M/S SHEETU EDUCATIONAL SERVICE PVT LTD.,INDORE vs. THE DCIT 5(1), INDORE

आदेश /O R D E R

PER O.P. MEENA, ACCOUTANT MEMEBR. These appeals are filed by the assessee against the

separate orders of ld. Commissioner of Income tax (Appeals)-II,

Indore [hereinafter referred to as the CIT (A)] dated

31.10.2014, pertaining to assessment years 2005-06 to 2007-

08 and separate orders of CIT(A)-II, Indore dated 29.01.2016,

pertaining to assessment years 2008-09 to 2010-11.

ITA No.24/Ind/2015/ Assessment Year 2005-06 :

1.1) That on the facts and in the circumstances of the Ld. CIT

(A) erred in approving the stand of the assessing officer in

issuance of notice u/s 147 of the Act merely for the

reason that assessment as set-aside by the Ld CIT in the

case of the assessee for the Asst Year 2007-08 was not

challenged by the assessee before the Hon’ble ITAT.

1.2) That on the facts and in the circumstances of the case.

The Ld CIT(A) erred in approving the issuance of the

notice u/s 147 of the Act as valid without properly

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 3 of 66

appreciating the submission made before him and

absence of any new tangible material in possession of the

assessing officer.

2.1) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in maintaining notional addition

made by the Assessing officer under the head of Income

from House property of Rs 19,83,732/- without properly

appreciating the facts of the present case and submission

made before him.

2.2) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in maintaining the taxing of notional

income on account of Building used for the purpose of

running of the school by M/s. Jasleen Educational

Society in the hand of the assessee even when no

deduction on account of rent was claimed by that society.

Hence, following the same principle as applied by the Ld

CIT(A) for interest, the rental income is not requires to be

taxed as income of the assessee.

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 4 of 66

2.3) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in maintaining the notional addition

of rental income in the hand of the assessee even when

building was leased out for long terms period and

therefore deemed ownership of the building as per

section 27(iiib) belonging to the lessee.

2.4) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in not making any comments on

calculation of notional rent of 19,83,732/-which is

arbitrary without any basis.

3) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in not allowing the deduction on account of

interest equal to the amount of rental income as taxed by the

assessing officer even when the same was expressly mentioned

in the agreement /understanding as executed between the

assessee with M/s. Jasleen Educational Services society.

4) That on the facts and in the circumstances of the case, the

Ld CIT(A) erred in maintaining disallowance of entire expenses

as claimed by the assessee of Rs 3,35,652/- against its

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 5 of 66

coaching income without properly appreciating the fact of the

case and submission made before him.

5) That on the facts and in the circumstances of the case, the

Ld CIT(A) erred in maintaining disallowance of depreciation of

Rs 5,72,905/-even when the said building was used by the

assessee for coaching and also used by the society for running

of the school.

6) The Ld CIT(A) was also erred in deciding the charging of

interest as consequential in nature even when in the case of

re-assessment interest is chargeable under sub-section (3) of

section 234B of the income Tax Act.

ITA No.25/Ind/2015/ Assessment Year 2006-07 :

1.1) That on the facts and in the circumstances of the Ld CIT

(A) erred in approving the stand of the assessing officer in

issuance of notice U/S 147 of the Act merely for the

reason that assessment as set-aside by the Ld CIT in the

case of the assessee for the Asst Year 2007-08 was not

challenged by the assessee before the Hon’ble ITAT.

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 6 of 66

1.2) That on the facts and in the circumstances of the case.

The Ld CIT(A) erred in approving the issuance of the

notice U/S 147 of the Act as valid without properly

appreciating the submission made before him and

absence of any new tangible material in possession of the

assessing officer.

2.1) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in maintaining notional addition

made by the Assessing officer by taxing the annual

letting value of the building under the head of Income

from House property of Rs 20,53,990/- without properly

appreciating the facts of the present case and submission

made before him.

2.2) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in maintaining the taxing of notional

income on account of Building used for the purpose of

running of the school by M/s. Jasleen Educational

Society in the hand of the assessee even when no

deduction on account of rent was claimed by that society

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 7 of 66

Hence, following the same principle as applied by the Ld

CIT(A) for interest, the rental income is not requires to be

taxed as income of the assessee.

2.3) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in maintaining the notional addition

of rental income in the hand of the assessee even when

building was leased out for long terms period and

therefore deemed ownership of the building as per

section 27(iiib) belonging to the lessee.

2.4) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in not making any comments on

calculation of notional rent of 20,53,990/-which is

arbitrary without any basis.

3) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in not allowing the deduction on account of

Interest equal to the amount of rental income as taxed by the

assessing officer even when the same was expressly mentioned

in the agreement /understanding as executed between the

assessee with M/s. Jasleen Educational Services Society.

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 8 of 66

4) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in maintaining disallowance of entire

expenses as claimed by the assessee of Rs 4,45,470/- against

its coaching income without properly appreciating the fact of

the case and submission made before him.

5) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in maintaining disallowance of

depreciation of Rs 6,22,197/-even when the said building was

used by the assessee for coaching and also used by the society

for running of the school.

6) The Ld CIT (A) was also erred in deciding the charging of

in interest as consequential in nature even when in the case of

re-assessment interest is chargeable under sub-section (3) of

section 234B of the income Tax Act.

ITA No.26/Ind/2015/ Assessment Year 2007-08 :

1.1) That on the facts and in the circumstances of the Ld CIT

(A) erred in maintaining notional addition made by the

assessing officer by taxing the annual letting value of the

property under the head of Income from House property

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 9 of 66

of Rs. 21,44,910/-without properly appreciating the facts

of the present case and submission made before him.

1.2) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in maintaining the taxing of notional

income on account of Building used for the purpose of

running of the school by M/s. Jasleen Educational

Society in the hand of the assessee even when no

deduction on account of rent was claimed by that society.

Hence, following the same principle as applied by the ld.

CIT(A) for interest, the rental income is not requires to

be taxed as income of the assessee.

1.3) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in maintaining the notional addition

of rental income in the hand of the assessee even when

building was leased out for long terms period and

therefore deemed ownership of the building as per

section 27(iiib) belonging to the lessee.

1.4) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in making any comments on

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 10 of 66

calculation of notional rent of Rs. 21,44,910/- which is

arbitrary without any basis.

2) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in not allowing the deduction on account of

Interest equal to the amount of Rental income as taxed by the

assessing officer even when the same was expressly mentioned

in the agreement /understanding as executed between the

assessee with M/s Jasleen Educational Services society.

3) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in maintaining disallowance of entire

expenses as claimed by the assessee of Rs 4,90,583/- against

its coaching income without properly appreciating the fact of

the case and submission made before him.

4) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in maintaining disallowance of

depreciation of Rs 5,06,445/-even when the said building was

used by the assessee for coaching and also used by the society

for running of the school.

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 11 of 66

5) The Ld CIT (A) was also erred in deciding the charging

of interest is consequential in nature even when in the case of

re-assessment interest is chargeable under sub-section (3) of

section 234B of the income Tax Act.

ITA No.352/Ind/2016 : Assessment Year 2008-09:

1.1) That on the facts and in the circumstances of

the Ld CIT (A) erred in approving the stand of the

assessing officer in issuance of notice U/S 147 of

the Act merely for the reason that assessment as

set-aside by the Ld CIT in the case of the

assessee for the Asst Year 2007-08 was not

challenged by the assessee before the Hon’ble

ITAT.

1.2) That on the facts and in the circumstances of

the case. The Ld CIT(A) erred in approving the

issuance of the notice U/S 147 of the Act as

valid without properly appreciating the

submission made before him and absence of any

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 12 of 66

new tangible material in possession of the

assessing officer.

2.1) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in maintaining notional addition

made by the Assessing officer under the head of Income

from House properly of Rs 22,77,160 /- without properly

appreciating the facts of the present case and submission

made before him.

2.2) That on the facts and in the circumstances of the case,

the Ld CIT (A) erred in maintaining the taxing of notional

income on account of Building used for the purpose of

running of the school by M/s. Jasleen Educational

Society In the hand of the assessee even when no

deduction on account of rent was claimed by that society

Hence, following the same principle as applied by the Ld

CIT(A) for interest, the rental income is not requires to be

taxed as income of the assessee.

2.3) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in maintaining the notional addition

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 13 of 66

of rental income in the hand of the assessee even when

building was leased out for long terms period and

therefore deemed ownership of the building as per

section 27(iiib) belonging to the lessee.

2.4) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in not making any comments on

calculation of notional rent of 22,77,160/-which is

arbitrary without any basis.

3) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in not allowing the deduction on account of

interest equal to the amount of Rental income as taxed by the

assessing officer even when the same was expressly mentioned

in the agreement /understanding as executed between the

assessee with M/s Jasleen Educational Services society.

4) That on the facts and in the circumstances of the case, the

Ld CIT(A) erred in maintaining disallowance of entire expenses

as claimed by the assessee of Rs 34,640/-without properly

appreciating the facts of the case and submission made before

him.

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 14 of 66

5) That on the facts and in the circumstances of the case, the

Ld CIT(A) erred in maintaining disallowance of depreciation of

Rs 5,29,073/- even when the said building was used by the

assessee and also by the society for running of the school.

6) The Ld CIT(A) was also erred in deciding the charging of

interest is consequential in nature even when in the case of re-

assessment interest is chargeable under sub-section (3) of

section 234B of the income Tax Act.

ITA No.353/Ind/2016 : Assessment Year 2009-10 :

1.1 That on the facts and in the circumstances of the Ld

CIT (A) erred in approving the stand of the assessing

officer in issuance of notice U/S 147 of the Act

merely for the reason that assessment as set-aside

by the Ld CIT in the case of the assessee for the

Asst Year 2007-08 was not challenged by the

assessee before the Hon’ble ITAT.

1.2 That on the facts and in the circumstances of the

case. The Ld CIT(A) erred in approving the issuance

of the notice U/S 147 of the Act as valid without

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 15 of 66

properly appreciating the submission made before

him and absence of any new tangible material in

possession of the assessing officer.

2.1 That on the facts and in the circumstances of the

case, the Ld CIT(A) erred in maintaining notional

addition made by the Assessing officer under the

head of Income from House properly of Rs

24,05,275/-without properly appreciating the facts

of the present case and submission made before

him.

2.2 That on the facts and in the circumstances of the

case, the Ld CIT (A) erred in maintaining the taxing

of notional income on account of Building used for

the purpose of running of the school by M/s.

Jasleen Educational Society In the hand of the

assessee even when no deduction on account of rent

was claimed by that society Hence, following the

same principle as applied by the Ld CIT(A) for

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 16 of 66

interest, the rental income is not requires to be

taxed as income of the assessee.

2.3 That on the facts and in the circumstances of the

case, the Ld CIT(A) erred in maintaining the

notional addition of rental income in the hand of the

assessee even when building was leased out for long

terms period and therefore deemed ownership of the

building as per section 27(iiib) belonging to the

lessee.

2.4 That on the facts and in the circumstances of the

case, the Ld CIT(A) erred in not making any

comments on calculation of notional rent of

24,05,275/-which is arbitrary without any basis.

3) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in not allowing the deduction on account of

interest equal to the amount of Rental income as taxed by the

assessing officer even when the same was expressly mentioned

in the agreement/understanding as executed between the

assessee with M/s. Jasleen Educational Services society.

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 17 of 66

4) That on the facts and in the circumstances of the case, the

Ld CIT(A) erred in maintaining disallowance of entire expenses

as claimed by the assessee of Rs 4,729/-without properly

appreciating the facts of the case and submission made before

him.

5) That on the facts and in the circumstances of the case, the

Ld CIT(A) erred in maintaining disallowance of depreciation of

Rs 4,93,017/- even when the said building was used by the

assessee and also by the society for running of the school.

6) The Ld CIT(A) was also erred in deciding the charging of

interest is consequential in nature even when in the case of re-

assessment interest is chargeable under sub-section (3) of

section 234B of the income Tax Act.

ITA No.354/Ind/2015/ Assessment Year 2010-11

1.1) That on the facts and in the circumstances of the Ld CIT

(A) erred in approving the stand of the assessing officer in

issuance of notice U/S 147 of the Act merely for the

reason that assessment as set-aside by the Ld CIT in the

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 18 of 66

case of the assessee for the Asst Year 2007-08 was not

challenged by the assessee before the Hon’ble ITAT.

1.2) That on the facts and in the circumstances of the case.

The Ld CIT(A) erred in approving the issuance of the

notice U/S 147 of the Act as valid without properly

appreciating the submission made before him and

absence of any new tangible material in possession of the

assessing officer.

2.1) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in maintaining notional addition

made by the Assessing officer under the head of Income

from House properly of Rs 26,11,915/- without properly

appreciating the facts of the present case and submission

made before him.

2.2) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in maintaining the taxing of notional

income on account of Building used for the purpose of

running of the school by M/s. Jasleen Educational

Society in the hand of the assessee even when no

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 19 of 66

deduction on account of rent was claimed by that society

Hence, following the same principle as applied by the Ld

CIT(A) for interest, the rental income is not requires to be

taxed as income of the assessee.

2.3) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in maintaining the notional addition

of rental income in the hand of the assessee even when

building was leased out for long terms period and

therefore deemed ownership of the building as per

section 27(iiib) belonging to the lessee.

2.4) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in not making any comments on

calculation of notional rent of 26,11,915/-which is

arbitrary without any basis.

3) That on the facts and in the circumstances of the

case, the Ld CIT(A) erred in not allowing the deduction on

account of interest equal to the amount of rental income

as taxed by the assessing officer even when the same was

expressly mentioned in the agreement /understanding as

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 20 of 66

executed between the assessee with M/s Jasleen

Educational Services Society.

4) That on the facts and in the circumstances of the

case, the Ld CIT(A) erred in maintaining disallowance of

entire expenses as claimed by the assessee of Rs 22,012 /-

against its coaching income without properly appreciating

the fact of the case and submission made before him.

5) That on the facts and in the circumstances of the case,

the Ld CIT(A) erred in maintaining disallowance of

depreciation of Rs 4,61,523/-even when the said building

was used by the assessee for coaching and also used by the

society for running of the school.

6) The Ld CIT(A) was also erred in deciding the charging

of interest is consequential in nature even when in the

case of re-assessment interest is chargeable under sub-

section (3) of section 234B of the income Tax Act.

Representative of the assessee except the figures. Since the

facts are common, we are deciding for the sake of brevity

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 21 of 66

I.T.A.No. 24/Ind/2015 for the assessment year 2005-06, the

decision of which will be binding on all the appeals.

06, 2006-07 and assessment year 2008-09 to 2010-11 relate

to approving the reopening of assessment based on findings

given in set aside orders u/s 263 of the Income-tax Act, 1961.

had filed his original return of total income on 31-10-2005

declaring total loss of Rs 6,65,769/-. The notice u/s 148 of the

Act dated 29-03-2012 was issued and served upon the

assessee on 30.03.2012. Copy of reasons were recorded prior

to the issuance of the notice U/s 148 of the Act. The assessee

vide letter dated 08-04-2012 has stated that original return as

filed on 31-10-2005 may be treated as filed in response to the

notice issued U/s 148 of the Act. The assessee has taken land

on lease from Luthra Family for Lease premium and Annual

lease rent. For construction of the School building amounts

were received from M/s Jasleen Education Service Society and

the said building was given to M/s Jasleen Education Service

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 22 of 66

Society for running of school. The assessee also runs coaching

on this building itself. It was understood between the assessee

and M/s Jasleen Educational Service Society, that no interest

was paid by the assessee nor rent was charged from the

society. Since, the building was used by the assessee for the

purpose of his business, the depreciation on the same was

claimed by the assessee. In the re-opened assessment order as

passed by the assessing officer, following amount was added

to the total income of the assessee:-

S.No Nature of addition Amount [Rs]

1 Income from House Property 13,88,612

2 Disallowance out of Expenses 3,35,652

3 Disallowance of Depreciation of Building 5,72,905

22,97,169

dismissed the appeal as filed by the assessee against the order

as passed U/s 143[3]/147 of the Act dated 18-03-2013.

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 23 of 66

of the assessment U/s 147 of the Act. The assesse had filed its

return of total income on 30.10.2005 declaring total loss of Rs

6,65,769/-. The said return was accepted summarily by the

department as filed by the assesse. The assessing officer

issued notice U/s 148 of the Act on 29-03-2012. The assessee

vide his letter dt 08-04-2012 has requested to treat the return

as originally filed on 30-10-2005 vide Ack no 0025107068 in

response to the notice as issued u/s 148 of the Act. Since,

copy of the said letter was not acknowledged. Hence, same

copy of the letter was acknowledged on 16-08-2012. That

assesse vide its letter dt 09-04-2012 requested to provide the

copy of reasons as recorded for re-opening of the case which

was not provided to the assesse. Hence, the assesse vide its

letter dated 16-08-2012 has again requested to provide the

copy of reason recorded for re-opening of the completed

assessment. The assessing officer has provided the reasons as

recorded for re-opening of the assessment, which reads as

under :-

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 24 of 66

“The assessee filed its return on 30-10-2005 declaring

loss of Rs 6,65,769/- and claiming carry forward the

same for set off in next year’s. This loss includes Rs

6,65,769/- for depreciation on building, which was

rented to M/s Jasleen Education Service Society, without

consideration. The assessee has claimed depreciation,

which is not allowable as the building has not been

utilized for the business purpose of the assessee. Further

the assessee has also not declared income from house

property, income of which is taxable under the head of

house properties, however no income has been declared

by the assessee.

In view of the above facts, I have reason to believe that

income chargeable to tax more than Rs 2,00,000/- has

escaped assessment in term of explanation 2 of section

147 of the Income Tax Act. Accordingly, notice under

section 148 of Income Tax Act, 1961 is to be issued.

Therefore necessary approval may kindly be accorded. ”

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 25 of 66

That on the basis of reason for re-opening of the assessment as

communicated to the assessee. The completed assessment was

re-opened for the following reasons:-

(a) Depreciation on the building which was rented to M/s

Jasleen Education Service Society was claimed by the

assessee.

(b) Depreciation on building was claimed even when no

rent was charged for the said building.

(c) Depreciation is not allowable. Since, the building is

not used for the purpose of business of the assessee.

(d) The assessee has not declared any income under the

head of Income from House Property even when rental

income requires to be taxed under this head.

filed detailed written submissions relying upon the various

judicial pronouncements, which are mentioned as under :-

(i) CIT vs. Kelvinator of India Limited, 320 ITR 561 ( S. C. ).

(ii) Shah Unmesh Indravadan vs. ITO, 6 DTR 318. (Ahm. I.T.A.T. )

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 26 of 66

(iii) K. G. Hotel (P) Ltd vs. ACIT, 113 ITR 99 (I.T.A.T. Agra Bench)

(iv) CIT vs. Orient Craft Limited, I.T.A.No. 555/2012 dated 12.12.2012 (Del)

(v) A.N.Lakshman Shenoy v. ITO,(1958) 34 ITR 275 (S.C.)

(vi) Sheo Nath Singh vs. AAC, (1971) 82 ITR 147 ( S. C.).

(vii) CIT vs. Sheri Atul Kumar Swami, 362 ITR 693 (Del)

(viii) Tara Chand Jain, I.T.A.No. 2282/Kol/2014 ( I.T.A.T. Kol.)

(ix) Gas & Power Investment Co., (Appeal No. I.T.A.No. 1118/Mum/2014 dated 5.2.2016 ( I.T.A.T. Mum.)

contended that the above reasons were recorded by the AO on

the basis of Balance Sheet of the assessee and no new tangible

material came into the notice of the AO as to justify the

reopening of the completed assessment. The ld. CIT(A) was not

right in approving the re-opening of the assessment even when

it is proved that the same was reopened in absence of any new

material in possession of the AO. The assessment as re-

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 27 of 66

,opened is, therefore, not valid and the same now requires to

be quashed as invalid.

supported the orders of the lower authorities.

perused the material available on record. We have also

perused the case laws relied upon by the ld. Authorized

Representative of the assessee. We find that the assessee has

challenged the re-opening of the assessment by issuing notice

U/s 148 of the Act. The main ground of dispute was that no

fresh material came into the notice of the assessee. The

assessee has disclosed entire facts with the return of total

income and in its audited final account. The case for this year

was re-opened on the basis of finding as noted by the CIT

while passing the assessment order U/s 263 in the

Assessment Year 2007-08. The assessee has leased out the

building to M/s Jasleen Educational Service Society was not

properly disclosed in the return of total income and also not

reflected in the audited final account. Hence, the prima facie

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 28 of 66

the AO has reason to believe for issuance of the notice U/s

148 of the Act. Further the assessee has also not challenged

the order u/s 263 for assessment year 2007-08 passed by the

CIT by setting-aside the assessment. This means that there

was valid reason and fresh material available with the AO to

reopen the assessment. Thus, the ground no 1 of this appeal

challenging the issuance of the notice U/s 148 of the Act has

no force and this ground of appeal is rejected.

2005-06, 2006-07 and ground nos. 1.1 to 1.4 for assessment

year 2007-08 and Ground nos. 2.1 to 2.4 for assessment year

2008-09 to 2010-11 relate to maintaining notional addition on

account of house property income of Rs. 19,83,732/- & Rs.

20,53,990/-, Rs. 21,44,910/-, Rs. 22,77,160/-, Rs.

24,05,275/- and Rs. 26,11,915/- respectively. However, the

facts and figures relating to assessment year 2005-06 are

discussed only, as facts are identical for all assessment years.

Ground no.2 for assessment year 2007-08 and ground no. 3

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 29 of 66

for assessment year 2008-09 to 2010-11 relate to not allowing

deduction of interest out of notional income from house

property. These grounds relate to assessing the income from

house property, hence, the same are being considered

together.

challenged the taxability of income under the head “Income from

House property” on notional basis. The assessee company is

running coaching classes in its building and the said building

constructed on its leasehold plot was also used by Jasleen

Educational Service Society for running of school in the name of

Auckland Academy. That in the year under consideration coaching

income was very less but in last three to four years, the assessee

company earned substantial amount on account of coaching

income. It is also not correct to say that the said building is not

used for the purpose of business of the assessee. In this respect, it

is clarified that the leasing out of the building to M/s Jasleen

Educational Service Society is the business of the assessee. Copy

of Memorandum & Articles of Association of the company is

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 30 of 66

enclosed. The said building is also used for the running of the

school AUCKLAND ACADEMY, one of the schools run by the

society. In addition to the letting out of the property for running of

school, the assessee was also using the said property for running

of its professional coaching classes till the Assessment Year 2007-

assessee was having coaching income till the Asst Year 2007-08,

but in turn no separate rent was paid for it. Thus, the said

building was also used by the assessee for running of its coaching

classes. In view of the above, when the building constructed by

the assessee which is on the lease hold land owned by the

Individual family members of Luthra and building was used by the

assessee for the purpose of its professional coaching classes till

the Asst Year 2007-08 and also leasing out the constructed

building to M/s Jasleen Educational Service Society for running of

its school in the name of AUCKLAND ACADEMY. The assessee had

not charged rental income from the society and in turn also not

paid interest on the amount of loan taken from that society for

construction of the building. Thus, the assessing officer was not

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 31 of 66

justified in notionally taxing the property income u/s 23 of the

Act. Moreso, when the provision of section 22 to 27 is not

applicable in the case of the assessee. The assessee company was

not the owner of land but Individual family members of the Luthra

family was the actual owners of the land and the assessee

company has taken land on lease from the Individual family

members. The said land was taken on lease with annual lease

rent of Rs 1000/- per annum and lease premium of Rs 40000/-.

Income Tax Act for set-off of rental income against the interest

liability. The Ld CIT[A] while deciding the appeal of the assessee

referred the order as passed in the case of the above assessee for

the Asst Year 2007-08 wherein in Paras 3.3 to 3.5 of the order and

confirmed the addition of Rs. 21,44,910/- for assessment year

2007-08 and accordingly, addition of Rs. 19,83,732/- for

assessment year 2005-06 was confirmed.

facts while deciding the appeal as filed by the assessee:-

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 32 of 66

[i] the building was let-out to M/s Jasleen Educational Service Society, an associate concern of the appellant.

[ii] that no rent was charged for this premises from the Asst year 2005-06.

[iii] the substantial funds were made available for construction of the building by M/s Jasleen Educational Service Society to the assessee.

[iv] that no interest was charged by M/s Jasleen Education Service Society from the assessee.

contended that Hon’ble Mumbai bench of ITAT in the case of

Sonata Information Technology vs. Assessee [ Appeal No 1507 of

2012 dt 05-07-2012 ] had an occasion to discussed the issue of

commercial expediency, in para 5 of the order, Hon’ble Bench has

stated that :-

“ _________Assessee relied judicial decisions to highlight that commercial expediency means anything that serves to promote and includes every means suitable to that end and expenditure which a prudent man may incur for the purpose of business. The decisions rendered in the following cases were referred to for the above proposition viz., Indian Steel & Wire Products Ltd. v. CIT (1968) 69 ITR 379 & Calcutta Landing & Shipping Co. Ltd. v. CIT

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 33 of 66

(1967) 65 ITR 1, Calcutta. It was argued that it was the prerogative of the businessman how to run the business and it is not upon the Revenue to prescribe what expenditure an assessee should incur and in what circumstances it should incur. It was reiterated that every businessman knows his interest best - CIT v. Dhanrajgirji Raja Narasinghirji (1973) 91 ITR 544 (SC). The decision of the Hon'ble Supreme Court in the case of CIT vs. Walchand & Co. (1967) 65 ITR 381 (SC) was referred to and it was submitted that in applying the test of commercial expediency whether the expenditure was wholly and exclusively laid out for the purpose of business, reasonableness of the expenditure has to be judged from the point of view of the business man and not of the revenue. The Hon'ble Bombay High Court's decision in the case of Aruna Mills (31 ITR 153) was also referred to wherein it was held as follows: "Now, we have had occasion to point out in several decisions that what the Income-tax purports to tax is business profits, and business profits are the true profits of a business as ascertained according to commercial principles. There may be an expenditure or there may be a loss which may not be an admissible loss under any of the provisions of section 10(2) (corresponding to section 29 of the 1961 Act) and yet such an expenditure or loss would have to be allowed in order to determine what were the true profits of a business, and it is the duty of everyone who has anything to do with taxing business- people to understand what are the principles of commercial expediency. Unless one understands these ITA No.1507 of 2012 Sonata Information Technology Ltd Mumbai E Bench principles it is difficult to make a proper assessment on a business or on a businessman." 18. In the present case the assessee has taken a prudent

decision for neither taking rent from M/s Jasleen Education

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 34 of 66

Service Society nor paid interest on the amount of loan taken from

the society. The dispute the AO can raise was only in respect of

the quantum of amount but not the deal as done by the assessee.

The assessee in this case has decided not to charge rental income

in lieu of interest due on loan amount. Here, the quantum of

interest and rental income are same. Since, this is a better deal by

the assessee with M/s Jasleen Educational Society. The amount of

rent was ascertained equivalent to the interest on loan. The Ld

CIT[A] while deciding the appeal as filed for the Asst Year 2007-08

has discussed the effect when revenue is effected:-

M/s Sheetu Educational Services P M/s Jasleen Education Service Ltd Society To Interest NIL Rental NIL To Rent Paid NIL By Interest NIL Paid Income Income NIL NIL NIL NIL

contended that if we take an example that the said building was

let out by the assessee to some other concerns and at the same

time loan was also taken from some other persons. In that case

the situation would be as under, in this calculation we have

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 35 of 66

considered the figure as taken by the AO in his order, though the

same was disputed by us in the appeal in coming grounds:-

M/s Sheetu Educational Services P M/s Jasleen Education Service Ltd Society To 1983732 By 1983732 To 1983732 By 1983732 Interest Rental Rent Interest Paid Paid Income Income 1983732 1983732 1983732 1983732

neither charged rental income nor paid interest. Hence,

effectively there was no escapement of income. That in case of

M/s Jasleen Education Service Society, the said society has

neither paid rent for the building nor charged interest income.

Hence, effectively there was no escapement of income. If the

assessee has taken loans from outside parties, in that case,

the assessee was liable to pay interest income and at the

same time also earned rental income from M/s Jasleen

Educational Service Society or any other parties. Hence,

effective income in that case was also zero. If M/s Jasleen

Education Service Society advanced amount to any other

parties, in that case, the said society earned interest income

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 36 of 66

on the amount as advanced by it but at the same time the said

society was also liable to pay rent on the building taken for the

purpose of its school. Hence, effectively there was no change in

the income as declared by the society. The Ld CIT[A] while

deciding the appeal of the assessee referred the order as

passed in the case of the above assessee for the Asst Year

2007-08 wherein in Paras 3.3 to 3.5 of the order, all aspect

has been considered. The Ld CIT[A] was of the opinion that if

interest was not charged by M/s Jasleen Educational Society,

in that case, there was no income in the hand of the Jasleen

Educational Society and at the same time there was no

expenses in the case of the assessee. However, rental income

remain to be taxed in the hand of the assessee but the Ld

CIT[A] totally ignored that what about rent paid by the society

to the assessee company. Similar to the setting off of interest,

the amount of rent has also be set- off with each other. Hence,

even following the principle of the Ld CIT[A] himself in that

case also there was no income in the hand of the assessee

company. In view of the above, the ld. Authorized

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 37 of 66

Representative of the assessee contended that as per view

taken by the ld. CIT(A) in the case of the assessee as taken in

the Asst year 2007-08, it was urged upon us to consider the

same and delete the either notional taxability or allowed set-off

of interest against the notional taxability of income.

Land admeasuring 1.5 Acres on lease from Individual family

members of the Luthra’s family on lease through registered lease

deed dt 24-08-1999 at a onetime premium of Rs 40000/- and

annual lease rent of Rs 1000/-. The said land was demarcated for

Educational purposes by Joint director of the Town & Country

Planning vide its letter No 288/Ind dt 20-01-1999. Copy of the

said lease deed was filed. As per the lease deed so executed the

said land can be used for Educational purposes. The lessee has

right to sub-lease the said land but for educational purposes.

From the lease deed it is clear that the said land was not sold by

the Luthra family to the assessee but right to use was transferred

to the assessee. The ownership of the land is still with the Luthra

family. As per the term of lease deed, the assessee can construct a

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 38 of 66

building on the said land. However, as per terms of the lease deed,

the said land can be used for the purpose of education only. That

in the present case, the assessee has constructed a building

admeasuring 18570 Sq Fts. Breakup of the same is as under:-

S.No Particulars Area 1 Total land area 1.5 Acres 2 Constructed Area [i] Ground Floor Area 8060 Sq Fts [ii] First Floor Area 8060 Sq Fts [iii] Auditorium Area 1500 Sq Fts [iv] Generator Room 250 Sq Fts [v] Library / Reading room 700 Sq Fts Total constructed area 18570 Sq Fts

amount towards construction were contributed by M/s Jasleen

Educational Service Society to whom said building was leased out

by the assessee for running of the school viz AUCKLAND

ACADEMY. The object of the assessee was to earn profit from

taken the said land on lease and again sub-lease. However, in

absence of the finance, the assessee bound to enter into an

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 39 of 66

understanding with JASLEEN EDUCAIONAL SERVICE SOCIETY

for construction of the building on the said land and therefore

entire amount towards construction were contributed by Jasleen

Educational Service Society and in turn, both the parties of the

agreement has agreed that no rent was charged by the assessee

and in turn no interest is to be paid on the amount of deposit.

The ld. Authorized Representative of the assessee also filed copy

of the said agreement placed at page nos. 78 to 80 of paper book.

In the present case, the assessee has taken land on lease from

Individual family member of the Luthra’s family. The annual lease

rent as paid by the assessee was of Rs 1000/- P.A. The building

was constructed by the assessee from the amount as received

from the society. Hence, the school building was constructed with

the finance of M/s Jasleen Educational Service Society. Prior to

the said construction, the land of the assessee is simply a vacant

land which is not taxable u/s 23 of the Income Tax Act. Thus, in

the present case, if no rent was actually received by the assessee

company in that case, the amount of lease rent as paid by the

assessee of Rs 1000/- P.A to the Individual family member of the

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 40 of 66

Luthra family can only be disallowed but in no case, the same is

taxable u/s 23 of the Income Tax Act. The assessee also used its

building premises for running of the coaching classes. The

assessee had claimed depreciation on the building which was

used by it for the purpose of its business and also leased out as

per term agreed by the assessee company with AUCKLAND

ACADEMY. Thus, there is no reason for taxing the notional

income by invoking the provision of section 23 of the Income Tax

Act. The assessee has leased out the said building for long term

used by AUCKLAND ACADEMY and therefore ownership of the

land belonging to Luthra family and ownership on right to use

with AUCKLAND ACADEMY. Since, entire amount for

construction was contributed by AUCKLAND ACADEMY. The

assessing officer was grossly erred in notionally taxing the rental

income in the hand of the assessee.

As per Provision of section 27[iiib] of the Act, if a person who

acquire any rights [excluding any rights by way of a lease from

month to month or for a period not exceeding one year] in or with

respect to any building or part thereof, by virtue of any such

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 41 of 66

transactions as is referred to in clause (f) of section 269UA, shall

be deemed to be the owner of that building or part thereof. That in

the present case in hand also, the building as constructed on the

lease hold plot was leased out to AUCKLAND ACADEMY for long

term period and not on month to month lease. The assessee has

taken land on lease for 99 years and the same was also leased out

for long term purpose. Hence, as per provision of section 27[iiib] of

the Act, deemed ownership of the building transferred to

AUCKLAND ACADEMY. Hence, there was no reason for taxing the

notional rent in the hand of the assess. The ld. Authorized

Representative of the assessee relied upon the decision of Hon’ble

Delhi High court in the case of CIT vs. C.J. International Hotels

Ltd as reported in 197 Taxman 230/ 53 DTR 92 , wherein the

similar issue has been discussed in detail. Hence, the Assessing

officer was not justified in notionally adding an amount of Rs

19,83,732/- to the income of the assessee under the head of

Income from House Property in light of detailed discussion in para

2.6 to 2.9 of this letter.

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 42 of 66

of the lower authorities.

have perused the material available on record. We find that the

assessee has land admeasuring 1.5 Acres on lease through

registered lease deed dtd. 24.08.1999 from individual members of

Luthra family. As per the lease deed the land so given under lease

can be used only for the educational purposes . It is also clear

from lease deed that the said land ownership was not transferred

but right to use only was transferred. The assessee has received

advance from Jasleen Educational Service Society which was

utilized for construction of school building thereon. The assessee

has given the said building to Jasleen Educational Service Society

for running school in name of Auckland Academy. The assessee

had entered in to an deed of sublease dtd. 28.08.1999 as

appearing at page No 164 to 170 of Paper Book for the period of 30

years . the assessee further entered in to an deed of agreement

dtd. 31.03.2000 appearing at page No 171 - 172 of Paper Book

according to which the assessee has agreed with Jasleen

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 43 of 66

Educational Service Society being tenant of said school building

that tenant has deposited with the owner an amount of security

deposit on which interest shall not be charged by Jasleen

Educational Service Society and in turn the owner i.e. M/s.

Sheetu Educational Service Pvt. Ltd. shall not charge rent on said

building. Thus, as per mutual understanding of both parties of

agreement there can be no income on account of rent receipts or

any payment of interest on account of advances/ deposits

received from Jasleen Educational Service Society. The Ld. CIT (A)

had considered this aspect and viewed that rental income if any

would be set-off against the interest payable to Jasleen

Educational Service Society on advances. Thus, effectively there is

no escapement of income. However, CIT(A) did not allow the set-off

of interest against rental income by saying that there is no

provision of deduction of interest against rental income.

building to Jasleen Educational Service Society for 30 years for

running thereon as school. Therefore, this amounts to deemed

transfer of ownership of building to Jasleen Educational Service

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 44 of 66

Society appear provision of Section 27(iib) of the Act which reads

as under:-27. "Owner of the house property", "annual charge",

etc., defined.- For the purposes of sections 22 to 26--

"** ** **

(iiib) a person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in clause (f) of section 269UA, shall be deemed to be the owner." 26. For the purposes of Section 27 (iiib), it is necessary to

understand the definitions of "immovable property" and

"transfer" in Section 269UA (d) and (f), which read as under :-

'296UA.** ** **

(2)(d) "immovable property" means-(i) any land or any

building or part of a building, and includes, where any

land or any building or part of a building is to be

transferred together with any machinery, plant,

furniture, fittings or other things, such machinery,

plant, furniture, fittings or other things also.

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 45 of 66

Explanation. --For the purposes of this sub-clause,

"land, building, part of a building, machinery, plant,

furniture, fittings and other things" include any

rights therein ;

(ii) any rights in or with respect to any land or any

building or a part of a building (whether or not

including any machinery, plant, furniture, fittings

or other things therein) which has been constructed

or which is to be constructed, accruing or arising

from any transaction (whether by way of becoming a

member of, or acquiring shares in, a co-operative

society, company or other association of persons or

by way of any agreement or any arrangement of

whatever nature), not being a transaction by way of

sale, exchange or lease of such land, building or

part of a building ;

(f) "transfer"-

(i) in relation to any immovable property referred to

in sub-clause(i) of clause (d), means transfer of such

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 46 of 66

property by way of sale or exchange or lease for a

term of not less than twelve years, and includes

allowing the possession of such property to be taken

or retained in part performance of a contract of the

nature referred to in section 53A of the Transfer of

Property Act, 1882 (4 of 1882).

Explanation. --For the purposes of this sub-clause,

a lease which provides for the extension of the term

thereof by a further term or terms shall be deemed

to be a lease for a term of not less than twelve years,

if the aggregate of the term for which such lease is

to be granted and the further term or terms for

which it can be so extended is not less than twelve

years ;

(ii) in relation to any immovable property of the

nature referred to in sub-clause (ii) of clause (d),

means the doing of anything (whether by way of

admitting as a member of or by way of transfer of

shares in a co-operative society or company or other

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 47 of 66

association of persons or by way of any agreement

or arrangement or in any other manner whatsoever)

which has the effect of transferring, or enabling the

enjoyment of, such property.'

transaction of lease for a term of not less than twelve years, a

transfer in relation to the immovable property referred to in

sub-clause (i) of clause (d). The explanation appended to sub-

clause (i) of Section 269UA (f) clarifies that a lease which

provide for the extension of term by a further term or terms

shall be deemed to be a lease if the aggregate of the term for

which such lease is to be granted and the further term or

terms is not less than twelve years. The essential condition,

therefore, for a transfer of an immovable property referred to

in clause (d)(i) of Section 269UA is that lease must be for a

term of not less than twelve years. For computing twelve years,

it is not necessary that initial term of lease must be less of

twelve years, but if the lease provides for extension of lease

and such lease has been extended by a further term or terms

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 48 of 66

and the aggregate of such term is not less than twelve years, it

is deemed to be a transfer of immovable property and such

transferee is deemed to be owner of such immovable property

under Section 27(iiib) of the Income Tax Act.

over the building was deemed to have been transferred u/s

27(iiib) to Jasleen Educational Service Society as the

assessee has let out the school building exceeding more than

12 years of lease as per sublease deed dtd. 28.08.1999 page

No 164 to 170 of Paper Book and subsequent deed dated

31.03.2000. Therefore, the is no question of any notional

income in the hands of the assessee on account of income

from house property under as per provision of Section 27(iiib)

of the Act . The Ld. A.R. has relied in the case of Nahalchand

Laloochand (P) Ltd. vs. ACIT, Mumbai[2014] 52 taxmann.com

1567(SC)/ [2015] 228 Taxman 1(SC) wherein it was held that

the essential condition, for a transfer of an immovable property

referred to in clause (d)(i) of section 269UA is that lease must be

for a term of not less than twelve years. For computing twelve

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 49 of 66

years, it is not necessary that initial term of lease must be less

of twelve years. but if the lease provides for extension of lease

and such lease has been extended by a further term or terms

and the aggregate of such term is not less than twelve years, it

is deemed to be a transfer of immovable property and such

transferee is deemed to be owner of such immovable property

under section 27(iiib) of the Income tax Act. [Para 3] In the

present case the assessee has rented out the said building for

30 years of lease, hence, facts of this decision is squarely

covered.

[2011] 197 TAXMAN 230 (Delhi) wherein it was held as under

:-

“4. With the consent of the learned counsel for the

parties, we have heard the matter finally at this stage

itself. The facts in brief leading to the aforesaid question of

law may be recapitulated first. The assessee-company is

running a five star hotel known as Hotel Le-Meridian

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 50 of 66

Windsor Place, New Delhi. The lawn on which the hotel is

constructed belongs to NDMC and NDMC has executed a

license deed in favour of the assessee granting licence for

a period of 99 years for the running of the aforesaid hotel.

After taking the said lawn on licence on the terms

executed in the licence deed, the assessee had constructed

the said hotel. Adjacent to the hotel, there is another

building constructed on this very lawn, which is known as

West Tower. This building is located in the same

compound in which the Hotel building is located.

Admittedly, this building is not used for hotel business of

the assessee, but the apartments of this building were

given on sub-licence basis to different parties for carrying

on business as specified on the sub-licence agreements.

The licence agreement which was entered into between

the assessee and the NDMC permits the assessee to sub-

licence the portion of the premises. It is on the basis of this

authorization given in the licence deed that the assessee

has sub-licenced offices and apartments in the West

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 51 of 66

Tower to the various parties. The sub-licences given to

these parties are for a period of 9 years and 11 months,

which is renewable at the request for the sub-licensees.

The assessee is not charging any rent lease or licence fee

from these parties instead, the assessee has received

interest free security deposits in the year of original sub-

licence, which receipt was shown by the assessee-

company as unsecured loan in its balance sheet. The sub-

licence deeds, which are executed by the assessee with

the sub-licensees also permit the sub-licensees to transfer

the same to any other person on payment of transfer

charges to the assessee-company. Thus, the sub-licensee

is entitled to transfer the said sub-licence to third party as

well. However, at the time of transfer of the said sub-

licence, certain transfer charges are payable to the

assessee-company. It is not in dispute that whenever

these transfer charges are received by the assessee on

transfer of sub-licence by the sub-licensee in favour of the

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 52 of 66

third party, the assessee is showing these transfer

charges as its income and is offering the same for tax.

sub-licensees had transferred their sub-licenses and

various other persons were, thus, occupying these

premises. Those persons have entered into the agreement

with the sub-licensees as per which they were paying

rents to the sub-licensees. It is also an admitted fact that

the rents/licence fees received by the sub-licensees on

these transfers to the occupiers has been shown as rental

income and taxed at the hands of sub-licensees under the

head ‘income from house property’.

explain why property known as West Tower be not fixed

on its annual letting value as per which section 23 of the

Income-tax Act (hereinafter referred to as ‘the Act’). To put

it otherwise, the Assessing Officer wanted to fix annual

letting value in respect of the said West Tower sub-

licensed by the assessee by fixing its notional value and

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 53 of 66

charging the tax thereupon under the head ‘income from

house property’. It is for this reason that the aforesaid

show- cause notice was issued. The assessee in reply to

the said notice raised various objections to the aforesaid

proposed move of the Assessing Officer. Some of these

objections included:

(a)The assessee was only a licensee in respect

of the aforesaid premises and the actual owner was

NDMC. Thus, the assessee was not the ‘owner’ of the

premises. Therefore, provisions of section 23 of the

Act are not applicable.

(b)It was also highlighted that in the previous years,

the aforesaid arrangement as disclosed by the

assessee was accepted by the Assessing Officer and

therefore, on the principle of consistency, such a

move on the part of the Assessing Officer in fixing the

annual letting value of the West Tower, when no

actual rent/licence fee was received by the assessee,

was not proper.

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 54 of 66

(c)The assessee had entered into sub-licence deeds in

respect of those portions and it could not be deemed

as ‘letting’ of the property and for this reason also

provisions of section 22 of the Act would not be

applicable, as the assessee continued to be in the

legal occupation and possession.

(d)The use of the premises by the sub-licensees was

to assist the assessee-company in getting hotel

accommodation booked for the guests, delegates of

the sub-licensees, apart from the increase in catering

and restaurants’ activities used by the sub-licensees.

Therefore, the use of certain portion by the sub-

licensees was not for the purpose of or for the benefit

of the business of the assessee-company.

the aforesaid explanation furnished by the assessee.

He was of the view that the license agreement with

the NDMC was for a period of 99 years with the right

of constructing and developing the property which

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 55 of 66

makes the assessee-company owner of the property.

He also opined that the assessee-company had sub-

licensed the offices and apartments to various

persons, some of whom had further sub-licensed the

same; the assessee was not charging any rent, fees

etc. on the sub-licensing of these properties, except

interest free security deposits which were taken by

the assessee at the time of sub- licence agreement.

Therefore, it was proper, in such circumstances, to fix

notional annual letting value of the premises and to

charge tax thereupon insofar as the assessee is

concerned.

2010, which pertains to the assessment year 1999-

2000 originally no such addition was made.

However, reassessment proceedings were started by

issuance of notice under section 143(2) read with

section 147 of the Act and the Tribunal quashed

those reassessment proceedings. It is not necessary

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 56 of 66

to go into the question as to whether reassessment

proceedings were initiated or not inasmuch as on

merit itself we have decided that such an addition

was not proper.

consideration the rent/licence fee, which was paid

by the occupiers to the sub-licensees to whom the

assessee had sub-licensed the premises. The

Assessing Officer on that basis calculated first care

fee average and treated the same as annual letting

value of the said West Tower and added the same

under the head "income from house property".

order before the CIT(A). In this appeal, the assessee

took an additional ground predicated on the

provisions of section 27(iii) read with section

269UA(f)( ii) of the Act and submitted that under

those provisions, it would be a sub-licensee as

deemed owner would be charged to tax in his hands.

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 57 of 66

The CIT(A) considered this argument, which was

purely a legal argument based on the interpretation

of the aforesaid sections on admitted facts on record,

but did not accept the aforesaid pleading. After

considering other submissions of the appellant,

which were raised before the Assessing Officer, the

CIT(A) upheld the order of the Assessing Officer on

this ground. In this scenario, the assessee preferred

further appeal before the Income-tax Appellate

Tribunal (hereinafter referred to as ‘the Tribunal’).

This time, before the Tribunal, the assessee

succeeded in its attempt to demonstrate that the

assessee could not be liable to pay any such tax

fixing letting value on notional basis when, in fact, no

such amount of rent/licence fee was received by the

assessee. The Tribunal examined the licence

agreement entered into between the NDMC and the

assessee on the basis of which it has come to the

conclusion that it is the NDMC, which is the "owner of

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 58 of 66

the premises and remains to be the owner of the

premises in question". The Tribunal has further

accepted the submissions of the assessee that in

view of the provisions of section 27(iii) of the Act, it is

the sub-licensee who would be "deemed owner" of

those premises which the sub-licensees whereof

transferred to the present occupiers and those

occupiers are paying rent/licence fee to the sub-

licensees. On that basis, the Tribunal has set aside

the addition made by the Assessing Officer and

deleted this component of income holding that the

same would not be chargeable to tax.

appeals pertaining to different assessment years. As

pointed out above, though the issues before the

Assessing Officer, CIT(A) as well as the Tribunal

were numerous, in these appeals primarily one

question of law which is formulated and reproduced

above has been pressed by the Department.

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 59 of 66 12. For the aforesaid reasons, we are of the view

that the approach of the Tribunal in deciding the

aforesaid issue is perfectly justified. There is no

reason to interfere with the same. We clarify that the

assessee would not be entitled to depreciation on this

purpose. We, thus, answer the question of law in

favour of the assessee and against the Revenue, as a

result thereof all these appeals are dismissed.

building on lease for more than 12 years hence, deemed

ownership has been transferred to Jasleen Educational Service

Society, therefore, no notional income under the head of

income from house property is chargeable in the case of the

assessee. Therefore, respectfully following the above decision,

we hold that the AO was not justified in charging of notional

rental income in the hands of the assessee on building used

for running of schedule by Jasleen Educational Service

Society. In the light of above facts and circumstances, the all

above grounds of appeal for all the six years are allowed and

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 60 of 66

ground no. 3 for A.Y. 05-06,06-07, and 08-09 to 10-11 and

ground no. 2 for A.Y. 07-08 has become infructuous hence,

treated as dismissed.

ground no. 3 for assessment year 2007-08 and ground no. 4 for

assessment year 2008-09 to 2010-11 relate to maintaining

disallowance of expenses of Rs. 3,35,652/-, Rs. 4,45,470/-, Rs.

4,90,583/-, Rs. 34,640/-, Rs. 4,729/- and Rs. 22,012/-

respectively claimed against coaching income.

ground of appeal, the assessee has challenged the disallowance of

expenses of Rs 3,35,652/- for assessment year 2005-06. The

assessee has shown coaching income of Rs 5,00,000/- and against

the coaching income, certain deduction was claimed. The nature

of income and expense as claimed by the assessee are as under:-

S. No. Particulars 2005-06 1 Coaching & Other Fee received 5,00,000 2. Other Income - Total Income 5,00,000

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 61 of 66

1 Salaries 2,89,171 2 Office Expenses 573 3 Legal & Professional Charges 1,200 4 Lease Rent 1,000 5. Insurance Charges 10,242 6. Bank Charges 2,065 7. Filing Charges 600 8. Audit fees 4,000 9. Pre-operative exp 1,308 10. Rates & Taxes 22,993 11. Professional Tax 2,500 12 Telephone Exp - 13. Conveyance - 14. FBT Tax - Total Expenses 3,35,652 Net Profit/Loss before depreciation 1,64,348 15. Depreciation 5,72,905 Net Loss after Depreciation -4,08,557

3,35,652/-. The assessee prior to claiming of depreciation of Rs

5,72,905/- earned net income of Rs 1,64,348/-. Thus, it is not

correct on the part of the assessing officer to disallow entire

amount of expenses as claimed by the assessee even when from

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 62 of 66

the coaching business, the assessee having net income of Rs

1,64,348/-.From the expenses, it is clear that these expenses

having direct nexus with the income as shown by the assessee.

Hence, the assessing officer was not justified in accepting the

income of the assessee and disallowing entire amount of expenses

as claimed by it. From the nature of expenses it is clear that these

are incidental to the business of the assessee company. Hence, the

same is allowable as business expenditure. The Ld. Counsel for

the assessee concluded that the assessing officer was not justified

in disallowing the entire amount of expenses as claimed. The

disallowance of Rs 3,35,652/- as made by the assessing officer

may be deleted in full.

of the lower authorities.

the material available on record. We find from the above that

since the corresponding income was taxed by the assessing officer

and disallowance of expenses as claimed is not justifiable, the

disallowance of expenses as made by the assessing officer was not

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 63 of 66

justifiable. We hereby direct the assessing officer to allow the

deduction on account of expenses as claimed by the assessee.

Accordingly, the above grounds of appeal for all the assessment

years are allowed.

ground no. 4 for assessment year 2007-08 and ground no. 5 for

assessment year 2008-09 to 2010-11 relate to maintaining of

disallowance of depreciation of Rs. 5,72,905/-, Rs. 6,22,197/-, Rs.

5,06,445/-, Rs. 5,29,073/-, Rs. 4,93,017/- and Rs. 4,61,523/-

respectively.

assessment years pertaining to depreciation on building and other

assets like furniture & fixture etc. The ld. Authorized

Representative of the assessee did not press the ground relating to

depreciation on school buildings, hence, the disallowance of

depreciation relating to building is dismissed and depreciation

other than building is allowed accordingly. This ground is partly

allowed.

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 64 of 66

assessment years 2005-06, 2006-07, 2008-09 to 2010-11 and

ground no. 5 of assessment year 2007-08. 39. The Ld. Counsel for the assessee contended that in ground

No 6, the assessee claimed interest U/s 234B of the Act , which is

chargeable as per sub-section [3] of section 234B of the Act. The

assessment order in this case was passed U/s 147 r.w.s 143[3] of

the Act and therefore interest under this section is chargeable as

per sub-section [3] of section 234B of the Act as held by this

Bench. The I.T.A.T., Indore Bench in the said case has held as under :-

"77. We have considered the rival contentions. In

view of decision of Kerala High Court in the case of

Lakshmikanthan (supra), we direct the Assessing

Officer to recompute the interest u/s 234B which

provides that where original assessment completed

u/s 143 is revised either u/s 147 or u/s 153A, then

interest for non-payment or short payment of

advance tax is payable only for the period mentioned

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 65 of 66

in Section 234B(3) which provides for interest from the date of completion of regular assessment u/s 143(1) till the date of completion of reassessment. The Assessing Officer is directed accordingly."

M/s.Sheetu Educational Services P.Ltd. I.T.A.Nos. 24 to 26/Ind2015 and 352 to 354/Ind/2016 Page 66 of 66

observations recorded above in I.T.A.No. 24/Ind/2015 for all the assessment years.

The order has been pronounced in open court on the 28th February,2017.

Sd/- Sd/- (डी.ट�.गरा�सया) (ओ.पी.मीना) �या�यक सद�य लेखा सद�य (D.T.GARASIA) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER

�दनांक /Dated :28th February,2017.

CPU*