“Deployment of Funds Under Government Mandate Is Not Investment” – Delhi High Court Upholds Exemption for Indian Broadcasting Foundation

“Mere Purchase of Shares Does Not Amount to Investment When Not Intended for Profit” –  In a significant judgment that reiterates the nuanced interpretation of "investment" in the context of charitable trusts, the Delhi High Court on 20 March 2025 upheld the exemption granted under Sections 11 and 12 of the Income Tax Act, 1961 to the Indian Broadcasting Foundation (IBF). Dismissing the appeal filed by the Commissioner of Income Tax (Exemptions) in ITA 469/2023, the Division Bench comprising Justice Vibhu Bakhru and Justice Dr. Swarana Kanta Sharma held that deployment of funds towards BARC (Broadcast Audience Research Council), in compliance with a regulatory framework and government mandate, could not be treated as an “investment” within the meaning of Section 11(5) read with Section 13(1)(d) of the Act.

The Court noted emphatically:

“The application of funds by the Assessee in BARC does not qualify as an ‘investment’...inasmuch as the said deployment was not intended to yield income, profit, or return, but was made pursuant to a statutory and regulatory obligation.”

The Indian Broadcasting Foundation, a not-for-profit company registered under Section 25 of the Companies Act, had invested ₹15 lakhs in equity shares and ₹2.85 crores as share application money in BARC, which is also a not-for-profit company. The Assessing Officer (AO) held that these were not permissible investments under Section 11(5), and hence the exemption under Sections 11 and 12 was liable to be withdrawn under Section 13(1)(d). The AO taxed the entire surplus income at the maximum marginal rate under Section 164(2), leading to a tax liability of ₹5.51 crores.

The Commissioner of Income Tax (Appeals) reversed this assessment, finding that the funds were deployed in line with a government directive and thus not a voluntary investment for profit. This view was upheld by the Income Tax Appellate Tribunal (ITAT). The Revenue challenged this before the High Court.

Court’s Analysis and Findings

The High Court carefully analysed whether the deployment of funds towards BARC was a voluntary investment intended to yield returns or a necessary step under government policy. It held that BARC was established on the basis of TRAI recommendations and Ministry of Information and Broadcasting (MIB) directives to address the need for an independent and transparent television rating system in India.

The Court drew support from parliamentary records and TRAI’s 2008 recommendation, noting:

“TRAI categorically recommended a self-regulatory approach... The Assessee was required to retain a 60% shareholding in BARC as per government policy.”

The Court ruled that BARC’s objectives were in alignment with the Assessee’s own charitable goals. Importantly, BARC's memorandum prohibited the distribution of dividends or profits, and in the event of liquidation, any surplus was to be transferred to another similar not-for-profit entity.

The Court concluded:

“No financial return or gain was possible from the Assessee’s deployment of funds in BARC.”

Investment vs. Application of Income: A Legal Distinction

The crux of the case hinged on the definition of "investment" under the Act. The Court relied on precedents including CIT v. Sir Sobha Singh Public Charitable Trust (2001) 250 ITR 475 (Delhi) and Director of Income-tax (Exemption) v. Alarippu (2000) 244 ITR 358, reiterating that:

“An investment, in common parlance and legal sense, must carry the intention to earn a return or profit.”

Referring to Black’s Law Dictionary and judicial commentary, the Court emphasized that laying out funds purely to further charitable or regulatory purposes without any intent to earn income cannot be treated as ‘investment’ for the purpose of denying exemption under Section 13(1)(d).

Conclusion of the Court

The High Court answered the framed questions of law in favour of the Assessee. It affirmed the ITAT's and CIT(A)’s findings that:

The deployment of funds by IBF in BARC did not constitute a violation of Section 13(1)(d).

The exemption under Sections 11 and 12 was rightly granted.

The appeal filed by the Revenue was devoid of merit and was dismissed accordingly.

The Court held:

“We find no infirmity with the impugned order of the learned ITAT... The application of funds was not for investment but to fulfil the Assessee’s charitable objectives mandated by regulatory authorities.”

A Key Precedent on Charitable Deployments Under Government Mandate

This judgment is a major precedent in the realm of taxation of charitable organisations. It clarifies that when a not-for-profit entity deploys funds in compliance with government or regulatory directives, such deployment cannot be equated with investment intended for income generation. The decision safeguards the operational autonomy of non-profit bodies working within public regulatory frameworks and reinforces a functional rather than formalistic interpretation of income-tax provisions.

Date of decision:  20 March 2025