Download - Tax Project Reading
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Dr Ram Manohar Lohiya National Law University,Lucknow
Project work on Law of Taxation-I
TOPIC - Income Tax on Income From House Property
Submitted To:- Submitted
By:-
Mr. U.P. Singh Rohit Kannojia, Yagyawalkya
Singh
Lecturer of Law of Taxation B.A LL.B (Hons.) VIIth
Semester
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Section -
B
Roll No: 109, 1581 Introduction
Income from house property is one of the important heads of income under the Income
Tax Act. The tax payers have been, in particular, keen to know about the exemptions and
deductions available to them on repayment of interest and principal of the loan taken topurchase the house property, if that house property is let out or self-occupied. Section 4
of the Income tax Act 1961 provides for charge of income tax. However, this section by
itself does not create any liability. It has been observed by the Supreme Court.1although section 4 is the charging section, yet income tax can be charged only when
the central Act, which normally is the Finance Act, enacts that income tax shall becharged for any assessment year at the rate or rates specified therein.
2. Analysis of statutory provisions regarding Income from House
Property
2.1 Introduction to Income under the Head Income from House Property and Basis
of Charge
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,
annual value of such property is not chargeable to tax under the head Income from
House Property.
The phrase lands appurtenant thereto needs to be clarified in this context that income
from letting of vacant plots of land when there is no adjoining building will not be taxed
under this head (but will be taxed as income from other sources). The existence of a
building is, therefore, an essential prerequisite. Building will, of course, include
residential house (whether let out or self occupied), office building, factory building,godowns, flats, etc. as long as they are not used for business or profession by owner.
And the purpose for which the building is used by the tenant is also immaterial. Thus,
income from letting out godowns will be taken as income from house property. It does
not make any difference at all if the property is owned by a limited company or a firm.
Three conditions are to be satisfied for property income to be taxable under this head:
1CIT Vs. K. Srinivasan (1972) 83 ITR 346-351.
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1. The property should consist of buildings or lands appurtenant thereto.
2. The assessee should be the owner of the property.
3. 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 income-tax.
Unless all the aforesaid conditions are satisfied, the property income cannot be charged
to tax under the head Income from House property.
2.2. Applicability of Section 22
2.2.1 Buildings or lands appurtenant thereto
What is covered by the expression appurtenant' is the land which is necessary for
enjoyment of the building and not the land only.2
The word 'building' is not confined in its scope only to dwelling houses. 'House' is
defined in the Oxford Dictionary of English, 10th Edition, as: A building for human
habitation especially one that is lived in by a family or by a small group of people
consisting of ground floor and one or more storey. The word 'house' in association with
other words also has many other meanings. But a commercial building is not regarded asa house. That, however, would not take the income from such buildings out of the ambit
of section 22. The term building includes residential houses, bungalows, office buildings,
warehouses, docks, factory buildings, music halls, lecture halls, auditorium etc. The
appurtenant lands in respect of a residential building may be in the form of approach
roads to and from public streets, compounds, courtyards, backyards, playgrounds,
kitchen garden, motor garage, stable or coach home, cattle-shed etc, attached to and
forming part of the building. In respect of non-residential buildings, the appurtenant
lands may be in the form of car-parking spaces, roads connecting one department with
another department, playgrounds for the benefit of employees, etc.
All other types of properties are excluded from the scope of section 22. Rental income
from a vacant plot of land (not appurtenant to a building) is not chargeable to tax under
the head Income from house property , but is taxable either under the head Profits and
gains of business or profession or under the head Income from other sources , as the
case may be. However, if there is land appurtenant to a house property, and it is let out
along with the house property, the income arising from it is taxable under this head.
2.2.2 Ownership of House Property
2.2.2.1 Owner -concept
For the purpose of section 22, the concept hitherto understood even in court decisions
has been that the owner has to be a legal owner. Annual value of property is assessed to
tax under section 22 in the hands of owner even if he is not in receipt of income or even
if income is received by some other person. For instance, if a person makes gift of rental
income to a friend or a relative, without transferring ownership of the property, annual
2Gowardhan Das & sons v. CIT [2007], 158 Taxman 465/288 ,ITR 481 (Punj. & Har.).
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value of property is taxable in the hands of the donor, even if rental income is received
by the donee.3
The term 'occupy' appearing in section 22 has been judicially interpreted, as occupation
directly by the assessee himself or through an employee or agent but such occupation by
the employees, etc., within the meaning of the exception in the said section, must be
subservient to and necessary for the performance of the duties in connection with the
business of the company.
The word owner refers to the owner of the property itself and not the owner of its
annual value
In other words, for the purpose of section 22, the owner must be that person who can
exercise the rights of the owner, not on behalf of the owner but in his own right. 4
However, there has been some refinement in the concept of ownership after the decision
of the Supreme Court in the case of CIT v. Podar Cement (P) Ltd.5 In this case, the
Supreme Court has expressed the view that under common law owner means a person
who has got valid title generally conveyed to him after complying with the requirementsof law such as the Transfer of Property Act, Registration Act etc. But in the context of
Section 22 of the Income tax Act, having regard to the ground realities and further
having regard to the object of the Income tax Act, namely, to tax the income, 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 in the context of section 22 is not warranted.
In view of this, where a property is handed over to a purchaser to enjoy fruits of that
property by the builder, the purchaser is to be treated as owner of that property even
though no registered document has been executed in his favour.
Rationale and the concept of deemed owner
Section 27 of the Income Tax Act provides that, in certain circumstances, persons who
are not legal owners are to be treated as deemed owners of house property for the
purpose of tax liability under this head.
1. Transfer to a Spouse or Child (Section 27(i))
If an individual transfers a house property to his or her spouse (except in connection with
an agreement to live apart) or to a minor child (except a married daughter) without
adequate consideration, he is deemed as the owner of the property for tax purposes.
However, if an individual transfers cash to his or her spouse or minor child, and the
transferee acquires a house property out of the gifted amount, the transferor shall not be
treated as the deemed owner of the house property.
2. The Holder of an Impartible Estate (Section 27(ii))
3S. Kartar Singh v. CIT (1969) 73 ITR 438 (Delhi).4 Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 (SC).5 (1997) 92 Taxman 541 (SC)/226 ITR 625 (SC).
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The Holder of an Impartible Estate is deemed to be the individual owner of all the
properties comprised in the estate. The Impartible Estate, as the word itself suggests, is a
property which is not legally divisible.
3. A Member of a Co-Operative Society etc. (Section 27(iii))
A member of a co-operative society, company or association of persons, to whom a
property (or a part thereof) is allotted or leased under a house building scheme of the
society, company or association, is deemed to be the owner of such property or part
thereof allotted to him although the society, company or association is the legal owner of
that building.
4. Person in Possession of Property (Section 27 (iiia))
A person who is allowed to take or retain possession of any building (or part therof) in
part performance of a contract of the nature referred to in section 53A of the Transfer of
Property Act, 1882, is deemed as the owner of that building (or part thereof)
This would cover the cases where the:
(a) Possession of the property is handed over to the buyer,(b) Sale consideration has been paid or promised to be paid by the seller to the buyer,
(c) Sale deed has not been executed in favour of the buyer, although certain other
documents like power of attorney/agreement to sell/will etc. have been executed. The
buyer would be deemed to be the owner of the property although it is not registered in
his name.
5. A person who has acquired a right in a building for a period not less than 12
years (Section 27(iii)(b))
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
there3of) by virtue of any such transaction as is referred to in section 269UA(f) i.e. if a
person takes a house on lease for a period of 12 months or more, is deemed as the owner
of that building or part thereof.
Persons who purchase properties on the basis of Power of Attorney and under long term
leases (12 months & more) are also deemed to be owners.
The concept of deemed owner is introduced to prevent misuse like transferring
properties in the name of spouse or minor child etc. and for assessment of income in the
hands of beneficial owner. This provision does not cover any right by way of a lease
renewable from month to month or for a period not exceeding one year. Ownership must
be of the superstructure. It is not necessary that the assessee is also the owner of the land.
Thus, when a person obtains a piece of land on lease and constructs a building on it, the
income from such building will be taxed in his hands as income from house property.
Property owned by Co-owners
Section 26 concerns properties which are owned by co-owners. This section provides
that where property consisting of building or buildings and land appurtenant thereto is
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owned by two or more persons and their respective shares are definite 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 accordance with sections 22 to 25 shall be included in his total income as under:
(a) Where house property is self-occupied by each co-owner: Where house property
owned by co-owners is self-occupied by each co-owner, the annual value of the property
for each of such co-owner shall be nil and each of the co-owner shall be entitled to a
deduction of Rs. 30,000/1,50,000 under section 24(b) on account of interest on borrowed
money.
(b) Where the entire part of the property is let: Where the entire part of the property is let
out, the income from such property or part thereof shall be first computed as if this
property/part is owned by one owner and thereafter the income so computed shall be
apportioned amongst each co-owner as per their definite share.
2.2.4 The property should not be used by the owner thereof for the purpose of anybusiness or profession carried on by him, the profit of which is chargeable to tax
If the property is used by the owner thereof for any business or profession carried on by
him; and the profits of such business are chargeable to tax, then income from such
property shall not be chargeable to tax under this head.
The following points are relevant to explain this point:
(a) Use for business must be by owner: For instance if a company gives its house
property to its subsidiary for business of such subsidiary, then income from such
property shall be taxable under this head, as use for business purposes is not by owner of
house i.e. the company, but by its subsidiary.
(b)Letting out for business purposes is use for business purposes: For instance, when a
house property owned by an assessee is occupied for residence by its
employees/directors, etc., whether on payment of rent or otherwise, to enable them to
discharge their functions efficiently and letting out of the property is subservient and
incidental to the main business of the assessee, such an occupation amounts to use of the
property by the assessee itself for the purpose of its business, even though no business is
actually carried on in such premises. Income from such property is not assessable as
Income from House Property , but as income from business or profession. 6
2.2.6 Rental income of a dealer in house property
If a person is engaged in the business of purchasing house properties with the purpose of
letting them on high rents and disposing off those properties which are not profitable for
this purpose, the rental income from such property will not be taxed as business income.
Any rent from house property, whether received by a dealer or a landlord, is taxable
under the head Income from house property . It will remain so even if the property is
6CIT v. Modi Industries Ltd. [1994] 210 ITR 1 (Delhi) (FB).
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held by the assessee as stock-in-trade of a business or if the assessee is a company which
is incorporated for the purpose of building houses and letting them on rent.
2.5 Property Incomes Exempt from Tax
Some incomes from house property are exempt from tax. They are neither taxable nor
included in the total income of the assessee for the rate purposes. These are:
1. Income from a farm house: Income from any building owned or occupied by an
agriculturist or receiver of rent/ revenue of such land provided that the building is in the
immediate vicinity of agricultural land and is used as an dwelling house or a store house
or other out-building.
2. Annual value of one palace in the occupation of an ex-ruler.
3. Property income of a local authority.
4. Property income of an approved scientific research association.
5. Property income of an educational institution and hospital.6. Property income of a registered trade union.
7. Income from property held for charitable purposes.
8. Income from property used for own business or profession.
10. Annual value of self occupied property: Annual Value shall be taken as Nil.
Annual Value
The basis of calculating Income from House property is the annual value . This is the
inherent capacity of the property to earn income and it has been defined as the amount
for which the property may reasonably be expected to be let out from year to year. It is
not necessary that the property should actually be let out. It is also not necessary that the
reasonable return from property should be equal to the actual rent realized when the
property is, in fact, let out. Where the actual rent received is more than the reasonable
return, it has been specifically provided that the actual rent will be the annual value.
Where, however, the actual rent is less than the reasonable rent (e.g., in case where the
tenancy is affected by fraud, emergency, close relationship or such other consideration),
the latter will be the annual value. The municipal value of the property, the cost of
construction, the standard rent, if any, under the Rent Control Act, the rent of similar
properties in the same locality, are all pointers to the determination of annual value.
The determination of Annual Value is important in the context of taxation of income
from House Property because though the tax under the head Income from house
property is tax on income, yet it is not in that sense a tax on income but upon inherent
capacity of such property to yield income and for this annual value is the yardstick.
The inherent capacity has been defined as the sum for which the property might
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reasonably be expected to be let from year to-year. It is not necessary, that the property
should be actually let. It is also not necessary that the reasonable return from property
should be equal to the actual rent realized when the property is, in fact, let out. Where
the actual rent received is more than the reasonable return, it has been specifically
provided that the actual rent will be the annual value. Where, however, the actual rent is
less than the reasonable rent (e.g. in case where the tenancy is affected by manipulation,
emergency, close relationship or such other consideration), the latter will be annual
value. The municipal value of the property, the cost of construction, the standard rent if
any under the Rent Control Act, the rent of similar properties in the same locality are
relevant factors for the determination of the annual value. However, if a property is let
and was vacant during any part or whole of the year and due to such vacancy, the rent
received is less than the notional rent, such lesser amount shall be the Annual Value.
Where the property is subject to Rent Control Act, its annual value under Section 23(1)
cannot exceed the standard rent (fixed or determined) under the Rent Control Act unless
it is actually let out for a higher amount.7
Factors of Annual Value
The following four factors have to be taken into consideration while determining the
Gross Annual Value of the property:
1. Rent payable by the tenant (actual rent)
2. Municipal valuation of the property.
3. Fair rental value (market value of a similar property in the same area).
4. Standard rent payable under the Rent Control Act.
Actual Rent Received or Receivable
It is the most important factor in determining the annual value of a let out house
property. It does not include rent for the period during which the property remains
vacant. Moreover, it does not include the rent that the tax payer is unable to realize, if
certain conditions are satisfied. Sometimes a tenant pays a composite rent for the
property as well as certain benefits provided by the landlord. Such composite rent is to
be disintegrated and only that part of it which is attributable to the letting out of the
house property is to be considered in the determination of the annual value.
It may however be observed that the municipal taxes of the house property are to be
borne by the occupier who in the case of let out property is the tenant. Therefore, if such
municipal taxes are borne by the tenant, the rent received/ receivable should not be
increased to calculate de facto rent. Further where repair expenses are borne by the
tenant, the rent received/ receivable should not be decreased to calculate the de facto
rent.
7 Dewan Daulat Rai Kapoor v. NDMC, (1980) 122 ITR 700 (SC); Amolak Ram Khosla v. CIT, (1981)
131 ITR 589 (SC);Mrs. Shiela Kaushik v. CIT, (1981) 131 ITR 435 (SC).
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Municipal Valuation
Municipal or local authorities charge house tax on properties situated in the urban areas.
For this purpose, they have to determine the income earning capacity of the property so
as to calculate the amount of house tax to be paid by the owner of the property. But this
valuation cannot be treated as a conclusive evidence of the rental value of the property,
although such valuation is given due consideration by the Assessing Officer.
Fair Rental Value
It is the rent normally charged for similar house properties in the same locality. Although
two properties cannot be alike in every respect, the evidence provided by transactions of
other parties in the matter of other properties in the neighbourhood, more or less
comparable to the property in question, is relevant in arriving at reasonable expected
rent.
Standard Rent
Standard Rent is the maximum rent which a person can legally recover from his tenant
under a Rent Control Act. This rule is applicable even if a tenant has lost his right to
apply for fixation of the standard rent. This means that if a property is covered under the
Rent Control Act, its reasonable expected rent cannot exceed the standard rent. The
Gross Annual Value is the municipal value, the actual rent (whether received or
receivable) or the fair rental value, whichever is highest. If, however, the Rent Control
Act applies to the property, the gross annual value cannot exceed the standard rent under
the Rent Control Act, or the actual rent, whichever is higher. If the property is let out but
remains vacant during any part or whole of the year and due to such vacancy, the rent
received is less than the reasonable expected rent, such lesser amount shall be the Annual
value. For the purpose of determining the Annual value, the actual rent shall not include
the rent which cannot be realized by the owner. However, the following conditions need
to be satisfied for this:
(a) The tenancy is bona fide;
(b) The defaulting tenant has vacated, or steps have been taken to compel him to vacate
the property.
(c) The defaulting tenant is not in occupation of any other property of the assessee;
(d) The assessee has taken all reasonable steps to institute legal proceedings for the
recovery of the unpaid rent or satisfied the Assessing Officer that legal proceedings
would be useless.
Standard Rent is the maximum rent which a person can legally recover from his tenant
under a Rent Control Act. This rule is applicable even if a tenant has lost his right to
apply for fixation of the standard rent. This means that if a property is covered under the
Rent Control Act, its reasonable expected rent cannot exceed the standard rent. The
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Gross Annual Value is the municipal value, the actual rent (whether received or
receivable) or the fair rental value, whichever is highest. If, however, the Rent Control
Act applies to the property, the gross annual value cannot exceed the standard rent under
the Rent Control Act, or the actual rent, whichever is higher. If the property is let out but
remains vacant during any part or whole of the year and due to such vacancy, the rent
received is less than the reasonable expected rent, such lesser amount shall be the Annual
value. For the purpose of determining the Annual value, the actual rent shall not include
the rent which cannot be realized by the owner. However, the following conditions need
to be satisfied for this:
(a) The tenancy is bona fide;
(b) The defaulting tenant has vacated, or steps have been taken to compel him to vacate
the property.
(c) The defaulting tenant is not in occupation of any other property of the assessee;
(d) The assessee has taken all reasonable steps to institute legal proceedings for the
recovery of the unpaid rent or satisfied the Assessing Officer that legal proceedingswould be useless.
House Property which is part of the year let and part of the year occupied for own
residence.
Where a house property is, part of the year let and part of the year occupied for own
residence, its annual value shall be determined as per the provisions of section 23(l)
relating to let out property. ln this case, the period of occupation of property for own
residence shall be irrelevant and the annual value of such house property shall be
determined as if it is let for pan of the year, Hence, the expected rent as per section 23(l)
(u) shall be taken for full year but the actual rent received or receivable shall be taken
only for the period let and the gross annual value shall be higher of these two.
Computation of income of house property which ls partly let and partly self-
occupied
In this case the annual value, deductions and the income of the part of the property which
is let shall be computed separately under the let out property and the income of the
portion or the part of the property which is self occupied shall be determined under the
"self-occupied property" category.
For instance, where one unit is let out and the other unit is self occupied, then the whole
property cannot be taken as a single unit. Municipal value or fair rent if not given
separately, shall be apportioned between the let out portion and self occupied portion on
built up area basis.
Similarly, where, in a building the ground floor is self-occupied and the first floor is let
out or vice-versa, such a property shall not be treated as a single unit. Instead, income
from First floor which is let shall be computed separately as per let out provisions and
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the Hour which is self-occupied shall be computed separately as per self-occupied
provisions. Municipal tax and interest shall also be apportioned on the basis of built
up/floor area space.
Income from subletting
Income from subletting is not taxable under section 22. For example, A owns a house
property. He lets it out to be B. B further lets it (or a portion of it) out to C. Rental
income of A is taxable under the head Income from house property . However, since B
is not the owner of the house, his income is not taxable as income from house property,
but as income from other sources under section.
4. Deductions from Annual Value in cases of let out properties
4.1 Introduction to Deductions under Section 24Two deductions will be allowed from the net annual value (which is gross annual value
less municipal taxes) to arrive at the taxable income under the head income from house
property . It has to be borne in mind that the deductions mentioned here (section 24) are
exhaustive and no other deductions are allowed. The deductions admissible are as under:
4.1.1 Standard Statutory deduction
30 per cent of the net annual value will be allowed as a deduction towards repairs and
collection of rent for the property, irrespective of the actual expenditure incurred.
4.1.2 Interest on borrowed capital
Where the property has been acquired, constructed, repaired, renewed or reconstructed
with borrowed capital, the amount of any interest payable on such capital is allowed as a
deduction. The amount of interest payable yearly should be calculated separately and
claimed as a deduction every year. It is immaterial whether the interest has been actually
paid or not paid during the year.
4.1.3 Interest attributable to the period prior to completion of construction
It may so happen that money is borrowed earlier and acquisition or completion of
construction takes place in any subsequent year. Meanwhile interest becomes payable. In
such a case interest paid/payable for the period prior to the previous year in which the
property is acquired/constructed (as reduced by any part thereof allowed as a deduction
under any other provisions of the Income-tax Act) will be aggregated and allowed in five
successive financial years starting from the year in which the acquisition/construction
was completed.
Interest will be aggregated from the date of borrowing till the end of the previous year
prior to the previous year in which the home is completed and not till the date of
completion of construction.
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5. Some Special Provisions
5.1 Treatment of unrealised rent
As per the Explanation to Section 23(1) the actual rent received or receivable mentioned
in Section, 23(l)(b) and (c) shall not include the amount of rent which the owner cannot
realise, subject to the rules made in this behalf. In other words, unrealized rent, if any
should be deducted from clause (b) or (c) of Section 23( I).
5.1.1 Rules for unrealised rent
The amount of rent which the owner cannot realise shall be equal to the amount of rent
payable but not paid by a tenant of the assessee and so proved to be lost and
irrecoverable where:
(a) The tenancy is bona fide;
(b) The defaulting tenant has vacated, or steps have been taken to compel him to vacate
the property;(c) The defaulting tenant is not in occupation of any other property of the assessee;
(d) The assessee has taken all reasonable steps to institute legal proceedings for the
recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings
would be useless.
Important Note
Explanation to section 23(l) mentioned above provides that unrealized rent should be
deducted from clause (b) or clause (c) of section 23(l) i.e. the actual tent received or
receivable. It does not provide that it should be deducted from clause (a) i.e. from
expected rent. Thus problem will arise when gross annual value is to be taken as
expected rent instead of actual rent received orreceivable as the assessee in that case
cannot take the deduction of unrealized rent.
However, in the income-tax return forms, unrealized rent has been shown as deduction
from the gross annual value (i.e. alter taking expected rent or actual rent whichever is
higher). It is therefore, recommended that unrealized rent should be deducted alter
computation of gross annual value.
Similarly where a house is vacant for part of the year, section 23(l)(c) provides that gross
annual value is be taken as actual rent if the same is less than the expected rent. In this
case also, unrealised rent should be deducted after computation of gross annual value
(i.e. the actual rent).
5.2 Taxability of Unrealized Rent recovered later (Section 25A)
Where the assessee could not realise rent from a property let to a tenant and the same
was allowed as deduction and subsequently the assessee has realised any amount in
respect of such rent, the amount so realised shall be deemed to be income chargeable
under the head "Income from house property" and accordingly charged to Income-Tax as
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the income of that previous year in which such rent is realised whether or not the
assessee is the owner of that property in that previous year.
5.2.1 Special provisions for arrears of rent received
Where the assessee:
(a) Is the owner of any property consisting of any buildings or lands appurtenant thereto
which has been let to n tenant; and
(b) Has received any amount, by way of arrears of rent from such property, not charged
to income-tax for any previous year;
The amount so received, after deducting a sum equal to 30% of such amount, shall be
deemed to be the income chargeable under the head income from house property.
Further, it will be charged to Income Tax as the income of that previous year in which
such rent is received, whether the assessee is the owner of that property in that year or
not.8
5.2.2 Assessment of arrears of rent received
When the owner of a property receives arrears of rent from such a property, the sameshall be deemed to be the income from house property in the year of receipt. 30% of the
receipt shall be allowed as deduction towards repairs, collection charges etc. No other
deduction will be allowed. As in the case of unrealized rent, the assessee need not be the
owner of the property in the year of receipt.
5.3 House property owned by co-owners
Section 26 concerns properties which are owned by co-owners. This section provides
that where property consisting of building or buildings and land appurtenant thereto is
owned by two or more persons and their respective shares are definite 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 accordance with sections 22 to 25 shall be included in his total income as under:
(a) Where house property is self-occupied by each co-owner: Where house property
owned by co-owners is self-occupied by each co-owner, the annual value of the property
for each of such co-owner shall be nil and each of the co-owner shall be entitled to a
deduction of Rs. 30,000/1,50,000 under section 24(b) on account of interest on borrowed
money.
(b) Where the entire part of the property is let: Where the entire part of the property is let
out, the income from such property or part thereof shall be first computed as if this
property/part is owned by one owner and thereafter the income so computed shall be
apportioned amongst each co-owner as per their definite share.
Objective
8 Section 25B, Income Tax Act, 1961.
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Aim is to avoid assessment as AOP: The sum and substance of section 26 is to prohibit
the assessment of co-owners of the house property as an association of persons.9
Controversy about status will not attract section 26: In a case where the controversy is
whether the income of the house property should be included in the total income of a
firm. company or a Joint Hindu Family, or should be assessed in the hands of the
members of thefirm, company or Joint Hindu Family, section 26 does not come into
operation; in all these cases, section 22 alone applies.10
Provision is mandatory: Section 26 is mandatory.11
Co-heirs
Co-widows inheriting property in equal shares are co-owners: Co- widows inheriting
certain immovable properties in equal shares would be co-owners.12
Firm
Firm cannot claim status of AOP qua property income: A firm having only propertyincome cannot claim the status of AOP under section 26 in respect of rental income, so
long as the partnership is in operation.13
Loss from house property
If the aggregate amount of permissible deductions exceeds the annual value of the house
property, there will be a loss from that property. So far as income from a self-occupied
property is concerned, and in respect of a property away from the workplace, the annual
value is taken at nil and no other deductions are allowed except for interest on borrowed
capital upto a maximum of Rs.30,000 or Rs.1,50,000. In such cases, there may be a loss
upto a maximum of Rs.30, 000 or Rs.1, 50,000, as the case may be. However, in respect
of a let out house property, there are no restrictions on deductions and therefore, there
can be loss of any amount under this head. The loss from one house property can be set
off against the income from another house property. The remaining loss, if any, can be
set off against incomes under any other head like salary. In case the loss does not get
wiped out completely, the balance will be carried forward to the next assessment year to
be set off against the income from house property of that year. However, such carry
forward is restricted to eight assessment years only.
9 CIT v. Abdullabhai M. Moonim, [1981] 132 ITR 642 (Bom.)10 S.M Syed Mohammed Saheb & Bros. v. CIT, [1968] 68 ITR 791 (Ken).11 Gora Chand Sen v. CIT, [1985] 154 ITR 435 (Cal.)12 CIT v. Indira Balkrishna [1960] 39 ITR 546 (SC)13 Balaji Enterprises v. ClT, [1997] 225 ITR 471 (Kar
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References
Books referred
Ahuja Girish and Ravi Gupta, Systematic Approach to Income Tax, 25th edition
2011, Bharat Law House Pvt. Ltd., New Delhi
Ahuja, Girish, Taxation of Salaried Persons, Bharat Law House Pvt. Ltd., New
Delhi, 5th edition, 2009.
Mahesh, Chandra and D.C. Shukla, Income Tax Law and Practice, Pragati
Publication, New Delhi, 2009.
Singhania, Vinod K., Student s guide to Income Tax , Taxman Prints India Pvt.
Ltd., New Delhi, 40th Edition, 2009. Bhargava U.K., Taxmann s Income Tax Act, 52nd edition 2008, Taxmann
publications (P.) Ltd, New Delhi
Taxmann s Direct Tax Manual Vol. 3, 38th edition 2008, Taxmann publications
(P.) Ltd, New Delhi
Websites referred
www.incometaxindia.gov.in/Archive/House_Property.pdf
www.du.ac.in/fileadmin/DU/Academics/course.../TM_06.pdf
http://wircicai.org/wirc_referencer/income%20tax%20&%20wealth%20tax/Income%20From%20House%20Property.htm
www.du.ac.in/fileadmin/DU/Academics/course.../TM_06.pdf
220.227.161.86/18882sm_dtl_finalnew_cp5.pdf
http://www.incometaxindia.gov.in/Archive/House_Property.pdfhttp://www.incometaxindia.gov.in/Archive/House_Property.pdfhttp://www.incometaxindia.gov.in/Archive/House_Property.pdfhttp://www.incometaxindia.gov.in/Archive/House_Property.pdfhttp://www.incometaxindia.gov.in/Archive/House_Property.pdfhttp://www.incometaxindia.gov.in/Archive/House_Property.pdfhttp://www.incometaxindia.gov.in/Archive/House_Property.pdfhttp://www.incometaxindia.gov.in/Archive/House_Property.pdfhttp://www.du.ac.in/fileadmin/DU/Academics/course.../TM_06.pdfhttp://wircicai.org/wirc_referencer/income%20tax%20&%20wealth%20tax/Income%20From%20House%20Property.htmhttp://wircicai.org/wirc_referencer/income%20tax%20&%20wealth%20tax/Income%20From%20House%20Property.htmhttp://www.du.ac.in/fileadmin/DU/Academics/course.../TM_06.pdfhttp://www.incometaxindia.gov.in/Archive/House_Property.pdfhttp://www.du.ac.in/fileadmin/DU/Academics/course.../TM_06.pdfhttp://wircicai.org/wirc_referencer/income%20tax%20&%20wealth%20tax/Income%20From%20House%20Property.htmhttp://wircicai.org/wirc_referencer/income%20tax%20&%20wealth%20tax/Income%20From%20House%20Property.htmhttp://www.du.ac.in/fileadmin/DU/Academics/course.../TM_06.pdf -
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http://www.moneycontrol.com/master_your_money/stocks_news_consumption.php?
autono=633762
www.incometaxbangalore.org/faq/houseproperty.htmhttp://www.caclubindia.com/forum/income-from-house-property-faq-111402.asp
http://finotax.com/itax/inchp.htm
http://finance.indiamart.com/taxation/income_tax/tax_Income_house_property.htmlwww.thefinapolis.com/files/humtum15thaug.pdf
http://www.simpletaxindia.net/p/income-from-house-property-income-tax.html
http://easyitfiling.com/income-tax-returns-filing-online/income-tax-house-property/
http://www.moneycontrol.com/master_your_money/stocks_news_consumption.php?autono=633762http://www.moneycontrol.com/master_your_money/stocks_news_consumption.php?autono=633762http://www.incometaxbangalore.org/faq/houseproperty.htmhttp://www.caclubindia.com/forum/income-from-house-property-faq-111402.asphttp://finotax.com/itax/inchp.htmhttp://finance.indiamart.com/taxation/income_tax/tax_Income_house_property.htmlhttp://www.thefinapolis.com/files/humtum15thaug.pdfhttp://www.simpletaxindia.net/p/income-from-house-property-income-tax.htmlhttp://easyitfiling.com/income-tax-returns-filing-online/income-tax-house-property/http://www.moneycontrol.com/master_your_money/stocks_news_consumption.php?autono=633762http://www.moneycontrol.com/master_your_money/stocks_news_consumption.php?autono=633762http://www.incometaxbangalore.org/faq/houseproperty.htmhttp://www.caclubindia.com/forum/income-from-house-property-faq-111402.asphttp://finotax.com/itax/inchp.htmhttp://finance.indiamart.com/taxation/income_tax/tax_Income_house_property.htmlhttp://www.thefinapolis.com/files/humtum15thaug.pdfhttp://www.simpletaxindia.net/p/income-from-house-property-income-tax.htmlhttp://easyitfiling.com/income-tax-returns-filing-online/income-tax-house-property/