The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that a charitable institution’s subscription to equity shares of the Broadcast Audience Research Council (BARC) did not violate the investment conditions prescribed under Section 11(5) of the Income Tax Act, thereby preserving its entitlement to exemption under Sections 11 and 12.
The bench of M. Balaganesh (Accountant Member) and Vimal Kumar (Judicial Member) has remanded the issue relating to the allowability of certain expenditure claimed as application of income back to the Assessing Officer for fresh adjudication.
The appeal was filed by the Income Tax Department against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2017-18. The dispute arose after the Assessing Officer denied the assessee’s exemption under Sections 11 and 12 on the ground that it had invested ₹15 lakh by subscribing to 1,50,000 equity shares of the Broadcast Audience Research Council (BARC), allegedly in contravention of Section 11(5) read with Section 13(1)(d) of the Income Tax Act.
The Department contended that the investment was not made through one of the prescribed modes under Section 11(5), thereby attracting the consequences under Section 13(1)(d), which disentitled the assessee from claiming charitable exemption.
The Tribunal noted that the controversy was no longer res integra and had already been decided in favour of the assessee for earlier assessment years. It observed that identical issues for Assessment Years 2013-14, 2014-15 and 2015-16 had been decided in favour of the assessee by the Tribunal, and the Delhi High Court had also affirmed the Tribunal’s view for Assessment Year 2014-15.
Accordingly, the Bench followed the binding precedents while deciding the present appeal.
The Tribunal examined the purpose behind the subscription of shares in BARC and found that the investment was not made with the intention of earning profits or income.
It observed that BARC was established as an industry-led, not-for-profit company pursuant to the recommendations of the Telecom Regulatory Authority of India (TRAI) and the policy framework of the Central Government. The organisation was created to provide reliable television audience measurement data and to promote transparency in the broadcasting industry.
The Tribunal held that the assessee’s participation in BARC enabled it to fulfil its charitable and ancillary objects relating to the promotion and development of the broadcasting sector. Since BARC itself was incorporated as a not-for-profit company and was prohibited from distributing dividends or profits to shareholders, the subscription to its equity could not be regarded as an investment made for earning income.
The Bench observed that the funds were deployed to comply with governmental policy and regulatory recommendations rather than as a commercial investment.
Referring to earlier Tribunal and High Court decisions, it held that the subscription to BARC shares could not be construed as a violation of Section 11(5) read with Section 13(1)(d). Consequently, the Assessing Officer was not justified in denying exemption under Section 11 solely on this ground.
The Tribunal therefore dismissed the Revenue’s first ground of appeal and upheld the deletion of the disallowance made by the Assessing Officer.
The Revenue had also challenged the relief granted by the Commissioner (Appeals) regarding the assessee’s claim that provisions for doubtful debts, gratuity and leave encashment constituted application of income.
On this aspect, the Tribunal observed that the Assessing Officer had never independently examined the allowability of these claims because exemption under Section 11 itself had been denied.
Since the exemption issue now stood decided in favour of the assessee, the Tribunal held that these expenditure claims required independent examination in accordance with law. Accordingly, it restored this limited issue to the Assessing Officer for a fresh (de novo) adjudication.
The ITAT upheld the charitable exemption available under Sections 11 and 12 by ruling that the subscription to BARC shares did not amount to an impermissible investment under Section 11(5). However, it remanded the issue concerning the allowability of provisions for doubtful debts, gratuity and leave encashment as application of income for fresh examination by the Assessing Officer.
As a result, the department’s appeal was partly allowed for statistical purposes, while the assessee retained the benefit of exemption under Section 11 on the principal issue.
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