Conditions for taxing Income under the head House Property

Section 22 provides for taxation of ‘annual value’ of a property consisting of any buildings or lands appurtenant thereto, of which the assessee is owner, under the head “income from House Property”. Tax imposed under section 22 is a tax on ‘annual value’ of house property and is not a tax on “House Property”. However, if a house property is occupied by a taxpayer for the purpose of business or profession carried on by him (the profits of which are chargeable to income tax), annual value of such property is not chargeable to tax under the head ‘Income from House Property’.

Property

  • The Property must consist of Building or Lands Appurtenant thereto.
  • Building includes not only Residential Building, but also Factory Building, Offices, Shops, Godowns and other Commercial Premises.
  • Land Appurtenant means land connected to building, like garden, garage, etc. However Income from letting of Vacant Land is taxable under the head “Income from Other Sources”.

Owner

  • The Assessee must be the owner of such property.
  • An Owner is a person who is entitled to receive Income from the Property in his Own Right. The requirement of registration of the sale deed is not warranted.
  • Ownership includes both Free-hold and Lease hold rights.
  • Ownership includes Deemed Ownership (Sec.27).
  • The person who owns the Building need not also be the Owner of the Land upon which it stands.
  • The Assessee must be the Owner of the House Property during the Previous Year. It is not material whether he is the owner in the Assessment Year.
  • If the title of the Ownership of the property is under dispute in a Court of Law, the decision as to who will be the owner chargeable to tax u/s 22 will be that of the Income Tax Department till the Court gives its decision on the matter.

Purpose

The property should not be used by the owner for the purpose of any business or profession carried on by him, the profits of which are chargeable to tax.

Unless all the aforesaid conditions are satisfied, the property income cannot be charged to tax under the head ‘Income from House property’.

Special Aspects

Issue Treatment
Club In case of Property owned by a Club, the Annual Value of the Clubhouse is not chargeable to tax because of Principle of Mutuality.
Rent from Residential Quarters Rent received from Employees’ Residential Quarters, Rent received from part of the premises let-out to Government for locating Branch of a Bank or Post Office or Railways to carry on business smoothly, is taxable as income under the head Profits and Gains of Business or Profession. [Modi Industries 210 ITR 1 (DeL) Delhi Cloth & General Mills Co. Ltd. [1966] 59 ITR 152 (Pun.)]
Sub-letting If sub-letting is in the ordinary course of business, such Income is taxable under the head Profits and Gains of Business or Profession. Otherwise, it will be taxable under the head “Income from Other Sources.”

Important Practical Issues

PM Thomas 181 ITR 256 (Ker.), Sri Champalal Jeevaraj 215 ITR 289 (Mad.), D Srinivasan 248 ITR (Kar.), Mustafa  Khan 145 Taxman 522 (All.) The House Property is owned by the Assessee, but it is used by the Firm in which he is a Partner, and he has not derived any benefit from the Firm. It is deemed that the Partner is using the property for his own business, and hence not taxable under Income from House Property.
Shiv Mohanlal 202 ITR 61 (All.)  Where the Property is owned by HUF, but used by the Firm in which all the Members are Partners, Property Income shall be assessable in the hands of HUF as House Property.

'Conditions for taxing Income under the head House Property' has 1 comment

  1. February 11, 2018 @ 1:09 pm puneet gupta

    CAN INCOME FROM SALE OF PLOT BE USED TO REPAY LOAN OF A FLAT WHICH WE ARE GETTING POSSESSION IN ONE YEAR

    Reply


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