Income From House Property

Taxability of income: The Income Tax levy has been segregated under five heads viz:

1.    Income from Salaries

2.    Income from House Property.

3.    Income from business or profession.

4.    Capital Gains.

5.    Income from Other Sources.

Note: Income includes loss also.

Assessee has to find out first if the income is chargeable to tax or not. Then, the income has to be classified into the five heads of income above. If the nature of income cannot fit into any of the first four categories, it will be taxed under the residual category, income from other sources.

Income from House Property: Income from House Property is charged under section 22 of the Income Tax Act. The definition is as follows:

22. Income from House Property.

The annual value of property consisting of any buildings 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".

Discussion: 

1.    It is the Annual Value of Property that is subject to tax. It is not the rent received that is subject to tax. There is a misconception among assessees that the rent received is subject to tax. But, as per the definition, only the annual value is chargeable to tax. Please refer Chelmfered Club Vs. CIT (2000) 243 ITR 89 (SC).

2.    The property consists of any buildings or lands appurtenant thereto, i.e., it seeks to tax the annual value of any buildings or lands appurtenant or attached to the buildings. Hence, if the land has no connection with the building, income from that land cannot be taxed under income from house property.

3.    There is no specification as to whether the house property must be situated in India for the chargeability. Hence, it can be concluded that income from house property situated abroad also is chargeable to tax. But this is subject to the residential status of the assessee. In case of a resident and ordinarily resident in India, his global income is chargeable to tax in India. Hence, in such a situation, income from his house property situated abroad is chargeable to tax in India.

4.    Sub-Lease: It is to be noted that the tax is to be levied on the annual value of the property only if the assessee is the owner of the property. In case of sub-lease, the assessee earns income from sub-letting the house property. But, the assessee is not the owner of the house property. Hence, such income is not to be taxed under the head income from house property. It has to be taxed under the head income from other sources.

5.    If the property is occupied for the purposes of any business or profession carried on by the assessee (the profits from such business or profession are chargeable to income tax), it is not to be taken into account for the purpose of computation of income from house property.

6.    If the house property is inherently incapable of being let out, there is no question of taxing the annual value of such a house property. Please refer Shree Nirmal Commercial Ltd Vs. CIT (1992) 193 ITR 694 (Bom).

7.    Even in a case where the property is mortgaged and no income is derived from such a property, the deemed annual value is still chargeable to tax if the property is capable of being let out. Please refer S. Ujjannappa Vs. CIT (2002) 255 ITR 455 (Karn).

Case Laws:

Income from house property--ANNUAL VALUE--Computation--Notional interest on interest-free advances--Addition for notional interest on interest-free advances received by owner of house property is not permissible while computing annual value of house property.--Vide Indersons Leathers (P) Ltd. v. Addl. CIT (2008) 21 (II) ITCL 519 (Asr-Trib) : (2007) 295 ITR 295 (Asr-Trib) : (2008) 114 ITD 242 (Asr-Trib) : (2007) 112 TTJ (Asr-Trib) 280

Income from house property--CHARGEABILITY--Rental income earned from letting out of flats on licence basis due to recessionary trends--Where assessee-company is the owner of property, rental income received from such property cannot be treated as income from business and would be treated as "income from house property".--Vide Mangla Homes (P) Ltd. v. ITO & Ors. (2009) 25 (I) ITCL 302 (Bom-HC) : (2009) 182 Taxman 55 (Bom)

Income from house property--CHARGEABILITY--Rental income from commercial complex constructed on land taken on lease--Rental income derived from commercial complex constructed by assessee on leasehold land is to be assessed under the head "Income from house property" inasmuch as, the ground given by the AO was not relevant that the assessee should be the owner of the land on which superstructure is made by the assessee and assessee must owner of the property.--Vide A.B. Hotel Ltd. (Radisson Hotel) v. Dy. CIT (2009) 26 (II) ITCL 453 (Del-Trib) : (2009) 83 CC 84 (Del-Trib) : (2008) 25 SOT 368 (Del-Trib)

Income from house property--CHARGEABILITY--Transfer of property in lieu of Mehar--Where the assessee has transferred the property owned by him in the name of his wife in satisfaction of her claim for Mehar, without execution of formal conveyance deed, the income accrued from the said property would be assessed in hands of his wife. --Vide CWT v. SM. Arif (20083) 24 (I) ITCL 507 (All-HC): (2008) 173 Taxman 69 (All)