1

CHAPTER-I INTRODUCTION
Income from house property includes an income which has been charged from a property which is an immoveable property i.e., house, building, certain land areas etc. Generally for to calculate that an income is taxable or not which is generated from a house property there are three conditions which are to be fulfilled which includes the property should consists of any building or lands appurtenant thereto, assessee should be owner of the property and 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. This is a general idea as to what all constitutes under the income from house property. According to the Income Tax Act, under Section 22 details with respect to the handling of income from house property is given and then later on from section 23 to 27 few complexities with respect to house property income have been dealt with. This was a general idea with respect to house income property but there are few complex issues which researcher shall be dealing in the research paper later on in detail such as deemed owner, property acquired, subletting and cases where such income is not taxable. 1.1 Research Proposal: To identify what all include as income under the head of Income from House Property and how to compute the same. 1.2 Research Questions: (a) Whether the income from house property is taxable under the law? (b) Whether the deemed owner is considered similar to the owner for the purpose of computing tax under income from house property? (c) Whether house property includes all kinds or types of properties related to house? (d) Whether the basis for computing income form let out house is different from in general? (e) Whether the criteria for computing income from self occupied property is different form house property income?

1.3 Hypothesis: (a) Yes, the income from house property is taxable under the law. (b) Yes, the deemed owner is considered similar to the owner for the purpose of computing tax under income from house property. (c) Yes, house property includes other kinds or types of properties related to house also. (d) No, the basis for computing income form let out house is different from in general. (e) Yes, the criterion for computing income from self occupied property is different form house property income. 1.4 Research Methodology: The research methodology been employed by the researcher is doctrinal in nature and secondary sources are used i.e., various books and case books have been referred for the studies which the researcher found in the library of National Law University, Delhi and internet also. The researcher also used various electronic databases like Manupatra Online and SCC Online. 1.5 Scheme of Chapterization: In the very first chapter researcher dealt with a brief overview about the research paper and tries to explain the subject matter in brief. In the second chapter researcher has dealt with explanation and detailed description of topic and tried to explain the evolution of the same. Further in third chapter researcher has analyzed the topic with the help of same case laws. In the fourth chapter researcher shall be dealing with regulatory mechanism and concluding the same by suggesting few reforms.

CHAPTER-II HOUSE PROPERTY AND INCOME

Income from house property is one of the heads into which different categories of income included in the total income have been classified. Basically, Section 9 of 1922 Act, which dealt with taxability of income of house property has been broken up and redrafted into six sections, viz. section 22 to section 27, under the1961 Income Tax Act. Property income is notional, that is why the method of accounting adopted by the assessees for accounting the property income in his books would be irrelevant. 1 But a line may be drawn where the property is not capable of being let out, as was found in a case, where the property was required to be permitted to be used by the financier under the terms of finance agreement, financed by non-refundable deposits and contribution of shares by an agreement so that income, if any, could not be treated as income from property but only as income from business.2 Since the income is assessed not merely on accrual basis or solely on receipt basis, both on the annual value of the property with ad hoc deductions not always based upon actual expenditure, the income that is assessable as income from property is understood to be notional income. Even where a property is occupied by the tenant free of rent the landlord is assessable on a notional income with reference to the annual value. The manner of determination of annual value is discussed under Section 23 of the Income Tax Act, 1961.3 2.1 Constituents of Property: The word property is used in a broader sense to consist of buildings or lands appurtenant thereto. Because of use of word or, it is sometimes argued that lands appurtenenat thereto would by itself be a property, so that its income would be taxable as income from house property. Such an interpretation is not correct, because income from mere land is not treated as income from property.4 The interpretation of law that in some context, the word or has to be understood as and and would so apply in this context, so that the land which is appurtenant to a property alone is treated as part of the property.
1 2

Hope India Ltd. V. CIT (1999) 238 ITR 740 (cal). Shree Nirmal Commercial v. CIT (1992) 193 ITR 694 (Bom) 3 A.C. Sampath Ayengar, LAW OF INCOME TAX, vol. 2, 11 th ed. 2011, p.2673. 4 Ibid.

The income chargeable under this head is confined to the annual value of what may be called house property; that is the annual value of buildings or lands appurtenant thereto, though words buildings and house property has not been defined in the act, they should be understood in the same sense as in their ordinary meaning.5 The charge is not only on the owner of the buildings or land appurtenant thereto, but also a person who holds an interest in the property. The term property as described in Section 22 of the Income Tax Act, 1961, refers to property Consisting of building and lands appurtenant thereto. Terms in detail are as follows6: (a) Buildings:- the word buildings would include buildings occupied or intended for residence, building let for office use, or for shortage, or for warehousing or for use as a factory, a shop or a bazaar and would also include stalls and platforms in market enclosures. It would include dance halls, music halls, and other publics auditoriums used for stage and cinema shows. The word building would also include a part of a building.7 For example, busti huts which have a short life span for like 5-6years may also be treated as house property for computation of income through it. Though lands was appurtenant to a bulding, it consisted of kutcha plinth on open land.

(b) Lands appurtenant thereto means- it would include when the buildings are residential buildings approach roads to it from the public street compounds and play grounds courtyards kitchen gardens, etc., attached to buildings for convenient enjoyment thereof would form part of buildings. Where a building is a non-residential building such as factory, the lands appurtenant thereto would consist of parking spaces, various roads connecting one department of the factory with another, drying grounds such as those in a rice mill or coffee-curing factory, the play grounds such as tennis or a badminton court for the amenities of the employees of the factory, etc.

(c) Foreign Property- where the foreign property is assessable as in the case of a resident and ordinarily resident, the income therefrom is required to be computed as income from house property under Section 22 of Income Tax Act, 1961.

5 6

CIT v. Kaniyalal (1979) 120 ITR 892 (Cal). A.C. Sampath Ayengar, LAW OF INCOME TAX, vol. 2, 11 th ed. 2011, p.2673. 7 East India Housing v. CIT (1961) 42 ITR 49 (SC).

2.2 Exemption: Exemption of portion occupied for taxable business is provided. If a building is occupied by an assessee for the purpose of any business or profession carried on by him, then it is excluded from consideration under this head, provided income from such business or profession can be assessed to tax, whether or not any assessment has been on any resultant profits.8 The principle is that if the owner of the property carries on a business a property owned by him the income from that property must be assessed as only income from business. The kinds of property which can be dealt under such exception are as follows:9 (i) Property used in Partnership business with owner as partner- the exemption of income from property used for assessees business must also be granted in cases where the property of an assessee is used by a partnership business in which the assessee is also a partner. Giving the word occupation a meaning occupation as owner or his own occupation would require the addition of some words to section or to rewrite the exemption clause. In CIT v. Guruswamy10 , a restricted meaning was given to the occupation as:

(a) Words the occupation of the property in the context of section 22 must mean occupation as owner or his own occupation; (b) The fact of computation must go with the owner of the building which means actual occupation for the purpose of his business or profession.

(ii)

Property owned by Hindu Undivided Family used by firm with karta as partner- where the premises were owned by Hindu Undivided Family but used by a partnership firm in which karta and the individual members were partners, it was held that it would not be open to the Hindu Undivided Family to claim that the relevant premises were occupied for the business carried on by Hindu Undivided Family.11

8 9

Upper India Chambers v. CIT (1947) 15 ITR 263 (All) A.C. Sampath Ayengar, LAW OF INCOME TAX, vol. 2, 11 th ed. 2011, p.2677. 10 (1984) 146 ITR 34 (Kar). 11 Supra n 9 at p.2678.

(iii)

Mutual Concerns- Mutual companies and mutual associations by reason of their mutial character are in certain circumstances not assessable at all. In the case of such companies or associations the portion of building occupied by them for purpose of their business would fall to be taxed under this head. In Presidency Club v. CIT the principle of mutuality was recognised in respect of mutual association where accommodation was given to the members, their family and friends. However in cuttack club v. CIT, it was found assessable as income from other sources. The club was allowed exemption on the principle of mutuality but subject to an observation that as long as the dealings do not disclose the profit earning motive and are not tainted with commerciality, there should be a right to exemption.

CHAPTER-III HOUSE PROPERTY INCOME UNDER THE ACT12

In common parlance, property is understood in wide sense. It is not only the thing which is the subject matter of ownership but is taken to mean dominon or right of ownership or even partial ownership. However, for purposes of taxation under sections 22 to 27 of the Income Tax Act, such wider definition of property is not relevant. The income to be taxable should be Income from House Property.13 3.1 SECTION 22 of the Income Tax Act 1961: 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.14 In the earlier discussion, the phrase lands appurtenant thereto has also been used. It 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.15

12 13

The Income Tax Act, 1961 Dr. Vinod Singhania and Dr. Monica Singhania, TAXMANN INCOME TAX, 46th ed.2011, p.210. 14 Ibid. p.214. 15 Supra n 9 at p.2679.

3.1.1 Conditions Necessary for Taxing Income From House Property: These are: (a) The property should consist of any building or land appurtenant thereto. (b) The assessee should be the owner of the property. (c) 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.16 3.2 Owner: 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 value of property is taxable in the hands of the donor, even if rental income is received by the donee17 S. Kartar Singh v. CIT (1969) 73 ITR 438 (Delhi). 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 right18. However, there has been some refinement in the concept of ownership after the decision of the Surpeme Court in the case of CIT v. Podar Cement (P) Ltd.19. 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 requirements of 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
16 17

Dr. Vinod Singhania and Dr. Monica Singhania, TAXMANN INCOME TAX, 46th ed.2011, p.206. S. Kartar Singh v. CIT (1969) 73 ITR 438 (Delhi) 18 RB. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 (SC) 19 (1997) 226 ITR 625 (SC).

the builder, the purchaser is to be treated as owner of that property even though no registered document has been executed in his favour.20 3.3 Deemed Ownership: In the following situations the ownership shall be deemed for taxing income from house property in view of section 27 of the Act21: (i) When house property is transferred to spouse (otherwise than in connection with an agreement to live apart) or minor child (not being a married daughter) without adequate consideration (Section 27(i)). (ii) In the case of holder of an impartible estate (Section 27(ii)) (iii) A member of a cooperative society, company etc. to whom a building or part thereof has been allotted or leased under a house building scheme (Section 27(iii)). Thus, when a flat is allotted by a cooperative society or a company to its members/shareholders who enjoy the flat, technically the co-operative society/company may be the owner. However, in such situations the allottees are deemed to be owners and it is the allottees who will be taxed under this head. (iv) 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) [Sec. 27 (iiia)]. (v) 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 thereof) 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] [Sec. 27 (iiib)]. 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.

20 21

http://www.incometaxindia.gov.in/Archive/House_Property.pdf/ accessed on 10th April 2012. A.C. Sampath Ayengar, LAW OF INCOME TAX, vol. 2, 11 th ed. 2011, p.2689.

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3.4 Co-Ownership: Section 26 concerns properties which are owned by coowners. 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. In such an eventuality, the relief admissible under section 23(2) shall also be separately allowable to each such person [Explanation to Section 26].22 3.5 Property used for own business or profession The owner of a house property is not liable to tax under this head if the property is used by him for his own business or profession. But the business or profession should be such whose income is chargeable to tax. Chargeability to tax does not mean that the income is actually taxed. It is possible that in a particular year the profits are not sufficient enough to attract tax liability. What it means is that the income from such business or profession is not exempt from tax.23 If an employer builds quarters for residential use by his employees and the letting out of these quarters is considered as incidental to his business, the income from such property is not taxable under this head, because the property in this case is considered to be used by the owner for his own business. It shall, therefore, be taxed as business income. The above position will not change even if the buildings are let out to government authorities for locating their undertakings like Banks, Post Office, Police Station, Central Excise Office, etc., provided the dominant purpose of letting out the accommodation is to enable the assessee to carry on his business more efficiently and smoothly. Also, income from paying-guest accommodation is taxable as income from business.24 Where house property owned by a partner is used by the firm (neither it is let out to the firm nor any rent is obtained for it) for its business purposes, the partner is entitled to the exemption. The reason for this exemption is that the notional rent of property is not allowable
22 23

Dr. Vinod Singhania and Dr. Monica Singhania, TAXMANN INCOME TAX, 46 th ed.2011, p.208. http://dor.gov.in/sites/upload_files/revenue/files/1.pdf/ accessed on 12th April 2012. 24 http://gcommerce.org/uploaded_document/Income%20Tax-Income%20from%20House%20Property72.pdf/ Accessed on 29th March 2012.

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as a permissible deduction while computing business income, if a person carries on the business or profession in his own house property. 3.6 Composite Rent: In some cases, the owner obtains rent of other assets (like furniture) or he charges for different services provided in the building (for instance, charges for lift, security, air conditioning, etc.), apart from obtaining the rent of the building. The amount so recovered is known as composite rent.25 If the owner of a house property gets a composite rent for the property as well as for services rendered to the tenants, composite rent is to be split up and the sum which is attributable to the use of property is to be assessed in the form of annual value under section The amount which relates to rendition of the services (such as electricity supply, provisions of lifts, supply of water, watch and ward facilities, etc.) is charged to tax under the head Profits and gains of business or profession or under the head Income from other sources. If there is letting of machinery, plant and furniture and also letting of the building and the two lettings form part and parcel of the same transaction or the two lettings are inseparable, then such income is taxable either as business income or income from other sources. This happens in the case of letting out of hotel rooms, theatres, auditoriums, etc. It is commonly understood that the charges per day for a room in a hotel are not specifically for the room only. In fact, a major portion of room tariff is for the amenities and services provided in the hotel. Similar is the case where a cinema house is let out at composite rent charged for the building, furniture, machines, equipment, staff, power consumption, etc. In all such cases, the composite rent received by the owner of the property is not to be split up and nothing is taxable as income from house property.26 3.7 Rental income of a dealer in house property If a person is engaged in the business of purchasing house properties with th 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 held by the
25 26

A.C. Sampath Ayengar, LAW OF INCOME TAX, vol. 2, 11 th ed. 2011, p.2687. Ibid.

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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. 3.8 Disputed ownership If the title of ownership of a house property is disputed in a court of law, the decision as to who is the owner rests with the Income-tax Department. Mere existence of dispute as to title cannot hold up an assessment even if a suit has been filed. Generally the recipient of rental income or the person who is in possession of the property is treated as owner.27 3.9 House property in a foreign country A resident assessee is taxable under section 22 in respect of annual value of a property in a foreign country. A resident but not ordinarily resident or a non-resident is, however, chargeable under section 22 in respect of income of a house property situated aboard, provided income is received in India during the previous year. If tax incidence is attracted under section 22 in respect of a house property situated abroad, its annual value will be computed as if the property is situated in India.28

27 28

Supra n 22 at p.212. Ibid.

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CHAPTER-IV DETERMINATION OF INCOME FROM HOUSE PROPERTY

4.1 Determination of Annual Value of House Property Income: 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 reasonably be expected to be let from year to year.29 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.30 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. For example, in case of a house, whose municipal valuation is Rs. 24,000/- and actual rent received is Rs. 36,000/- the annual lettable value will be taken at Rs.36,000/-. If the actual rent received is Rs. 18,000/- and municipal valuation is Rs.24,000/-, the annual value would be Rs. 24,000/- for the purpose of the Income-tax Act. Here, if the property was vacant for six months and the rent received is Rs. 18,000/- for six months the Annual Value shall be Rs. 18,000/-

29 30

http://www.220.227.161.86/18882sm_dtl_finalnew_cp5.pdf/ accessed on 3rd April 2013 Ibid.

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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. 4.2 Determination of Annual Value of Self-occupied property: In case of one self-occupied house property which has not been actually let out at any time, the annual value is taken as nil. If, one is having more than one house property using all of them for self-occupation, he is entitled to exercise an option in terms of which, the value of one house property as specified by him will be taken at nil. The annual value of the other self occupied house properties will be determined on notional basis as if these had been let out.31 4.3 Annual Value of one house away from work place A person may own a house property, say in Bangalore, which he normally uses for his residence. He is transferred to Chennai where he does not own any house property and stays in a rental accommodation. In such case, the house property in Bangalore cannot be used for self-occupation and notional income therefor would normally have been chargeable although he derives no benefit from the property. To save the taxpayer from hardship in such situations, it has been specifically provided that the annual value of such a property would be taken to be nil subject to the following conditions32: (a) The assessee must be owner of only one house property. (b) He is not able to occupy the house property because of his employment, business etc. being away from place where the property is situated. (c) The property should not have been actually let. (d) He has to reside at the place of employment in a building not belonging to him [Section 23(2)(b)]. (e) He does not derive any other benefit from the property not occupied.

31

http://gcommerce.org/uploaded_document/Income%20TaxIncome%20from%20House%20Property72.pdf/Accessed on 10th April 2012. 32 http://www.wirc-icai.org/material/house%20property-AY0910.pdf/ Accessed on 12th April 2012

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4.4 Determination of Annual Value of Let out house properties In respect of a let out house property, the rent received is usually taken as the annual lettable value. When, however, the rent is not indicative of the actual earning capacity of the house, the notional annual value will have to be found and adopted. The standard rent would be the Annual Value in the case of properties, subject to Rent Control Legislation, as mentioned earlier. However, when the actual rent received or receivable is higher than the notional value as calculated above, the higher figure will be taken for the purpose of Incometax. From the annual value as determined above, municipal taxes are to be deducted if the following conditions are fulfilled33: (a) The property is let out during the whole or any part of the previous year (There is no such deduction in respect of a self-occupied house property). (b) The Municipal taxes must be borne by the landlord. (If the municipal taxes or any part thereof are borne by the tenant, the same will not be deductible). (c) The municipal taxes must be paid during the year. (Where the municipal taxes have become due but have not been actually paid, these will not be allowed. The municipal taxes may be claimed on payment basis i.e., only in the year they were paid even if the taxes belonged to a different year). Amount left after deduction of municipal taxes is net 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.

33

A.C. Sampath Ayengar, LAW OF INCOME TAX, vol. 2, 11 th ed. 2011, p.2690.

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4.5 Gross Annual Value [Section 23(1)] The following four factors have to be taken into consideration while determining the Gross Annual Value of the property34: 1. Rent payable by the tenant (actual rent) 2. Municipal Valuation of the Property 3. Fair rental value (value of a similar property in the area) 4. Standard rent payable under the Rent Control Act.

(a) Actual Rent: 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. (b) 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. (c) 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 neighborhood, more or less comparable to the property in question, is relevant in arriving at reasonable expected rent. (d) 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.

34

Dr. Vinod Singhania and Dr. Monica Singhania, TAXMANN INCOME TAX, 46th ed.2011, p.218.

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While discussing section 23 it also becomes important to talk about the Income Tax Rules as Rule 4 of the Income tax rule directly with section 23 of the Income Tax Act and is the only provision which deals with income from house property as contained in part B of the rule. This rule talks about unrealised rent and the provision is as follows: Rule 4. For the purposes of the Explanation below sub-section (1) of section 23, 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.]

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CHAPTER- V DEDUCTIONS UNDER SECTION 24

Two 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 under35: (a) 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. (b) Interest on borrowed capital: The interest on borrowed capital will be allowable as a deduction on an accrual basis if the money has been borrowed to buy or construct the house. Amount of interest payable for the relevant year should be calculated and claimed as deduction. It is immaterial whether the interest has actually been paid during the year or not. However, there should be a clear link between the borrowal and the construction/purchase etc., of the property. If money is borrowed for some other purpose, interest payable thereon cannot be claimed as deduction. The following points are to be kept in mind while claiming deduction on account of interest on borrowed capital: 1. In case the property is let out, the entire amount of interest accrued during the year is deductible. The borrowals may be for construction/acquisition or repairs/renewals. 2. A fresh loan may be raised exclusively to repay the original loan taken for purchase/ construction etc., of the property. In such a case also, the interest on the fresh loan will be allowable. 3. Interest payable on interest will not be allowed.

35

Supra n 33 at p.2777.

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4. Brokerage or commission paid to arrange a loan for house construction will not be allowed. 5. When interest is payable outside India, no deduction will be allowed unless tax is deducted at source or someone in India is treated as agent of the non-resident. (c) Interest attributable to period prior to construction/acquisition Money may be borrowed prior to the acquisition or construction of the property. In such a case, the period commencing from the date of borrowing and ending on the date of repayment of loan or on March 31 immediately preceeding the date of acquisition or completion of construction, whichever is earlier, is termed as the pre-construction period. The interest paid/payable for the pre-construction period is to be aggregated and claimed as deduction in five equal instalments during five successive financial years starting with the year in which the acquisition or construction is completed. This deduction is not allowed if the loan is utilized for repairs, renewal or reconstruction.36

36

Supra n 33 at p.2778.

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CHAPTER-VI PARLIMENTARY COMMITTEE AND REPORT ON DTC

Government seeks to reform the Income Tax law and with that view came up with the Direct Tax Code Bill and this report talks about the proposed changes and the respective reforms in the Income Tax law. As the report starts by describing the main aspect of taxation with respect to House Property Income. There are various clauses which were described in coherence to the existing sections under the Income Tax Act, 1961. Proposed clauses in the DTC Bill, 2010 Income from house property to be recognised on actual: The DTC proposes to tax only actual receipts and accruals from letting out house property. This simplifies the tax provision as currently under the Income Tax Act, notional rental value of house property (even if the house property has not been let out) is to be calculated and the higher of actual or notional is taken as the rent to be taxed. 6.1 Clause 24 Income from House Property Clause 24 provides that the income from letting of any house property owned by any person shall be computed under the head income from house property. Clause 24 reads as under : 24. (1) The income from letting of any house property owned by any person shall be computed under the head Income from house property. (2) The income from any house property shall be computed under this head notwithstanding that the letting, if any, of the property is in the nature of trade, commerce or business. (3) The income from any house property owned by two or more persons having definite and ascertainable shares shall be computed separately for each such person in respect of his share. (4) In a case where the shares of the owners of the house property referred to in sub-section (3) are not definite and ascertainable, such persons shall be assessed as an association of persons in respect of such property. (5) The provisions of this section shall not apply-

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(a) to the house property, or any portion of the house property, which (i) is used by the person as a hospital, hotel, convention centre or cold storage; and (ii) forms part of Special Economic Zone, the income from which is computed under the head income from business; (b) to a house property which is not ready for use during the financial year. 6.1.1 Existing provision in the Income Tax Act, 1961 Under Section 22-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. Under Section 23- (1) For the purposes of section 22, the annual value of any property shall be deemed to be (a) the sum for which the property might reasonably be expected to let from year to year; or (b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or (c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable : Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him.

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On being asked during evidence as to what benefit will a taxpayer get as a result of modified provisions relating to house property as contained in DTC, the Ministry in their post-evidence information submitted to the Committee stated as follows : Under the current provisions of the Income-tax Act relating to income from house property, the annual value of the property is deemed to be the fair market value or the actual rent received or receivable, whichever is higher. Under the provisions proposed in the DTC, no rental value will be imputed to a house property, hence gross rent will be based on the actual rent received or receivable. Therefore, litigation arising from the issue of determining fair market value will be substantially reduced. 6.1.2 Suggestions: Suggestions as received through written memorandum from various institutions on this clause are as under : (i) Impact on malls, multiplexes and IT parks Such ventures are taxed as business income and be allowed reduction of all operating expenses and depreciation so that a high tax incidence on such ventures could be avoided. If the scheme of taxation is not amended, it would be unviable for such enterprises to make larger investment into such infrastructure projects, much needed for the country. (Madras Chamber of Commerce and Industry) (ii) Section 24(5) may be re-worded as follows: The provisions of this section shall not apply(a) to the house property, or any portion of the house property, which IS LET OUT AND (i) is used by the person as a hospital, hotel, convention centre or MULTIPLEXES, MALLS OR BUSINESS CENTRES and OR (ii) forms part of Special Economic Zone, the income from which is computed under the head income from business. (b) to a house property which is not ready for use during the financial year. (ICAI) (iii) The word or be used after sub-clause (i) in sub-clause (5). (Bombay Chartered Accountants Society). ,cold storage,

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6.1.3 Comments: The written comments received from the Ministry of Finance (Department of Revenue) in regard to all the above said suggestions are given as under : (i) Malls multiplexes IT parks are let out to business entities who in turn earn income under the head business. The consideration received by owner is mainly on account of utilization of space by these businesses and for some incidental services/facility. Hence this is taxable under head House property. The provisions give certainty and avoid litigation in this regard. (ii) As the income from house property is taxable on actual receipt basis under the DTC, the clause 24(5)(b) may not be required and will be considered for deletion. (iii) Suggestion is acceptable. Further, ONGC and Petroleum Federation of India in their written memoranda suggested as under : Clause 24(2) may be modified so as to provide that the income from house property shall not include any income from a house or other accommodation allotted to an employee or other person engaged by the assessee. Since allotment of accommodation to employees is not on account of employers desire to earn rental income but to facilitate the employers business, the earning of rent and incurrence of expenditure on maintenance, etc. of such accommodation is incidental to the employers business. As such, it would be appropriate to not consider the same as Income from house property but as Income from business. Accordingly, it is suggested that subsection (2) of section 24 of the Code may be modified as under:(2) The income from any house property shall be computed under this head notwithstanding that the letting, if any, of the property is in the nature of trade, commerce or business. For the removal of doubts, it is hereby clarified that income from house property shall not include any income from a house or other accommodation allotted to an employee or other person engaged by the assessee. Section 24(2) of the code provides that income from any house property shall be computed under this head, notwithstanding that the letting, is in the nature of trade, commerce or business. Thus, would mean denial of deduction of permissible expenditure

24

under the business head incurred by the assessee in carrying on the business of letting of the property. Admissibility would now be restricted to what is provided under the property head. This is unfair. The written comments as received from the Ministry of Finance (Department of Revenue) on the above said suggestions are as under : Will be considered for providing appropriate exception to deal with issues so that property owned/provided to the employee would not be charged under the head house property. The Committee note that under the Code, income from house property is proposed to be made taxable on actual receipt basis. However, income from commercial letting out of properties such as malls, multiplexes, etc. is also proposed to be treated under the head, income from house property rather than under the head income from business. The Committee are not convinced with such a categorization of income and would, therefore, recommend that a distinction should be made between commercial and noncommercial renting of properties and the income head be determined accordingly. The Committee are of the view that it would be unfair to categorise all kinds of rentals as income from house property regardless of whether the letting of the property was in th e nature of trade, commerce or business. The Committee would, therefore, recommend that the definition of house property should be re-drafted so that the distinction between commercial and non-commercial property is clearly brought out. 6.2 Clause 26 Scope of gross rent Clause 26 as per the Bill reads as under : The gross rent in respect of a house property or any part of the property shall be the amount of rent received or receivable, directly or indirectly, for the financial year or part thereof, for which such property is let out. As per the notes on clauses as indicated in the Bill, the said clause also provides that : Where such property was vacant during any part of the financial year, the gross rent shall be the amount of rent received or receivable for such part of the financial year for which the house was not vacant.

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6.2.1 Existing provision in the Income Tax Act, 1961 Under Section 23- (1) For the purposes of section 22, the annual value of any property shall be deemed to be (a) the sum for which the property might reasonably be expected to let from year to year; or (b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or (c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable. 6.2.2 Suggestions: The written suggestion as received from an expert is given as under : Amount received or receivable would mean cash. What happens if the use of property is permitted in exchange for some benefit. In that case, it is neither letting nor receiving the amount. Income in respect of property would not then be taxable. The words directly or directly would not cover such arrangement. Property is enjoyed without incurring of any liability to pay tax. People would be induced to seek such or like arrangements. This would not have been possible under the IT Act. In response to the above said suggestion, the Ministry of Finance (Department of Revenue) in their written replies stated that the suggestion will be considered. The Committee recommend that Clause 26 is recast to cover rental arrangements which may be on considerations other than cash, as agreed to by the Ministry. 6.3 Clause 27 Deductions from gross rent Clause 27 deals with the deductions from gross rent for computation of income from house property. Clause 27 reads as under : 27. (1) The deductions for the purposes of computation of income from house property shall be the following, namely:

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(a) the amount of taxes levied by a local authority in respect of such property, to the extent the amount is actually paid by him during the financial year; (b) a sum equal to twenty per cent. of the gross rent determined under section 26, towards repair and maintenance of such property; (c) the amount of any interest, (i) on loan taken for the purposes of acquisition, construction, repair or renovation of the property; or (ii) on loan taken for the purpose of repayment of the loan referred to in sub-clause (i); (2) The interest referred to in clause (c) of sub-section (1) which pertains to the period prior to the financial year in which the house property has been acquired or constructed shall be allowed as deduction in five equal instalments beginning from such financial year. (3) The interest deductible under sub-section (2) shall be reduced by any part thereof which has been allowed as deduction under any other provision of this Code. 6.3.1 Existing provision in the Income Tax Act, 1961 Under Section 24- Income chargeable under the head "Income from house property" shall, subject to the provisions of sub-section (2), be computed after making the following deductions, namely :(i) In respect of repairs of, and collection of rent from, the property, a sum equal to one-fourth of the annual value; (ii) The amount of any premium paid to insure the property against risk of damage or destruction; (iii) Where the property is subject to an annual charge, (not being a charge created by the assessee voluntarily or a capital charge), the amount of such charge; (iv) Where the property is subject to a ground rent, the amount of such ground rent; (v) Where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital;

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Explanation: Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as a deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years; (vi) Any sums paid on account of land revenue or any other tax levied by the State Government in respect of the property; (vii) Where the property is let and was vacant during a part of the year, that part of the annual value which is proportionate to the period during which the property is wholly unoccupied or, where the property is let out in parts, that portion of the annual value appropriate to any vacant part, which is proportionate to the period during which such part is wholly unoccupied. Explanation : The deduction under this clause shall be made irrespective of whether the period during which the property or, as the case may be, part of the property was vacant precedes or follows the period during which it is let; (viii) Subject to such rules 421 as may be made in this behalf, the amount in respect of rent from property let to a tenant which the assessee cannot realise. (2) No deduction shall be allowed under sub-section (1) In respect of property of the nature referred to in sub-clause (i) of clause (a) of sub-section (2), or sub-section (3) of section 23 : Provided that nothing in this sub-section shall apply to the allowance of a deduction under clause (vi) of sub-section (1) of an amount not exceeding thirty thousand rupees in respect of the property of the nature referred to in sub-clause (i) of clause (a) of sub-section (2) of section 23 or sub-section (3) of section 23. Provided further that where the property is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed before the 1st day of April, 2001, the provisions of the first proviso shall have effect as if for the words "thirty thousand rupees", the words "seventy-five thousand rupees" had been substituted.

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(3) The total amount deductible under sub-section (1) in respect of property of the nature referred to in sub-clause (ii) of clause (a) of sub-section (2) of section 23 shall not exceed the annual value of the property as determined under that section. 6.3.2 Suggestions: Institute of Chartered Accountants of India in their written memorandum submitted to the Committee suggested as follows : The words taxes levied by local government be replaced by taxes levied by local authority or GOVERNMENT in section 27(1)(a). Further, it is suggested that deduction in respect of unrealized rent should be provided in section 27 on the lines of provisions of present Income-tax Act, 1961. 6.3.3 Comments: The comments as received from the Ministry of Finance (Department of Revenue) on this suggestion are as follows : Clause 27(1)(a) already provides for deduction of taxes levied by local authorities as municipal taxes are levied by the local authority only in the three tier system of the Government. Further the term local authority as defined in clause 314(151) of DTC includes all constitutional local governments like municipality, Panchayat etc. The suggestion regarding provision of unrealized rent will be considered. Some other suggestions as received through written memorandum from some other

institutions/organizations are as follows : (i) The limit may be retained to 30% according to the increased cost of construction/renewal/repair. (ICWAI, ICSI and Bombay Chartered Accountants Society) (ii) The words repairs and maintenance may be either omitted or replaced by the word standard deduction. The deduction should be allowed at 30% as present ITA, as ev en at present 30% is found inadequate in large number of cases. Service tax may be allowed as a deduction from gross rent. Adequate provisions should be made for depreciation in respect of such assets which are let out with house property. (Bombay Chartered Accountants Society).

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While replying to the above said suggestions, the Ministry in their written comments stated as under, Since this deduction is in the form of a standard deduction for repairs and maintenance etc, 20% is a reasonable percentage. Further, the municipal taxes and interest payable on borrowed capital is also allowable as deduction. Therefore, as in the IT Act, the Code also proposes to provide for all necessary deductions against house property income and accordingly, no further deductions are warranted. 6.4 Clause 29 Provision for arrears of rent received Clause 29 provides that income in respect of the rent received in arrears in a financial year shall be computed under the head "Income from house property", whether or not the person continues to be owner of the property in that year. The said clause also provides that the amount of rent referred to above shall be included in the gross rent under clause 26 for that financial year. Clause 29 reads as under : 29. (1) The amount of rent received in arrears shall be deemed to be the income from house property of the financial year in which such rent is received. (2) The arrears of rent referred to in sub-section (1) shall be included in the total income of the person under the head income from house property, whether the person is the owner of the property in that year or not. (3) A sum equal to twenty per cent of the arrears of rent referred to in sub-section (1) shall be allowed as deduction towards repair and maintenance of the property. 6.4.1 Existing provision in the Income Tax Act, 1961: Under Section 25B- Where the assessee(a) is the owner of any property consisting of any buildings or lands appurtenant thereto which has been let to a 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 thirty per cent of such amount], shall be deemed to be the income chargeable under the head Income from house property and accordingly 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.

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6.4.2 Suggestions: ICWAI in their written memorandum on the above said clause suggested that a sum equal to thirty percent of the arrears of rent referred to in sub-section (1) shall be allowed as deduction towards repair and maintenance of the property. The Ministry in their written replies to the above said suggestion stated that the deduction is like a standard deduction for repair and maintenance etc and for this purpose a rate of 20% is quite reasonable. As is seen from submissions made to the Committee and the admission of the Ministry, the formulation under Clause 27, which stipulates the items on account of which deduction can be claimed in computing income from house property does not cover unrealized rent, which is the case under the prevailing Income Tax Act. The Committee expect that this infirmity is addressed, as agreed to. The Committee also express the view that the quantum of deduction permissible towards repair and maintenance of house property both of the rent received as well as arrears of rent covered under Clause 29 is raised to a more reasonable percentage. The Committee expect appropriate action to be taken to this end while recasting the formulations. 6.5 Clause 314 (116) of the DTC Bill, 2010: Clause 314 (116) of the DTC Bill, 2010 also describes house property which reads as under house property means (a) any building or land appurtenant thereto; along with facilities and services whether inbuilt or provided separately; or (b) any building along with any machinery, plant, furniture or any other facility or services whether inbuilt or provided separately; 6.5.1 Suggestions: Suggestions on this clause received from different organisations are given as under : (i) Section 314(116) may be reworded as follows:(a) any building or land appurtenant thereto along with OR WITHOUT facilities and services whether in-built or provided separately; or

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(b) any building along with OR WITHOUT any machinery, plant, furniture or any other facility or services whether inbuilt or provided separately. (ICAI) (ii) It should be clarified that the letting of a factory along with all its business assets which are inseparable should be taxed as business income. (CII) The Ministry while accepting the above said suggestions have stated in their written comments that the suggestions will be considered for appropriate modifications in the definition. As is the case with the other provisions pertaining to taxation of house property, the Committee note that the definition or description of house property under clause 314 (116) too has been worded rather loosely and ambiguously. As assured, the Committee expect that the formulation is revised so that the definition is clear-cut, unambiguous and without leaving scope for varied interpretation.

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CHAPTER- VII SOME SPECIAL PROVISIONS

7.1 Taxability of Unrealized Rent recovered later (Section 25A): Where any rent cannot be realized, and subsequently if such amount is realized, such an amount will be deemed to be the income from house property of that year in which it is received. We have seen earlier that the basic requirement for assessment of this income is the ownership of the property. However, in the cases where unrealized rent is subsequently realized, it is not necessary that the assessee continues to be the owner of the property in the year of receipt also.37 7.2 Assessment of arrears of rent received (Section 25B) When the owner of a property receives arrears of rent from such a property, the same shall 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.38 7.3 House property owned by co-owners (section 26) If a house property is owned by two or more persons, then such persons are known as co-owners. Co-owners are not taxable as an association of persons. When the share of each co-owner is definite and ascertainable, it has been provided that each of the owners will be assessed individually in respect of share of income from the property. In other words, income from the property will be determined and allocated to each co-owner according to his share. When each of the co-owners of a property uses it for his residence, each of them will also get the concessional treatment in respect of one self-occupied property.39

37 38

Dr. Badal Mukherjee, CONCISE INCOME TAX, 2nd ed.1997, p.334. Supra n 34 at p.243. 39 Supra n 37 at p.335.

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7.4 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.40

40

A.C. Sampath Ayengar, LAW OF INCOME TAX, vol. 2, 11th ed. 2011, p.2786.

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CHAPTER-VIII CONCLUSION
Under section 22 of the Income Tax Act, the annual value of house property, consisting of buildings and lands appurtenant thereto, is taxable under the head Income from house property, in the hands of the owner (or deemed owner) of the property, provided that the property is not used by the assessee for the purpose of his own business or profession. For determining the annual value of the house property, the actual rent received or receivable from the property, the municipal valuation, the fair rental value and the standard rent under the Rent Control Act are taken into account. From the Gross Annual Value of the property, the Municipal Taxes are deducted to arrive at the Net Annual Value. Section 24 of the Income Tax Act provides that 30% of the NAV and the interest on borrowed capital shall be deducted from the NAV to obtain the taxable income from house property. As per Section 23(2) of the Income Tax Act, the annual value of one self-occupied house property is taken to be nil. No deductions are permissible from the annual value of such property, except the interest on borrowed capital, subject to the maximum limit of Rs.1, 50,000 or Rs.30, 000 as the case may be. Property income is assessable on notional basis, but where actual rental receipt is more than such notional income, actual rent will be adopted from assessment year 1987-88. One house property in self occupation or a property which the owner is unable to occupy because of his business, employment or occupation being located elsewhere will be assessed at nil value. Where the property is used for business, the income therefrom will not be assessable. Where the property is sold, it is liable for capital gains tax. Where the income is composite one, the prospect of assessment of the entire income as property income or as from business or other sources or such income being split up as between property income and other income, whether as business or other sources, will depend upon the nature of the agreement and the character of the receipt in the hands of the assessee. The computation of property income is subject to change from time to time. So, the law as per now with respect to House property income for tax is sufficiently alright but same needs a change with a change in time and conditions.

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8.1 DIRECT TAX REFORMS UNDER THE BUDGET: Under the Union Budget 201241 relief is given from long-term capital gains tax on transfer of residential property (house property or land)if invested in a manufacturing small or medium enterprise. In the case of transfer of a capital asset where the consideration is not ascertainable or cannot be determined Fair Market Value has to be considered as full market value (Section 50D). Capital gain arising on sale of house property is exempt if invested in shares of a company incorporated during the previous year and the company invests in new plant and is engaged in the business of manufacturing. Suggestions are: (a) It is proposed to insert a new section 54GB so as to provide rollover relief from long term capital gains tax to an individual or an HUF on sale of a residential property (house or plot of land) in case of re-investment of sale consideration in the equity of a new start-up SME company in the manufacturing sector which is utilized by the company for the purchase of new plant and machinery.

(b) This relief would be subject to the conditions that inter-alia include:

(i)

The amount of net consideration is used by the individual or HUF before the due date of furnishing of return of income under sub-section (1) of section 139, for subscription in equity shares in the SME company in which he holds more than 50% share capital or more than 50% voting rights.

(ii)

The amount of subscription as share capital is to be utilized by the SME company for the purchase of new plant and machinery within a period of one year from the date of subscription in the equity shares.

(c) Suitable safeguards so as to restrict the transfer of the shares of the company, and of the plant and machinery for a period of 5 years are proposed to be provided to prevent diversion of these funds. Further, capital gains would be subject to taxation in case any of the conditions are violated.

41

THE UNION BUDGET 2012-2013.

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8.2 DIRECT TAX CODE: As per budget presented on 16th March, 2012, Implementation of Direct tax code has again been deferred and wont be applicable from 1st April, 2012. The Finance Minister (FM), Mr. Pranab Mukherjee tabled the Union Budget 2012 in the Parliament on March 16, 2012. While the implementation of the Direct Taxes Code (DTC) has been deferred, the Finance Minister committed that the Government will take steps for enactment of the DTC at the earliest. While leaving the direct tax rates largely unchanged, the FM has proposed changes to align the current tax code with the DTC. Key highlights are introduction of General Anti Avoidance Rules (GAAR), taxation of offshore transfers and introduction of advance pricing agreements. With respect to House property the following has been proposed by the new DTC42House Property: 1. No deduction for Housing loan repayment of Self-Occupying property. This includes interest as well as part of principal. 2. Only Let out properties are considered and the Gross rent and specified deductions are taken with simple calculations. 8.3 INCOME TAX RULES: With respect to Income Tax rules for House Property Income it only talks about the concept of unrealised rent, under Rule 4 of the Income tax Rules which deals with explanation to Section 23, sub-section (1) 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.
42

The Direct Tax Code Bill, 2012.

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These are the major changes and as per the existing law and the suggested law, the overall aspect of computation of tax for income from house property under the Income Tax Act, 1961 is well settled. There is a need for changes in the law with respect to the prevailing conditions and changing scenario. Direct tax reforms are the best possible way for bringing in the changes and amendments as the concept of house property income is different and there is a need for proper look out as property is something, that its value and limitations are extending with time, that is why we require a changing and encompassing law.