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Judgment
PER M. BALAGANESH, A. M.:
The appeal in ITA No. 5626/Del/2025 for AY 2017-18, arises out of the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 19.06.2025 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 23.01.2020 by the Assessing Officer, NFAC, Delhi (hereinafter referred to as ‘ld. AO’).
The revenue has raised the following grounds of appeal before us:-
1.Whether on facts and circumstances of the case and in law, Ld. CIT(A) has erred in allowing the benefit of exemption u/s 11&12 of the Act by holding that the transactions of purchasing shares worth Rs. 15 Lakhs were within the meaning of section 11(5)(vii) of the Income Tax Act, 1961.
2.On the facts and in circumstances of the case and in law, Ld CIT(A) has erred in allowing the assessee's claim for application of income on account of provisions for doubtful debts payment of gratuity and leave encashment, such claim being consequential in nature to allowance of benefit of exemption u/s 11& 12 of the Act, to the assesssee.”
We have heard the rival submissions and perused the materials available on record. The assessee company has been incorporated on 27-09-1999 under Section 25 of the Companies Act 1956 as a not-for-profit company. It is registered under Section 12A of the Act vide order dated 10-01-2001. It is an association of broadcasters. The main aims and objects of the assessee company are to protect the interests of the various stakeholders and related entities in the field of television broadcasting, including the television viewing audiences. Its object includes spreading awareness about latest developments in the television industry and disseminating knowledge amongst its members. It supports, protects, extends and defines the rights of its members. The assessee claimed benefit of exemption under Section 11 / 12 of the Act in the return of income filed on 31-10-2017 disclosing Nil income. The assessee made an investment of Rs 15 lakhs by subscribing to 1,50,000 equity shares of Rs 10 each in Broadcast Audience Research Council (BARC), a wholly owned subsidiary. This investment was sought to be treated as an investment made other than the modes prescribed under section 11(5) of the Act resulting in violation of provisions of section 13(1)(d) of the Act. Accordingly, the Learned AO proceeded to disallow the entire claim of exemption under section 11 of the Act in the assessment.
We find that this is a recurring issue and this tribunal in assessee’s own case for assessment years 2013-14 and 2014-15 in ITA Nos. 4193 and 4194 /Del / 2017 dated 14-09-2020 had decided the very same issue in favour of the assessee by observing as under:-
"7.We have gone through the record in the light of the submissions made on either side. In his order Ld. CIT(A) considered the TRAI recommendations, objectives of incorporating the BARC, the recommendations of the standing committee of Parliament on information technology, the recommendations of TRP committee appointed by the Ministry of Information and Broadcasting, guidelines for Television Rating Agencies recommended by the TRAI extensively in the light of the decisions of the jurisdictional High Court in the case of Director of income tax vs. Alarippu (supra) and also Director of income tax Vs. Acme Educational Society to reach the conclusion that the assessee has not deployed its funds towards equity of BARC for seeking any income, but to fulfil some of its key objectives and in order to complying with the directions of TRAI and MIB; and that as a matter of fact, no income was earned on such deployment of funds towards the equity capital of BARC.
8.Ld. CIT(A) further held that even if it is assumed that provisions of section 13 (1) (d) of the Act are attracted, still the withdrawal of exemption will have to be restricted only to the income earned from the investment made in contravention of section 11 (5) of the Act, as borne out from paragraph No. 28.6 of CBDT circular No. 387, dated 6/7/1984. Having considered all these things, Ld. CIT(A) referred to the observations of the Hon'ble Delhi High Court in assessee's own case at the stage of stay of demand, to the effect that the amounts in question were deposited with the BARC not by way of investment or choice, but on account of a Central government policy. As a result of consideration of all these aspects, Ld. CIT(A) returned a finding that the assessee cannot be said to have committed any violation within the meaning of the provisions of section 11 (5) rea with section 13 (1) (d) of the Act by making the deposits in question and consequently Ld. CIT(A) directed the assessing officer to allow the benefit of assumption under section 11 and 12 of the Act.
9.There is no dispute that basing on the recommendations of TRAI and policy of Central Government, BARC was required to be established as an industry led body and promoted by the Assessee; that both assessee and BARC are 'not for profit' companies set up for meeting wider objectives of public charitable nature, namely, promotion of Television industry and viewership in India. There is also no dispute in respect of the claim of the assessee that, being an Industry body, the assessee represents the interest of its member TV broadcasters including public sector broadcaster Doordarshan. BARC was set up to provide reliable and transparent information needed by the members and various stakeholders of assessee in taking various crucial business decisions relating to their businesses.
10.On a careful consideration of the objects of the BARC, we have no hesitation to hold that the BARC enables assessee to fulfil its 'objects incidental or ancillary to the attainment of the main objects, like to affiliate, admit to membership, aid and to receive aid from any other society, association, company, corporation firm, partnership or person promoting or formed or intending to promote any of the objects of Company and to subscribe to or aid any such society, association, company, corporation, firm, partnership or person with a view to obtain any advantage or benefit for the purpose of the Company and to subscribe to any fund or society as may be considered deserving from time to time and to subscribe to, become a member of, corporate or collaborate with any other association or agency whose objects are altogether or in part similar to those of the Company and to procure from or communicate with any such body or association any useful information as is likely to further the objects of the Company.
11.Further, BARC, being a not for profit Company under section 25 of the Companies act, 1956, is not permitted to distribute any dividends or profits to its shareholders. More so, on liquidation, its MOA provides that any surplus left shall be transferred to another Section 25 Company undertaking similar objectives and cannot distribute any such funds to its shareholders, which establishes that the deployment of funds in BARC is not for earning any income or profit, rather only to meet the objectives of the Assessee.
12.For want of any intention to earn profit by such deployment of funds, in the light of the decisions relied upon by the assessee reported in CIT vs. Uttar Pradesh cooperative Federation Ltd AIR 1989 SC 915, CIT v. Sir Sobha Singh Public Charitable Trust [2001] 250 ITR 475 (Delhi), Anand Charitable Trust v. Commissioner of Wealth-tax [2002] 123 Taxman 494 (Delhi), Director of Income tax v. Alarippu (2000) 111 ΤΑΧΜAN 511 (Delhi), Director of Income tax v. Acme Educational society (2010) 326 ITR 146 (Delhi), CIT v. Aloo Investment Co. Pvt. Ltd. [1979] 1 Taxman 433 (Bom.), and Third Income-tax Officer v. Jhaverbhai Patel Ch. Trust [1992] 43 ITD 195 (Bom.) it cannot be said that the assessee invested the amounts and committed violation within the meaning of section 13 (1) (d) of the Act. Further, whatever may be stage, the observations of the Hon'ble Delhi High Court in assessee's own case, to the effect that the amounts in question were deposited with the BARC not by way of investment or choice, but on account of a Central government policy, can not be ignored.
13.For the reasons recorded in the preceding paragraphs, we are of the considered opinion that the findings of the Ld. CIT(A) do not suffer any illegality or irregularity so as to invite any interference by the Tribunal. Since we confirm the finding of the Ld. CIT(A) that there was no violation committed by the assessee within the meaning of the provisions under section 11 (5) of the Act read with section 13 (1) (d) of the Act we deem it not necessary to refer to the alternative pleas of the assessee. Consequently, we declined to interfere with the findings of the Ld. CIT(A).
14.Insofar as the other grounds are concerned, undoubtedly, they are consequential in nature and in view of our finding on the substantial ground as to the applicability of 11 (5) read with section13 (1) (d) of the Act, we find it just and necessary to confirm the findings of the Ld. CIT(A) on those grounds also.
15.In the result, appeals of the Revenue are dismissed."
Similar view was taken in assessment year 2015-16 by this tribunal in ITA No. 5589 /Del/ 2018 dated 8-9-2022 in favour of the assessee. Further, the Hon’ble Delhi High Court vide order dated 20-3-2025 for assessment year 2014-15 decided the very same issue in favour of the assessee in ITA 469 of 2023. Pursuant to the orders of the of this tribunal and the order of the Hon’ble Delhi High Court wherein it was held that the investment made in BARC could not be construed as violation of section 11(5) read with section 13(1)(d) of the Act, accordingly, we hold that the action of the Learned AO in disallowing the claim of exemption under section 11 of the Act on this count has been rightly deleted by the Learned CITA. Accordingly, the Ground No. 1 raised by the revenue is dismissed.
The Ground No.2 raised by the Revenue is challenging the action of the Learned CITA in allowing the assessee's claim for application of income on account of provision for doubtful debts, payment of gratuity and leave encashment by stating that the same is consequential in nature pursuant to allowing the benefit of exemption under section 11 of the Act.
We have heard the rival submissions and perused the materials available on record. It is not in dispute that assessee had claimed provision for doubtful debts, payment of gratuity and leave encashment as an application of income while claiming exemption under section 11 of the Act in the return. The Learned AO had sought to address the issue of allowability of the same as an application of income by stating that assessee is not entitled to claim of exemption under section 11 of the Act per se due to violation of provisions of section 11(5) read with section 13(1)(d) of the Act. Accordingly, the allowability of these expenditure as a deduction / application was not at all independently adjudicated by the Learned AO. The Learned CITA merely granted relief by stating that the allowability of the same would be consequential in nature pursuant to allowing the main ground of claim of exemption under section 11 of the Act. We have already held that assessee would be entitled for claim of exemption under section 11 of the Act by endorsing the view of the Learned CITA in that regard. However, with regard to availability of application of income for provision for doubtful debts, leave encashment and gratuity, the same had to be independently tested as per the provisions applicable for those issues in accordance with law. Hence, in the interest of justice and fair play, we deem it fit and appropriate to restore this issue alone to the file of Learned AO for de novo adjudication in accordance with law and in the light of our decision to allow the claim of exemption under section 11 of the Act for the Ground No. 1 raised by the revenue. With these observations, the Ground No. 2 raised by the revenue is allowed for statistical purposes.
In the result, the appeal of the revenue is partly allowed for statistical purposes.