Lakshmikumaran and Sridharan attorneys Represents Nord Anglia Education Infrastructure Private Limited in ITAT Appeal on Classification of Income

Lakshmikumaran and Sridharan attorneys Represents Nord Anglia Education Infrastructure Private Limited in ITAT Appeal on Classification of Income

The leading law firm in India, Lakshmikumaran & Sridharan (LKS), represented Nord Anglia Education Infrastructure Private Limited (the “Assessee”) before the Hon’ble Income Tax Appellate Tribunal, Visakhapatnam in an appeal filed by the Income Tax Department regarding the classification of income from leasing educational infrastructure and provision of integrated services.

Background

Nord Anglia Education Infrastructure Private Limited 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 were treated by the Assessee as business income and offered to tax under the head ‘Profits and gains from business or profession’ (“PGBP”).

Assessing Officer’s Findings

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 years (AY) 2014-15, 2017-18, and 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 (“Act”), which provides for deduction of tax (“TDS”) on payment for rent.

Further, the assessing officer 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 account by the Assessee.

CIT(A) Proceedings

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.

ITAT Appeal

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 and 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. The receipts from business activities involving complex commercial services, inseparable from leasing of land and buildings used for running schools, shall be taxable as business income under PGBP.

Further, the ITAT noted that the nature of income in the hands of the Assessee cannot depend solely upon the nomenclature used by the payers in the TDS certificates.

The ITAT also reaffirmed the principle of consistency, noting that the Revenue has accepted the classification of the said receipts as business income in subsequent AYs. Accordingly, the ITAT held that the Revenue cannot file an appeal based on a self-contradictory approach challenging the same view taken by the CIT(A) which has been accepted 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 broader disallowance made by the assessing officer.

Conclusion

Based on 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 emphasizes 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.

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