INCOME UNDER THE HEAD “INCOME FROM HOUSE PROPERTY”

1. SEC-22 Chargeability :

The following conditions must be satisfied before rental income is taxed in this head.

(A)     PROPERTY MUST CONSIST OF ANY BUILDING OR LAND APPURTENANT THERETO.

(1)     Land appurtenant means land connected with the building like gardens, garage etc.

         Note : Open land rental is taxable in “other source” head.

(2)     Building (as per judicial decisions)  includes residential building, Factory building, auditoriums, cinema, house & other structures (Whether having roof or not)

However in case of residential building there must be roof .

(B)     ASSESSEE MUST BE OWNER.

         It includes both freehold and lease hold and also include deemed ownership as per Sec.27

(1)     Transfer to a spouse otherwise than for adequate consideration or agreement to live apart.

(2)     Transfer to a minor child not being a minor married daughter or otherwise than for adequate consideration.

(3)     Holder of impartible estate.  #

(4)     Member of co-operative society.

—    House Building Scheme

—    Allotment Letter.

(5)     Person in possession of a property, as per Transfer of Property Act. Sec.53A, Part performance of contract:

—    Possession handed over.

—    Sale consideration paid.

—    Sale deed not executed. But certain other documents like Powr of Attorney, Agreement to Sale, Will etc. have been executed.

(6)     Person having right in property exceeding 12 years (Although such lease is not registered.)

         Assets of HUF which have not been partitioned to members and it belongs to senior most members of  HUF. That member is treated as deemed owner.

PROPERTY MAY BE USED FOR ANY PURPOSE, BUT NOT TO BE USED BY THE OWNER FOR ANY OF THE

FOLLOWING PURPOSE :

(1)   For own business or profession.

(2)   To let out with the object of carrying the business in efficient manner.

(3)    If letting of property is inseperable from letting of other Assets and Services.

Important Notes :

(1)     This is the only head of income under which notional income may be charged to tax instead of real income.

(2)     Income from House Property is always taxable under “Income from HP” head even if it is the business of the assessee to own and give houses on rent.

(3)     In case of a mutual concern like a club, the annual value of the club house shall be excluded from the purview of the levy of income tax. [Chelmford Club Vs. CIT (2000) SC]

(4)     Disputed ownership : The assessment proceedings cannot be held up because of a dispute relating to the title of the property. The decision as to who is the owner rests with the A.O. If however, the decision of the court goes against the decision of the tax authorities the assessment must be rectified.

(5)     In the following cases income from property is not charged to tax :—

(a)  Farm house : As per sec. 2(1A) 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 a dwelling house or as a store house.

(b)  Property held for charitable purpose (sec. 11).

(c)  Palace of ex-ruler.

(d)  Property of registered trade union/local authority.

(e)  Property income of Political Party.

(f)   Property used for own business/profession.

(g)  Self-occupied house.

(h)  Property income of an approved scientific research association.

(i)   Property income of educational institutions and hospitals.

2. DETERMINATION OF ANNUAL VALUE (Sec. 23) :

 

Note :

1.      Actual Rent Received/Receivable by the owner shall not include the unrealised  rent by the owner.

2.      Allowance for unrealised rent (Rule 4) shall be given if following conditions are satisfied :—

a)    the tenancy is bonafide or actual means intention to receive rent.

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.

3.         Where property is part of the year let and part of the year occupied for own residence, its annual value shall be determined U/S 23(1)(b). In this case the part of occupation of property for own  residence shall be irrelevant and annual value of such house shall be determined as If it is let out. Actual rent will be taken for letout but Fair rent, Municipal Valuation, Std. rent will be taken for the whole year.

 

Illustration 2 :

Miss Manisha owns three houses properties. She has furnished the following particulars for the financial year  2009-10 :

First House :  Its Municipal valuation is Rs. 80,000. This is used by her for her residence. She has paid fire insurance premium Rs. 2,500 and Municipal taxes Rs. 8,000. She has also paid interest on loan Rs. 25,000. This loan was taken to repay another loan which she had taken for the construction of this house.

Second House : Its Municipal valuation is Rs. 1,20,000 and it has been let-out at a rent of Rs. 12,000 p.m. She has made the following payments in respect of this house :

Municipal taxes Rs. 15,000; Repairs Rs. 15,000; Land Revenue Rs. 15,000; Legal expenses for getting the house vacated Rs. 8,000. Annual charge Rs. 20,000. The house remained vacant for 4 months.

Third House :  The construction of this house was completed on 31-3-2003. Its Municipal valuation is Rs. 2,64,000. It consists of two identical units, each of which has been let-out at a rent of Rs10,500 p.m. She has made the following payments in respect of this house :

Municipal Taxes Rs.24,000; Ground Rent Rs. 8,000; Interest on loan taken for construction Rs. 50,000.

The second unit remained vacant for two months. Compute her taxable income from house property for the assessment year 2009-10.

Solution :   Computation of Income from House Property of Miss Manisha

                        for the Assessment Year 2010-11

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