Application Of Funds By Indian Broadcasting Foundation In BARC Is Not For Profit, Exempted U/S 11 & 12 Of Income Tax Act: Delhi High Court
In an order bringing relief to the Indian Broadcasting Foundation (IBF), which was incorporated to protect the interests of various stakeholders in the field of television broadcasting, the Delhi High Court allowed the body to claim exemption from payment of tax under Sections 11 and 12 of the Income Tax Act, 1961.The provisions govern the taxation of income derived from property held under...
In an order bringing relief to the Indian Broadcasting Foundation (IBF), which was incorporated to protect the interests of various stakeholders in the field of television broadcasting, the Delhi High Court allowed the body to claim exemption from payment of tax under Sections 11 and 12 of the Income Tax Act, 1961.
The provisions govern the taxation of income derived from property held under trust for charitable or religious purposes.
Section 11 provides for the exemption of income from property held for charitable or religious purposes, subject to the application of such income towards the objects of the trust and investments made in the prescribed modes under Section 11(5) of the Act.
Section 12 of the Act extends the exemption to voluntary contributions received by a trust or institution, which are treated as income derived from property held under trust.
The benefits under Sections 11 and 12 are subject to the conditions laid down under Section 13 of the Act, which enumerates circumstances under which such exemptions may be denied, particularly for investments that are not in compliance with the modes specified under Section 11(5) of the Act.
A division bench of Justices Vibhu Bakhru and Dr. Swarana Kanta Sharma was dealing with the Department's appeal against an ITAT order which allowed the body to claim exemption.
The AO had denied the benefit of Sections 11 and 12 to IBF after it purchased shares in BARC worth ₹15 lakhs and deployed ₹45 lakhs as share application money.
As per the AO, the transactions constituted 'investment' made in contravention of Section 11(5).
IBF contended that the deployment of funds towards BARC's equity capital was directly aligned with its objectives and was made in compliance with the directions of the Ministry of Information and Broadcasting and the recommendations of the Telecom Regulatory Authority of India.
It was further submitted that the funds were deployed solely to fulfill its objectives and not for earning any income, and thus should be treated as application of income rather than an investment.
ITAT had found that both IBF and BARC were not-for-profit entities, and BARC's Memorandum of Association expressly prohibits distribution of dividends or surplus to shareholders, thereby reinforcing that the funds were deployed solely for charitable purposes.
Finding force in this finding, the High Court held,
“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, Memorandum of Association of BARC mandates that 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.”
Further stating that the essential feature of an investment is the intention to earn a return, profit, or income from the money laid out, the High Court held,
“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.”
The High Court also upheld IBF's contention that its role in formation and promotion of BARC was not voluntary or discretionary but was mandated by the policy of the Central government, supported by the recommendations of both TRAI and the Standing Committee of Parliament.
As such, the appeal was dismissed and IBF was allowed to claim exemption under Sections 11 and 12 of the Act.
Appearance: Mr. Abhishek Maratha, SSC with Mr. Apoorv Agarwal, Mr. Parth Semwal, JSCs and with 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 Appellant; Mr. Ajay Vohra, Sr. Advocate with Ms. Ishita Farsaiya, Mr. Sparsh Bhargava, Mr. Apoorv Shukla, Mr. Jaidev Prasada and Ms. Vanshika Taneja, Advocates for Respondent
Case title: Commissioner Of Income Tax (Exemptions) v. Indian Broadcasting Foundation
Citation: 2025 LiveLaw (Del) 361
Case no.: ITA 469/2023
