with the intention of earning income or profit. Simply putting money into something did not amount to an investment unless it was expected to bring financial returns.

Tax Planning For Trusts and cooperation Societies Click here

The bench highlighted past cases where charitable institutions were found not to have made investments when the funds were used to meet charitable or regulatory requirements without any profit motive.

In this case, BARC was a not-for-profit company, legally barred from distributing dividends or profits. Even on winding up, any surplus would go to another charitable body, not to shareholders.

The High Court held that the funds placed in BARC were not intended to earn income and did not amount to an investment under the law. It found that the deployment of funds was to meet statutory and regulatory obligations in line with the trust’s charitable goals.

As there was no violation of Section 11(5) or 13(1)(d), the Court upheld the exemption granted under Sections 11 and 12 of the Income Tax Act.The appeal was dismissed.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscanpremium. Follow us on Telegram for quick updates