2020 (9) TMI 722 - AT - Income Tax

Exemption u/s 11 and 12 - Amount deployed towards share capital of BARC pursuant to the policy of the Central Government and TRAI recommendations treated in the nature of investment in violation of Section 11(5) read with section 13(1)(d) - HELD THAT - 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 - 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 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. It cannot be said that the assessee invested the amounts and committed violation within the meaning of section 13 (1) (d) of the Act - whatever may be stage, the observations of the Hon ble Delhi High Court in assessee s own case 2017 (3) TMI 1820 - DELHI HIGH COURT 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 - 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) - Decided in favour of assessee.

Summary

Issues:
- Exemption under section 11 of the Income-tax Act, 1961
- Nature of funds deployed in BARC by the assessee
- Violation of Section 11(5) read with section 13(1)(d) of the Act
- Interpretation of TRAI recommendations and Central Government policy
- Application of income vs. investment in BARC
- Legal implications of the deployment of funds in BARC

Analysis:

1. Exemption under section 11 of the Income-tax Act, 1961:
- The assessee, a not-for-profit company registered under Section 12AA of the Income Tax Act, claimed exemption under section 11 for the assessment years 2013-14 and 2014-15. The dispute arose when the assessing officer denied this exemption under section 11 and 12 of the Act, invoking section 13(1)(d) of the Act. The Commissioner of Income Tax (Appeals) reversed this decision, allowing the benefit of exemption under sections 11 and 12 of the Act.

2. Nature of funds deployed in BARC by the assessee:
- The main contention revolved around whether the funds deployed in BARC by the assessee were in the nature of investment in violation of Section 11(5) read with section 13(1)(d) of the Act. The assessee argued that the deposits in BARC were not investments but applications of income to fulfill its objectives, as per the Central Government policy and TRAI recommendations.

3. Violation of Section 11(5) read with section 13(1)(d) of the Act:
- The Revenue contended that the transaction of purchasing shares and share application money in BARC constituted an investment, justifying the assessing officer's order. However, the assessee maintained that the funds deployed were not in violation of the Act, emphasizing the absence of any intention to earn profits from such deposits.

4. Interpretation of TRAI recommendations and Central Government policy:
- The Tribunal extensively considered TRAI recommendations, the objectives of incorporating BARC, and various governmental policies to determine the nature of the funds deployed. It was established that the establishment of BARC was in line with industry requirements and not for profit motives.

5. Application of income vs. investment in BARC:
- The Tribunal analyzed whether the funds deployed in BARC were for income generation or for fulfilling the objectives of the assessee association. It was concluded that the deposits were not made with the intention of earning profits, aligning with the broader charitable objectives of the assessee.

6. Legal implications of the deployment of funds in BARC:
- The Tribunal affirmed the findings of the Commissioner of Income Tax (Appeals) that the assessee did not commit any violation within the meaning of the provisions under section 11(5) of the Act read with section 13(1)(d) of the Act. Consequently, the Tribunal dismissed the Revenue's appeals, upholding the decision to allow the benefit of exemption under sections 11 and 12 of the Act.

This detailed analysis highlights the key legal arguments, interpretations of relevant provisions, and the final decision of the Tribunal regarding the exemption claim and the nature of funds deployed by the assessee in BARC.