Facts of the Case


  • The appellant, RVM Education (P) Ltd., filed its return of income for AY 2016–17 declaring a loss of ₹1,99,18,341/-.
  • The Assessing Officer (AO) disallowed expenses amounting to ₹84,77,476/-, thereby reducing the loss to ₹1,14,40,865/-.
  • The dispute arose from two agreements executed with Suprem Memorial Trust:
    1. Lease Agreement (02.11.2012) – Fixed rent of ₹50,000 per month for 30 years.
    2. Leave & License Agreement (07.11.2012) – Consideration at 20% of school fees and related receipts.
  • Both agreements pertained to the same property located in Noida.
  • The assessee treated license fee as business income and claimed related expenses.

Issues Involved


  1. Whether the license fee income should be treated as business income or otherwise.
  2. Whether the ITAT erred in applying the ratio of Chennai Properties and Investment Ltd. vs. CIT without examining facts.
  3. Whether the authorities failed to analyze the scope and implications of the two agreements.

Petitioner’s Arguments (Assessee)


  • The license fee constituted business income, as the assessee was actively involved in the management and operations of the school.
  • Expenses claimed were wholly and exclusively incurred for earning such income.
  • Additional documents (Annexure-H) were submitted to demonstrate day-to-day participation in school management.
  • The lower authorities failed to consider material evidence and contractual arrangements.

Respondent’s Arguments (Revenue)

  • The assessee had artificially bifurcated income into lease rent and license fee.
  • The income should not be treated as business income.
  • However, the Revenue conceded that no detailed discussion was made by CIT(A) or ITAT on the agreements.

Court’s Findings / Order


  • The Delhi High Court observed that:
    • Neither the CIT(A) nor the ITAT examined the terms, scope, and impact of the lease and license agreements.
    • Proper factual analysis was completely missing.
  • The Court held that:
    • The matter required fresh adjudication by the ITAT.
  • Order Passed:
    • The appeal was allowed.
    • The matter was remanded to the ITAT for de novo consideration.
    • The question of law was answered in favour of the assessee (for statistical purposes).

Important Clarification

  • The High Court clarified that:
    • The remand does not determine the final outcome.
    • ITAT must independently examine:
      • Nature of agreements
      • Nature of income
      • Supporting evidence

Sections Involved


  • Section 28, Income Tax Act, 1961 – Profits and Gains of Business or Profession
  • Section 37(1), Income Tax Act, 1961 – Allowability of Business Expenditure
  • Section 260A, Income Tax Act, 1961 – Appeal to High Court

 

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/60822082023ITA4712023_163507.pdf

 

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