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Definition of the Head ' House Property Income' - [Sec.-22]

 

The income from houses, buildings, bungalows, godowns etc. is to be computed and assessed to tax under the head “Income from house property”. The income under this head is not based upon the actual income from the property but upon notional income or the annual value of that building.

• Section 22 of the Income-tax Act says

The annual value of property consisting of any building or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head ‘Income from house property’.

For income to be taxed as ‘Income from house property’ the following points should be noted carefully

1. Building or Land Appurtenant thereto. The scope of this head of income is limited to the income from buildings or lands appurtenant (attached or situated in the vicinity of building) to buildings only. Buildings include residential houses, bungalows, docks, warehouses, any block of bricks or stone work covered by a roof etc. Land which is not appurtenant to any buildings does not come within the scope of this section.

2. Annual Value. The meaning of word ‘Annual value’ is very significant because the annual value of the building or land appurtenant thereto is to be taxed and not the rent received. The annual value is to be determined according to the provisions of section 23 of Income-tax Act. These are discussed later in this chapter.

3. The Assessee should be the owner of the property. It is only the owner of the house property who can be taxed under this head of income. The tax under this section is in respect of the legal or beneficial owner and not the occupation or possession of house property’. Therefore, income from subletting, will be chargeable under the head ‘Income from other sources’ and not under house property’. So only the owner, may be legal or deemed owner, is liable to tax under this head of income, unless the house property is used by him for the purposes of his own business or profession.

The question of ownership may be noted in the following cases :

(i)  If the land was taken on lease (long time) and a super-structure constructed, the person who takes land on lease will be treated as its owner.

(ii) Where the property is mortgaged, it is the mortgager alone and not the mortgagee who can be treated as the owner.

(iii) Where the property was constructed in the name of partnership, it is the firm which is assessable as owner and not the individual partners.

(iv) A person whose property is vested in the Custodian of Evacuee Property is not the ‘owner’ thereof for the purposes of this section.

(v) Where the assessee takes a building on lease and he is deriving some income by subletting or re-letting, this income will be taxable under the head ‘Income from other sources’ and not under the head ‘Income from house property’.

(vi) In case houses were constructed by a cooperative building society and allotted or leased out to its members, the member shall be deemed to be the owner of the buildings or part thereof, as the case may be.

In one of the cases, Supreme Court decided that the owner must be a person who can exercise the rights of the owner, not on behalf of the owner but as his own right.

Deemed Owner of House Property

According to Section 27 of Income-tax Act the assessee in following cases is deemed to be the owner of the house property, though not owner of the house property

(i) An individual who transfers otherwise than for adequate consideration any house property to his or her spouse, not being a transfer in connection with an agreement to live apart or to a minor child not being a married daughter, shall be deemed to the owner of the house property so transferred.

(ii) The holder of an impartible estate shall be deemed to be the individual owner of all the properties comprised in the estate.

(iii) A member of a co-operative society to whom a building or part thereof is allotted or leased under a house building scheme of the society, shall be deemed to be the owner of that building or part thereof.

(iv) A person who is allowed to take or retain possession of any building or part thereof in part performance of contract of the nature refered to in section 53 A of the transfer of property Act, 1882.

(v) 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 a transfer by way of lease for a term of not less than 12 years as per section 269 UA (f) (whether originally or by extension).

4. It is not used for purposes of assessee’s business or profession.

Where the assessee is carrying on business or profession in his own house, building or in a portion of it and the income of such business or profession, is taxable under the head ‘Profits or gains of business or profession’, the annual value in respect of property or portion of it is not taxable under this head of income. As the business is being carried on in the assessee’s own premises, so no rent will be allowed as expenditure to the assessee in respect of these premises.

But where the profits of such business or profession are not chargeable to tax, the annual value of the (owned) premises shall be computed and charged under the head ‘house property’.

Important points

(i) House property held as stock in trade. Where the house property is held by an assessee as stock in trade in the course of carrying on business of purchase and sale of such house property, it (the house property) shall be assessed under the head house property. Thus, the annual value of such house properties shall be chargeable under the head ‘Income from house property’.

(ii) House property of partner used by firm. Where a house property owned by a partner is used by the partnership firm for the purpose of its business or profession, the annual value of such have property shall be chargeable in the hands of partner under the head ‘Income from house property. Such a house property cannot be treated as the property used by the partner for his own business or profession.

(iii) House property held in the name of business but not actually used for business. If the house property belongs to business (i.e. held in the name of business but is not actually used for the purpose of business it in to be assessed under the head ‘Income from house property and not under the head ‘Income from business or profession.’

5. Dispute about ownership. It is the owner who is liable to pay tax on the income of the house property and in case of a dispute about ownership the person who receives rent shall be liable to pay tax till the dispute about ownership is settled.

6. House Property situated in a foreign country. In case an assessee who is resident of India owns a house in a foreign country, income from such a house is taxable in India under the head house property. So income from house property in case of not ordinary resident and a non resident shall be exempted but again it will be taxable in India if it is received or it is payable in India.

7. Cases when rental income from building is not treated as house property income

(i) Letting out of house property for smooth conduct of assessee ‘s business/profession. If a person lets out any house property for smooth conudct of his business/profession, the rental incom from such house property shall not be treated as house property income rather it shall be treated as income under the head business/profession.

Example 1. Quarters let out to the employees of assessee’ s own business

Example 2. Building let out to a Bank, Post Office, Police Station, Excise department or Police department etc.

Similarly, if a person carrying on any business/profession lets out his house property to a Bank, Post Office, Police Station, Excise Department or other department and the main purpose of letting is not to earn rental income but to facilitate its own business/Profession, the rental income shall not the taxable as house property income rather it will the treated L business income of the person.

(ii) Income from sub-letting of house property. If a person occupies a building as tenant and lets out full or part of the hired building to another person, it is called sub-letting. The income from sub-letting, if any, is taxable under the head ‘income from other source’ and not under the head ‘house property’. It is so because the person sub-letting the building is not the owner of that building. Such income is calculated as per section 56 after deducting all the expenses relating to sublet portion.

(iii) Composite letting out of building along with furniture etc. If a person lets out building along with furniture, plant, machinery and other facilities etc., for a compositerent and such composite rent can not be separated between (a) rent of building and (b) rent of other items/facilities then such composite rent shall be treated either as income under the head other sources or an income under the head business or profession, if such letting is the business of the assessee.

However, if such composite rent can be split up in parts and rent of building can be separately known, then such rent shall be treated as house property income and rent of other items/facilities shall be taxable as other source income/business or profession income.

(iv) Income from hotel business/paying guest accomodation. If a person runs the hotel business or runs the business of providing paying guest accomodation, such rental income shall be taxable as income under the head Business/Profession.

However, if a person has a building in the nature of a hotel and he lets out such building as such to another person for carrying on hotel business, such rental income shall be taxable as ‘income under the head house property’.

More Topics... @ 'House Property'

Definition & Meaning of the Head ‘ Income from House Property’
 Deemed Owner of House Property
Exempted Incomes From House Property [Section-10]
 Exempted Incomes from Cooperative Society
Annual Value as Calculation of Income from House Property
Determination Of Annual Value Of    House Property
Selection of Annual Rental Value (Gross Annual Value) for Let Out House Property
Deductibility of Taxes Levied by Local Authority (i.e. Municipal taxes) while computing Annual Value of House Property Income [Proviso to Section 23(1)]
Selection of Annual Rental Value for Self-Occupied House Property
DEDUCTIONS U/S - 24 Out of Net Annual Value (NAV) of House Property Income
Treatment of Pre-acquisition/Pre-construction period Interest
Treatment of Unrealised Rent of House Property Income

 
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