TAX TREATMENT TO INCOME FROM HOUSE PROPERTY

Table of Contents

Tax treatment to income from house property is generated from section 22 to 27 of the Income Tax Act,1961.

SECTION 22

The income will be chargeable to income tax under the head “Income from house property” if the pursuing conditions survive:-

There is a house property

The property other than buildings and land appurtenant to the building have been omitted from the procedure of the section.

The land which is not appurtenant to any building are not enclosed within the meaning of the term “house property”.

Income derived from vacant plot of land on which no building has been erected is not chargeable under the head, “Income from house property” but can be charged under the head “Income from other sources”.

Temporary camps or tents are not included within the meaning of the term “house property”.

Income from Zamindari are not included within the meaning of the term “house property”.

It includes marketplaces comprising of shops, buildings, godown and open space and hence income derived by the owner from letting out the shops, buildings or godown my be assessed under the head “Income from house property”.

Chelmsford Club V. C.I.T.¹

Supreme Court has made it broad that the tax levied under section 22 is a tax on income and not on property.

C.I.T. V. Mohammad Narula Khan

It is to be noted that where the assessee is a resident in India and he owns definite house property settled outside India, the income derived by him with such house property will also be included in his total income, but if the assessee is a non- resident, the income derived by him from the house property located outside India cannot be assessed.

The assessee must be the owner of the house property

Owner of the house property (not the occupier or possessor) is liable to furnish tax in regard of the income from the house property.

Owner: The person who can exercise the right of the owner, not on behalf of the owner but in his own right.

Where the house property legally vests in the trustee, then, the trustee should be liable to pay income tax in regard of the income acquired from the house property.

Assessee is required to be the owner of the building which has been erected. Thus, if an assessee takes the lease of a land and constructs a building thereon he will be processed as the owner of the building during the period of the lease and liable to pay income-tax in respect of the income traced from the building.

Raja P.C. Lal Choudhary V. C.I.T.2

Where a receiver is appointed by a court for the intent of managing the house property can’t be treated as ‘owner’ of the house property and he cannot be held liable to pay income tax in regard of the income traced from the house property.

The house property should not be occupied by the assessee for the intent of any business or profession carried on by him the profit of which are chargeable to income tax.

Section 23: Determination of annual value of house property

Annual Value how ascertained

Annual value shall deemed to be:-
(a)The sum for which the property might moderately be expected to let from year to year

(b)Where the property or any part of the property is let and the actual rent received or receivable by the owner in regard thereof is in excess of the sum stated in clause(a), the amount so received or receivable.

(c ) Wherever the property or any part of the property is let and was empty throughout the whole or any part of the previous year and owing to such vacancy the real rent received or receivable by the owner in respect thereof is inferior than the sum mentioned in clause (a), the amount so received or receivable.

It is to be noted that the tax levied by a local authority is respect of any property shall be deemed to include service taxes levied by the local authority in regard to property.

Where the property includes a house or part of a house which:-

is in the occupation of the owner for the intent of his own residence.
Cannot actually be occupied by the owner regard of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that alternative place in a building not belonging to him.

The annual value of such house or part of the house shall be taken to be NIL.

Point (2) shall not apply if:-

The house or part of the house is genuinely let during the whole or any part of the previous year.

Any other benefit therefrom is derived by the owner.

Where, in point (2), consist of more than 1 house:-

The provisions of that sub-section shall solely in regard of one of such houses, which the assessee might, at his possibility,state in this behalf.
The annual value of the house or houses, other than the house in respect of that the assessee has exercised an option under clause (a), shall be determined under sub-section (1) as if such house or houses had been fit.

Section 24: Deductions from income from house property

Following deductions to be made:-

A sum equivalent to 30% of the annual value;
Where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any int. payable on such capital (The amount of deduction shall not exceed Rs. 30,000).

{No deduction to be made in clause (b), unless the assessee furnishes a certificate from the individual to whom any interest is payable on the capital borrowed, stipulating the amount of interest payable by the assessee for the aim of such acquisition or construction of the property or conversion of the whole or any part of the capital borrowed that remains to be repaid as a replacement loan.}

Section 25: Amount not deductible from income from house property

Any interest guilty, which is payable outside India on which the tax has not been paid or deducted and in regard to that there is no person in India who may be treated as an agent u/s 163 shall not be deducted in computing the financial gain chargeable under the head “Income from house property”.

Section 25-B: Special Provision for arrears of rent received

Where the assessee:-

Is the owner of any property consisting of any buildings or lands appurtenant to it that has been let to a tenant, And
Has received an amount, by way of arrears of rent from such property, not charged to Income-tax for any previous year.

The amount accepted, after deducting a sum equal to 30% of such amount of repairs of, and accumulation of rent from the property, to be deemed to be the income chargeable under the head “Income from house property”.

Section 26: Property owned by co-owners

Where property consisting of buildings or land appurtenant to it is owned by two or more persons and their individual shares are defined and ascertainable, such persons shall not in respect of such property be assessed as an association of persons but the share of each such person in the income from the property as computed in conformity with section 22 to 25 shall be enclosed in his total income.

Section 27: Deemed Owner

Under following conditions an individual is deemed to be the owner of the house property:

If an individual transfers a house property to his or her partner not for adequate consideration, such individual will be treated as the owner of the house property.
The holder of impartible estate is deemed to be the individual owner of all the properties comprised within the estate.
A member of a co-operative society, company or alternative association of persons to whom a building or part thereof is assigned or leased under a house building scheme of society, company or association, as the case may be, shall be deemed to be the owner.
A person who is allowed to acquire or retain possession of any building or part thereof in a part performance of a contract of the nature referred to in section 53A of TPA,1882.
A person who gains any rights 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.

¹(2000) 159 CTR(SC) 235

²1957 31 ITR 226

Author: AKANKSHA CHHABRA,
School of Law,IIMT