- with Finance and Tax Executives
- with readers working within the Retail & Leisure industries
Nord Anglia Education Infrastructure Private Limited (the "Assessee") is an Indian company engaged in the educational infrastructural business and leases custom-built educational campuses along with provision of integrated infrastructural services such as housekeeping, security, and transport to schools.
The receipts of the Assessee from such complex commercial exploitation of large-scale educational infrastructure along with allied services was treated by the Assessee as business income and offered to tax under the head 'Profits and gains from business or profession' ("PGBP").
However, the assessing officer classified the receipts from such schools as 'income from house property' ("IHP") and consequently disallowed the interest and depreciation claims of the Assessee for assessment year ("AY") 2014-15, AY 2017-18, and AY 2018-19. The assessing officer also noted that tax upon such payment was deducted by the payer under section 194-I of the Income Tax Act, 1961 (the "Act") which provides for deduction of tax ("TDS") on payment for rent.
Further, the assessing officer also made a disallowance under section 14A of the Act citing lack of segregation between expenses incurred for earning of exempt and non-exempt income owing to the maintenance of a common profit and loss by the Assessee.
The assessment orders for the aforementioned AYs were challenged by the Assessee before the Hon'ble Commissioner of Income-tax (Appeals) ("CIT(A)") wherein the CIT(A) accepted the Assessee's classification of income under the head PGBP and set aside the assessment orders for all three AYs.
The orders of the CIT(A) were challenged by the Income Tax Department ("Revenue") before the Hon'ble Income Tax Appellate Tribunal, Visakhapatnam ("ITAT").
The ITAT, after considering the Assessee's arguments as well as certain judicial precedents (e.g., Chennai Properties, Rayala Corporation, Oberon Edifices) observed that the Assessee is a full-fledged educational infrastructure operator and not a passive landlord and the receipts from the business activities of the Assessee involving complex commercial services, inseparable from leasing of land and building being used for running of schools, shall be taxable as business income under the head PGBP.
Further, the ITAT observed that nature of income in the hands of the Assessee cannot be made dependant upon the nomenclature used by the payers in the TDS certificates issued to the Assessee.
Furthermore, the ITAT, reaffirming the principle of consistency, noted that the Revenue has accepted the classification of the said receipts as business income in subsequent AYs. Accordingly, the ITAT held that the Revenue can't file an appeal based on a self-contradictory approach challenging the same view taken by the CIT(A) which has been taken by the Revenue in subsequent AYs.
Lastly, the disallowance under section 14A of the Act was restricted by the ITAT to the extent of the actual exempt income earned by the Assessee as against the disallowance made by the assessing officer.
Basis the above considerations, the ITAT dismissed the appeal of the Revenue.
This judgment acknowledges that complex commercial activities involving leasing of educational infrastructure along with integrated services (e.g., housekeeping, security, transport) constitute business operations rather than passive rental income. It also lays great emphasis on the principle that the nature of income cannot be determined solely by TDS nomenclature and reaffirms consistency in tax treatment across assessment years.
The lead matter was argued by Mr. Karanjot Singh Khurana and assisted by Mr. Snehal Ranjan Shukla and Mr. Avar Lamba
To read the court order please click here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
