VIDYA EDUCATION INVESTMENTS PVT. LTD.,NEW DELHI vs. ITO, NEW DELHI

PER BHAVNESH SAINI, J.M.

This appeal by assessee has been directed against

the order of the Ld. CIT(A)-19, New Delhi, Dated 30.09.2013, for

the A.Y. 2010-2011.

2 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

the parties and perused the material on record.

ground Nos.2(c) and (d) of the appeal. The same are dismissed

as not pressed.

“The CIT(A) grossly erred in enhancing the ALV of the

let out property and in there with the income by

Rs.1,67,74,073/- and further in omitting to give relief

as sought for in respect of Service Tax.”

company has derived rental income from the school building

constructed at Village Shiltane, Lonvala from M/s. Cathedral

Vidya School in which one of the Director is also trustee. During

the course of assessment, it was observed that assessee-

company has received rental income of Rs.1.80 crores, whereas,

they have offered Rs.1,63,19,130/- as rental income for the

year. In reply to the specific query raised by the A.O, assessee

3 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

has submitted that the balance amount of Rs.16,80,870/-

pertains to service tax which was included in rental income.

However, as per the copy of Agreement filed by the assessee

company, nothing was mentioned about the service tax and its

liability. Moreover, assessee company is not registered with the

Service Tax Department and without registration, question of

charging of Service Tax and its liability does not arise.

Accordingly, Net Rental Income is further increased by

Rs.11,76,609/- (being Rs.16,80,870/- less 30%). The A.O.

accordingly, made the addition of Rs.11,76,609/-.

The written submissions of the assessee is reproduced in the

appellate order in which it was briefly explained that assessee-

company was incorporated on 26.10.2004. Main objects among

others were - To start, establish, run, takeover, manage and

maintain schools with the object to provide pre-primary,

primary, middle, secondary, senior secondary and higher

education (technical/non-technical). The assessee-company

4 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

purchased 39 acres of land in Village Shilatne, Lonavala

District, Pune, Maharashtra to set-up a school in the year ended

31.03.2005. It was the intention of the assessee to set-up more

educational facilities. The assessee-company executed a Deed

of Conveyance in favour of Cathedral School Welfare Trust in

respect of sale of 26% undivided share , right, title and interest

in 10.14 acres of the above referred land. The land together with

buildings, facilities and amenities were constructed and

developed by the owners of the land i.e., assessee and Cathedral

School Welfare Foundation. The said property with facilities was

leased vide lease dated 14.06.2000 to Cathedral Vidya Trust

(“CVT”), a public charitable trust which is engaged in providing

education and running the schools. Other assets of the value of

Rs.3.19 crores were also in use by CVT. The lease charges were

Rs.45 lakhs as per quarter, w.e.f. 15.04.2009 to 31.12.2010.

For the year ended 31.03.2010, total rent received was Rs.1.80

crores. No provision was made in the accounts for proportionate

rent payable to Cathedral School Welfare Trust, joint owner of

the school, land and building. The total lease money received

5 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

less service tax was declared in the return of income under the

Head “Property Income”. The liability to pay service tax rested

on the assessee for the lease income received from CVT because

the lease agreement was silent on the issue pertaining to service

tax. The assessee was registered under the Service Tax Act on

19.11.2010 and amount of service tax of Rs.16,80,870/- was

deposited in the Appropriate Authority on 17.02.2011.

6.1. The assessee filed application for admission of

additional evidence under Rule 46A which are copies of the

challans of Rs.16,80,870/- pertaining to the service tax and

copy of the service tax returns for F.Y. 2009-2010 along with

TDS challan, in respect of audit fee paid. The assessee

requested for admission of the additional evidence, on which,

report from the A.O. was called for. Ld. CIT(A) ultimately

admitted these additional evidence under Rule 46A.

that assessee purchased 39 acres of land in Lonavala in 2005.

Shri Vineet Nayyar owns 99% of the assessee-company and

6 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

balance 1% is held by his daughter Ms. Namrata Nayyar. 26%

of the above land was sold to Cathedral School Welfare Trust.

The assessee and co-owner leased the land and building

constructed by them to CVT. Shri Vineet Nayyar is Settler of

CVT along with his wife. The assessee filed copy of the lease

deed between the assessee company and CVT which shows that

the lease deed is actually between assessee and CVT which is

signed by Shri Vineet Nayyar on behalf of the assessee company

and for the lessee, lease rent fixed is Rs.15 lakhs per month to

be paid to assessee-company..

7.1. The assessee reiterated the same facts before the Ld.

CIT(A). The Ld. CIT(A), noted that as per the balance sheet the

value of the school land is Rs.1.11 crores and building is valued

at Rs.42.36 crores as on 31.03.2010. The annual lease rent is

shown at Rs.1.8 crore only which is very low considering the

value of the land and building leased-out to CVT. A show cause

notice was issued to the assessee to substantiate the annual

letting value shown. The assessee submitted that rent was

7 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

mutually agreed between the assessee company and the lessee

CVT at Rs.15 lakhs per month for 83,624 Sq. Ft. of built-up

area @ approximately Rs.17.95 Sq. Ft. The rent is fair rent

keeping in view that school is newly set-up.

7.2. The Ld. CIT(A) did not accept the explanation of

assessee and asked the assessee to explain why ALV be not

computed at 8% of the investment and income enhanced

accordingly. The assessee explained that amount spent on

construction of the property is a remote consideration for

determining the letting value of the property, where the property

is let out, and is supported by lease agreement. There is no

comparative case for rental income in the vicinity of the school,

as the same is located on rural land. The land use was changed

for the school. The assessee has filed an opinion of M/s. Atharva

Land Developers operating in -Lonavala in support that rent

paid is reasonable. The Ld. CIT(A) did not accept the contention

of assessee and noted that the assessee-company with co-owner

as well as CVT are controlled by same persons. The rent is very

8 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

low as compared to investment in land and construction of the

school. The assessee failed to substantiate ALV shown. The

opinion of M/s. Atharva Land Developer is not qualified to give

report and no basis shown for value of land. No comparable

instances have been found. The Ld. CIT(A) accordingly, applied

8% on the total investment and computed annual letting value

at Rs.3,47,74,073/-. The assessee has shown annual letting

value at Rs.1.80 crores. Therefore, income was enhanced by

Rs.1,67,74,073/-. Ld. CIT(A), in support of his findings relied

upon decision in the case of Smt. Radha Devi Dalmia vs. CIT

(1980) 125 ITR 134 (All.), Sakarlal Balabha vs. ITO (1975) 100

ITR 97 (Guj.) and EMTICI Engineering Ltd. vs. ACIT (1997) 58

TTJ 27 (Ahd.) Bench.

submissions made before the authorities below and submitted

that A.O. while passing the assessment order accepted the

annual letting value declared by assessee, but, disallowed the

service tax. Section 23(1) provides manner of computing the

9 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

annual value of house property. He has submitted that there

are two methods to be kept in mind for judging annual letting

value i.e., the standard rent if property is subject to Rent

Control Act or the Municipal Ratable Value for the purpose of

house tax would be the annual letting value where there is no

standard rent. Therefore, the method applied by the Ld. CIT(A)

by applying 8% of the investment is highly improper and not

applicable to the Income Tax Act. Merely because the family

member of Shri Vineet Nayyar controlled both the institutions

by himself is no ground to reject the fair rental value shown by

assessee. The Charitable Trust can pay to the Trustee rent

which is reasonable for such services. The property was let out

to educational institution which may not be used for

commercial purpose or residential purpose. Therefore, the rent

was reasonable, which was also lesser in earlier year and

accepted. The Ld. CIT(A) has not given any comparable case

while fixing the annual letting value of the property. The

Learned Counsel for the Assessee relied upon decision of the

Full Bench of the Delhi High Court in the case of CIT vs. Moni

10 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

Kumar Subba (2011) 333 ITR 38 (Del.) in which, in para-20 the

conclusion of the High Court is reproduced as under :

“(i) Annual letting value would be the sum at which the property may be reasonable let out by a willing lessor to a willing lessee uninfluenced by any extraneous circumstances.

(ii) An inflated or deflated rent based on extraneous consideration may take it out of the bounds of reasonableness.

(iii) Actual rent received, in normal circumstances, would be a reliable evidence unless the rent is inflated/deflated by reason of extraneous consideration.

(iv) Such annual letting value, however, cannot exceed the standard rent as per the rent control legislation applicable to the property.

(v) If standard rent has not been fixed by the rent controller, then it is the duty of the AO to determine the standard rent as per the provisions of rent control enactment.

(vi) The standard rent is the upper limit, if the fair rent is less than the standard rent, then it is the fair rent which shall be taken as annual letting value and not the standard rent.”

11 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

8.1. He has also relied upon the Judgment of the Bombay

High Court in the case of CIT vs. Tip Top Typography (2014) 368

ITR 330 (Bom.), in which it was held as under :

“Municipal rateable value though not binding on AO is an approved method for determining fair rental value and it is only when AO is convinced that case before him is suspicious, determination by parties is doubtful that he can resort to enquire about the prevailing rate in the locality, AO can reject municipal ratable value.

Merely because rent has not been fixed under that Act does not mean that any other determination and contrary thereto can be made by A.O.”

8.2. He has also relied upon the order of ITAT, Mumbai

Bench-C in the case of CVT (lessee) vs. ITO (Exemption)-1(1),

Mumbai in ITA.No.4958/Mum./2015 for A.Y. 2011-2012 dated

24.10.2017, in which the A.O. denied exemption under section

11 of the I.T. Act because rent was paid to the assessee-

company which is excluded under section 13(3) of the I.T. Act.

The A.O. denied the exemption to the lessee because the lessee

12 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

was Trust making payment of lease rent to company in which

trustee of the Assessee are Directors are majority shareholder,

which violates Section 13 of the I.T. Act. It was also noted that

assessee failed to substantiate the reasonableness of the

payment of rent. Assessee, however, explained that assessee-

lessee paid reasonable rent and there is no basis for the A.O. to

arrive at different findings and relied upon assessment orders/

appellate order in the case of assessee-lessee for preceding

assessment years. The Tribunal in paras 5 to 10 in the case of

CVT held as under :

“5. We have considered the rival submissions of ld. AR of the parties and have gone through the orders of authorities below. We have also perused the material and the two decision mainly relied by ld AR for the assessee before us. The assessee-Trust was registered on 21.02.2008. The settler of Trust is Vineet Nayyar. The other trustee in the trust is Reva Nayyar. The address of both the trustee in the trust-deed are of 5A, Friends Colony (W), Mathura Road, Delhi-65. The initial corpus fund of Rs. 1100/- was contributed by settler. The name of the Trust was given as "The Cathedral Vidya Trust". The registered office of the

13 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

Trust is mentioned as 6, Purushottamdas Thakurdas Marg, Fort Mumbai-400001. Further, the membership of the Trust was restricted to minimum one and not more than three. There is further provision in the trust-deed that the trustee shall be entitled to appoint the additional trustee as and when they deem fit as per Clause-6 of Trust-Deed. It is mentioned in the trust-deed that trustee shall immediately form a Private Limited Company under the provisions of Companies Act and will appoint the Trust-company as sole trustee of the Trust. The assessee Trust got registration under section 12A of the Act on 31.03.2009. The assessee has placed on record a copy of lease agreement with Vidya Education Investment Pvt. Ltd. having its registered office at 5C, Old Friends Colony (W), Mathura Road, New Delhi- 65 dated 14.06.2008. The lease deed was executed initially for nine years commenced from 01.06.2008. The lease-deed is signed by Vineet Nayyar on behalf of lesser as well as lessee. During the AY, the assessee has paid rent of Rs. 2.75 Crore to lesser i.e. M/s Vidya Education Investment Pvt. Ltd. on account of Annual rent which is one of the subject matter of impugned assessment.

14 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

is running a Lavish International School, charging heavy fees from the students on commercial lines. The assessee is charging fee of Rs.4,65,000/- p.a. from Class-IV to Class- VIII, Rs. 4,65,000/- for IGCSE* students and Rs. 5,65,000/- from I.B* (*no details of abbreviations is available in record). (ii) No charitable benefit is available to poor and needy students as a fee waiver, or scholarship etc. The activities of institution are not charitable and commercial in nature. (iii) the assessee- Trust has made the payment of Rs. 2.75 Crore to M/s Vidya Education Pvt. Ltd. which is an excluded person under section 13(3) of the Act. The assessee was asked to justify the reasonableness of the said payment in term of provision of section 13(2) failing which it can be presumed that this just a tool for diversion of fund in the hand of excluded person and therefore, exemption under section 11shall be denied and income shall be assessed disallowing the payment of Rs. 2.75 Crore. The assessee filed its reply vide reply dated 13.03.2014. In the reply, the assessee contended that the assessee-trust is duly registered under section 12A. As per the trust- deed, the object of trust is to promote educational activities by setting up and running school and allied charitable objects. The assessee has been promoting educational activities since inception, no other activities has been carried by the assessee till date. During the AY 2010-11, the AO has also

15 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

observed that the object of trust is to promote educational activities by setting up and running school and granted exemption under section 11. For fees structure, the assessee contended that the school was established and started from 03.08.2008 and imparting education from Std. IV to Std. XI and Diploma courses. The assessee is imparting world class education with strong Indian Tradition and values with advance school of modern technology. In order to get the Teachers and Faculties for imparting good education, the assessee is require to pay high amount of remuneration to Teachers of that calibre. There were 300 students and 65 teaching staff and administrative support staff. The school is not added by the Government support and entire expenditure is incurred from the fees that are charged from the students. The fee structure as compared to the other International School, the fee of the assessee is on lower side. The assessee specifically contended that no profit motive embedded in the charging of fees. For payment of lease rent at the rate of Rs.25,00,000/- per month, the assessee contended that trust is paying lease rent to Vidya Education Investment Pvt. Ltd. for the plot of land measuring 16.93 acre. The lease deed was executed on 01.06.2008 for a period of nine years. Initially the rent was fixed at Rs.5,00,000/- per month which was gradually increased from time to time and

16 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

at present the assessee making payment of rent of Rs.25,00,000/- per month. The assessee also filed a report of Valuer dated 10.01.2014. The assessee contended that as per the Valuation Report the lease rent of the leased land is around Rs.32.31 Lakhs per month. The assessee also contended that for preceding AY 2008-09, assessee-trust has not paid the lease rent which was waived by the lesser company because of financial difficulties faced by the assessee. The total cost of the land and school is Rs.43,46,75,917/- which is funded by Vidya Education Investment Pvt. Ltd. (VEIPL). The VEIPL has also provided furniture and fixture, computer, books, office equipment etc. required for school and further incurred a cost of Rs. 300 lakhs. Thus, in sum and substances the assessee claimed that the payment of lease rent is reasonable. The contention raised by assessee in its reply was not accepted by AO. The AO concluded that the assessee is charging huge fee for educational activity which cannot be considered and treated as charitable. There is no co- relation of fee charged and the expenses incurred. The excessive fee is charged to generate huge surplus to fund the liability of rent of Rs.2.75 Crore to a Private limited company owned and managed by excluded person. The assessee urged the similar contention before ld. Commissioner (Appeals). The ld CIT(A)confirmed the order of assessing officer holding that during the course

17 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

of submission it was disclosed by the representative of the assessee that they are giving free education to One student, however the details of the student was not furnished. For charging of the high amount of fee the ld Commissioner (Appeals) concluded that no authentic data is provided. For payment of lease rent to the excluded person the ld. CIT(A) concluded that neither the decision of Supreme Court in case of Queen's Educational Society (319 ITR 160) relied on behalf of assessee nor the order of CIT(A) for AY 2010-11 is helpful to the assessee. The decision in Queen's Educational Society relates to section 10(23C), however the case of the assessee is hit by section 13 of the Act. Further, the issue in AY 2010-11 may be relevant for the conditions of section 13(2) (c), however the provision of section 13(2)(g) are applicable in the year under consideration. Moreover, the principles of resjudicata are not applicable in the income tax proceedings.

18 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

the previous year in favour of any concern as provided under section 13(3)(e) the assessee would not be entitled for exemption if the rent paid is unreasonable one.

19 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

evidence on record about any valuation of comparable property. Similarly, the ld. Commissioner (Appeals) has not made any comment on the valuation report furnished by the assessee. In our view this documentary evidence furnished by assessee is not controverted by assessing officer by bringing any incriminating evidence on record. Thus in our view in absence of any incriminating evidence the payment of rent to the related party during the year under consideration is reasonable one.

20 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

8.3. Learned Counsel for the Assessee, therefore,

submitted that since the rent have been accepted in the case of

lessee and the Tribunal deleted the addition, therefore,

enhancement made by the Ld. CIT(A) is wholly unjustified.

the authorities below and submitted that no material is

produced in support of annual letting value claimed by the

assessee. He has submitted that the decision relied upon by the

assessee are distinguishable on facts.

perused the material on record. The operative words in Section

23(1)(a) are “the sum, for which, the property might reasonably

be expected to let from year to year”. These words provide a

specific direction to the Revenue for determining the fair rent.

The A.O. having regard to the aforesaid provisions is expected

to make an enquiry as to what would be the reasonable rent

that the property under reference might fetch. If the A.O. finds

that actual rent received is less than the fair rent/market rent

21 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

because of certain reasons, the A.O. can take necessary exercise

in that behalf. Hon’ble Delhi High Court in the case of CIT vs.

Moni Kumar Subba (supra), in para-20 has given its conclusion,

reproduced above, in which, it was observed that willingness of

the lessor and lessee shall have to be considered and

extraneous considerations should be avoided. Such annual

letting value, however, cannot exceed the standard rent as per

Rent Control Legislation applicable to the property. If the

standard rent has not been fixed by the Rent Controller, then,

it is the duty of the A.O. to determine the standard rent as per

provisions of Rent Control enactment. The standard rent is

upper limit, if the fair rent is less than the standard rent, then,

it is the fair rent which shall be taken as annual letting value

and not the standard rent. In the present case, the assessee

explained all the facts before A.O. with regard to rent received

and that the property was let out earlier and in the case of lessee

CVT, it is pleaded before ITAT, Mumbai Bench that the rent has

been gradually increased from time to time. This fact has not

been disputed by the Revenue Department. Therefore, the A.O.

22 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

accepted the claim of assessee of receiving fair and reasonable

rent of Rs.1.80 crores in assessment year under appeal. The Ld.

CIT(A) was however, influenced by the fact that the assessee-

company and the lessee is controlled by Shri Vineet Nayyar and

his family members and investment in building. Therefore, he

has considered that assessee has received a low rent. However,

it is an extraneous consideration, which has no bearing on the

issue of determination of annual letting value of the property.

The Ld. CIT(A) did not undertake any necessary exercise to

compute annual letting value of the assessee as per above

guidelines. No comparable case have been brought by him on

record. Ld. CIT(A) simply rejected the claim of the assessee for

applying 8% of the total investment to compute annual letting

value. He has not determined the standard rent in the case of

assessee as per Rent Control Legislation and has also not

considered even municipal value determined by the

municipality. The Ld. CIT(A) also failed to note that the lessee

was a charitable institution providing education to the

students. Therefore, it could not be compared with commercial

23 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

or residential occupancy of demised property which is not

involved in charitable institution. For commercial and

residential user of the property, the rent may be high as

compared to property given on rent to the educational and

charitable institutions. Thus, there were no basis for Ld. CIT(A)

to enhance the annual letting value of the property in question.

We may also note that identical issue was considered in the case

of lessee i.e., CVT by ITAT, Mumbai Bench and the entire

addition made by the A.O. have been deleted by the Tribunal.

Though this case pertains to subsequent A.Y. 2011-2012, but

the fact remains that the Tribunal accepted the claim of lessee

of fair rent paid by them to assessee. The demised property was

let-out though agreement which follow in year under appeal. So,

facts are identical. The claim of assessee has been supported by

opinion/report of M/s. Atharva Land Developers who have

determined fair rent against which Ld. CIT(A) has not brought

any report of expert. So, it could not be disputed. In the case of

assessee and lessee, the rent paid in earlier year have not been

disputed by the Revenue Authorities. Considering the totality of

24 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

the facts and circumstances and in the light of decisions relied

upon by the Learned Counsel for the Assessee, we are of the

view that the lessee has paid fair reasonable rent to the

assessee. Therefore, there were no basis to enhance the fair rent

paid by lessee to the assessee-company. We, accordingly, set

aside the orders of the Ld. CIT(A) and delete enhancement in

rent made by him of Rs.1,67,74,073/-. We may also note that

Ld. CIT(A) while enhancing rental income, did not decide the

issue of service tax paid by assessee. Ld. CIT(A) admitted the

additional evidences which are service tax paid by the assessee

through challan and service tax returns filed for assessment

year under appeal. It would support the explanation of assessee

that assessee paid service tax for assessment year under

appeal, out of rent received from the lessee because there were

no mention of the service tax in the rent agreement. Since the

service tax is a liability upon the assessee-company which have

been discharged as per Service Tax Act, therefore, it is an

allowable deduction in favour of assessee, because in the

service tax, assessee has no right to claim it as a rent. The

25 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

authorities below were, therefore, not justified in making

addition of Rs.16,80,870/-. The orders of the authorities below

to that extent are also set aside and this addition is also deleted.

allowed.

disallowance of interest on borrowed funds to the tune of

Rs.1,10,23,009/-.

observed that assessee has claimed interest on borrowed funds

of Rs.2,20,46,017/- and claimed deduction from rental income.

As per balance sheet filed by the assessee, it was observed that

the land and building has been partially purchased from the

own funds of the assessee-company like share capital, interest,

free unsecured loans from Directors and partially from loans

taken from Banks and other financial institutions. The interest

bearing loan were also used to purchase other assets of the

company other than land and building, on which, rental income

26 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

was declared. In the absence of any specific bifurcation of funds

used for land and building and other assets and used for

business activities, 50% of the interest claimed by the assessee

were disallowed. The A.O. accordingly, made addition of

Rs.1,10,23,009/-.

the borrowings, Rs.13,28,499/- during the period of

construction of school, assets up-to 31.07.2008 were

capitalized. The borrowing cost after 1st August, 2008, was

charged to the P & L A/c i.e., Rs.95,17,940/- as ended on

31.03.2009 and Rs.2,20,46,017/- ended on 31.03.2010. The

assessee in the return of income claimed interest paid and

claimed deduction under the Head “House Property”. The

assessee further submitted that deduction is allowable as the

borrowings have nexus with the construction of the property.

Since the interest is charged on borrowed capital utilized for

acquiring and constructing of the property, therefore, it is an

allowable deduction under section 24(b) of the I.T. Act. The

27 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

proportion of the value of the land and building as against the

other assets is 93.15% and not 50% as computed by the A.O.

All the borrowings were used for construction of assets of the

school. The share capital, loans and reserve and surplus of the

assessee ending 31.03.2010 are Rs.17,31,22,801/-. The

balance sheet of the assessee shows total investment on assets

as on 31.03.2010 at Rs.43,46,75,917/- whereas, the

borrowings as on 31.03.2010 were Rs.25.13 crores only. This

clearly shows that assessee has substantially utilized its own

funds amounting approximately to Rs.18 crore and the funds of

the co-owner amounts to Rs.5.61 crore to finance the purchase/

acquisition of the school assets. All the assets created by the

borrowed funds and own funds were in respect of school which

was leased to CVT. The borrowed funds were not utilized for

other assets. The Ld. CIT(A), however, did not accept the

contention of the assessee and noted that assessee has shown

secured loan of Rs.25.13 crore and others. The total funds

available to the assessee are Rs.53.38 crore are about 47%,

therefore, 50% disallowance was found justified. It was also

28 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

noted that it was for the assessee to show that the borrowed

funds were actually used towards assets yielding rental income.

This ground was dismissed.

submissions made before the authorities below and submitted

that assessee raised funds from following institutions for

construction of school building.

(1) Kotak Mahindra Bank OD Limit Rs. 6 crores.

(2) IDFC Secured Loan of Rs.8 crores ending 31.03.2009 And Rs.6.5 crores ending 31.03.2010.

(3) Secured Loan from IISL Rs.25 crores. On which, assessee paid interest to Rs.2,20,46,017/-.

15.1. Assessee has invested total sum of

Rs.48,13,50,076/-, out of which, sum of Rs.43,46,57,917/-

relates to school land and building. Total borrowings as on

31.03.2010 were Rs.25,13,58,904/- only, on which, the above

interest have been paid. This would prove that whole of the

borrowed funds were utilized for construction of school

29 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

building, therefore, there were no justification to disallow the

interest.

bifurcation is given, therefore, the addition is justified.

find any justification to sustain the addition. The interest paid

on borrowed funds used for the acquisition and construction of

the property is an allowable deduction under section 24(b) of

the I.T. Act. The authorities below have disallowed 50% of the

interest because no bifurcation of the funds used for land and

building and other assets have been provided by the assessee.

The assessee has, however, given complete details before the Ld.

CIT(A) to show how much own funds are available to assessee

and how much amounts have been borrowed from the Bank and

other institutions. The assessee claimed that the borrowings as

on 31.03.2010 were only Rs.25,13,58,904/-, on which, above

interest have been paid. The assessee has invested a sum of

Rs.43,46,57,917/- in the school land and building. This itself

30 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

proves that assessee utilized the entire borrowed funds for

construction of school building. Learned Counsel for the

Assessee also referred to page-10 of the synopsis to show

bifurcation of the land and building of the demise property and

other assets and submitted that the other net addition on other

assets in assessment year under appeal is only Rs.60,35,902/-

which is not disputed by the Ld. CIT(A), because, such

Schedule-5 of the fixed assets was also filed before authorities

below. He has, therefore, rightly contended that the entire

borrowed funds have been used for the purpose of acquisition

and construction of the school building. Similar deduction of

interest claimed in earlier year not disputed by authorities

below. Therefore, interest is allowable. We, accordingly, set

aside the orders of the authorities below and delete the addition.

This ground of appeal of assessee is allowed.

of Rs.2,75,750/- on account of professional charges paid to

IDFC. The assessee claimed professional charges paid to IDFC

31 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

for processing of loan application. The assessee submitted that

funds raised were utilized for construction of school

property/assets and same is allowable as expenditure under

section 37 of the I.T. Act. The A.O. did not accept the contention

of assessee because the assessee has accepted that the

expenses incurred are related to building, on which, rental

income has been declared. Therefore, it was disallowed as

business expenditure. The assessee has claimed interest

against house property. The Ld. CIT(A) confirmed this addition

because assessee has not filed any evidence to show that

professional charges claimed were towards loan which was

actually utilized for assets yielding rental income. Learned

Counsel for the Assessee submitted that the service fees or

other charges falls in the definition of interest under section

2(28A) of the I.T. Act. Therefore, it is an allowable deduction

under section 24(b) of the I.T. Act. However, it is a fact that

assessee has not filed any evidence to show that professional

charges claimed were towards loan which was actually utilized

for assets yielding rental income. There is no infirmity in the

32 ITA.No.6177/Del./2014 Vidya Education Investments Pvt. Ltd., New Delhi.

orders of the authorities below. This ground of appeal of

assessee is dismissed.

Order pronounced in the open Court.

Sd/- Sd/- (L.P. SAHU) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER

Delhi, Dated 22nd June, 2018

VBP/-

Copy to

Asst. Registrar : ITAT Delhi Benches : Delhi.