INCOME FROM HOUSE PROPERTY

Within the provisions of the Income Tax Act, 1961

Section 22

• The annual value of property consisting of any buildings or land appurtenant thereto of which 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 form House Property”.

Di-section of Section 22

What?

Who?

When?

“WHAT” it provides?

It provides that

• Annual value is taxable as “Income from House Property” • of property consisting of

• Building or

• Land appurtenant thereto (building)

“WHO” is liable to tax?

• An assessee who is the owner.

“WHEN” is the provision applicable? or when it is not applicable?

Such portions of such property• As he (assessee) may occupy

• For the purposes of any business or profession

• Carried on by him (the owner)

• Profits of which are chargeable to income tax.

Annual ValueSection 23

For the purpose of section 22, the annual value of any property shall be deemed to be:

When property is not let

(a)the sum for which the property might reasonably be expected to let from year to year

When the property is let(b)

Actual rent received or receivable is in excess of (a);then rent received or receivable is the Annual Value.

(c)Owing to vacancy during the year rent received or receivable is less than (a); then rent received or receivable is the annual value

Municipal Taxes

Proviso to Section 23 provides that

Annual Value determined under section 23 shall be reduced by municipal taxes actually paid by the owner in the previous year irrespective of the incurring of the such taxes liability according to the accounting method employed by him.

Explanationto section 23

Rent received or receivable shall not include unrealisable rent subject to the following:

• Tenancy is bona fide;• Defaulting tenant has vacated or steps have been taken to compel

him to vacate the property• Defaulting tenant is not in occupation of any other property of the

assessee• Assessee has taken all reasonable steps to institute legal

proceedings for recovery of the unpaid rent or satisfy the AO that legal proceedings would be useless.

When Annual Value is NIL

When House or part of a house is:• Is in occupation of the owner for the purpose of his own

residence.• Cannot be occupied by the owner by reason of the fact that owing

to his employment , business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him.

Above benefit of Nil Annual value not available:• The house or part of it is actually let during the whole or any part

of the previous year.• Any other benefit is derived there from by the owner.

Annual Value: NIL

Available only for one house – at the option of the owner.

For house(s) other than for which option exercised by the owner:

• Annual value shall be determined as if the house(s) is let.

Owner

• Owner has not been defined in the Act.SC in CIT vs Podar Cement Limited – 226 ITR 625 held that “We are conscious of the settled position that under the common law 'owner' means a person who has got valid title legally conveyed to him after complying with the requirements of law such as Transfer of Property Act, Registration Act, etc. But in the context of s. 22 of the IT Act having regard to the ground realities and further having regard to the object of the IT Act, namely, 'to tax the income', we are of the view, 'owner' is a person who is entitled to receive income from the property in his own right.”

Deemed Owner

• Section 27:(i) individual, who transfer a property without consideration to his or her spouse or to a minor child (not being a married daughter)

(ii) holder of impartible estate.

(iii) A member of a cooperative society, company or other AOP, to whom a building or part thereof is allotted or leased under a house building scheme.

(iiia) a person allowed to take possession of of any building in part performance of a contract referred in section 53A of Transfer of Property Act, 1882.

(iiib) a person who acquires any rights in any building by virtue of any transaction referred in clause (f) of

section 269UA

Deductionsfrom Income from House property

• Section 24:

(a) a sum equal to 30% of the annual value.

(b) Interest payable on borrowed capital, where the property has been acquired, constructed,

repaired and renewed or reconstructed.

Restrictions on claim of interest on borrowed capital as deduction

• Rs. 30,000/-In case of property in occupation of the owner for his residence or the one which he cannot occupied owing to his employment, business or profession carried on at any other place he has to reside at that other place in a building not belonging to him.

• Rs. 2,00,000/-Where the property referred above was acquired or constructed with capital borrowed on or after 01/04/1999 and such acquisition or construction is completed within 3 years from the end of the financial year in which capital was borrowed.

Claim of further interestpayable for the period prior to the year of acquisition or construction

• Deductible in five equal installments in

(a) the year of acquisition or completion of construction and

(b) in four immediate succeeding previous years.

This deduction is available only if :a certificate from the borrower is furnished specifying the amount of interest payable.

Unrealised Rent or

arrears of rent• Section 25 A and 25AA provides that

Unrealised rent realised later on shall be taxable as Income from House Property in the year in which it is realised.

• Section 25B provides that Arrears of rent received shall be taxed in the year of receipt if not taxed earlier.

Property owned by Co Owners

• Section 26 provides thatIn case of property owned by co owners, income from such property shall not be assessed as an AOP but share of each co owner shall be included in their respective income

• Explanation to section 26 provide that Each co owner shall be entitled for the relief of sub-section (2) of section 23 – where annual value is taken as NIL due to occupation of property for residence or non-occupation owing to his employment, business or profession carried on at any other place he has to reside at that other place in a building not belonging to him.

Case Laws

Income from House PropertyVs

Income from Business and profession_______________________________________

• SC – 42 ITR 49 East India Housing and Land Development Trust Ltd vs CITHeld that income from rent of shops and stalls is due to occupation of the shops and stalls and is taxable under the head ‘Income from House Property’ in spite of the fact that the company was incorporated with the object of buying and developing landed properties.

_______________________________________________________________

• Cal – 249 ITR 47 Shambu Investment P. Ltd.Held that Income from rent of furnished space furnished with furniture, fixtures, lights and air conditioners etc. for being used as ‘Table space’