S.S.

Jain Subodh Law College

INCOME FROM HOUSE PROPERTY

Project Submission as per fulfillment of Taxation Law

Submission To: Submitted By:

MS. SALONI MATHUR ANUPAM BHARGAVA

FACULTY OF TAXATION LAW Roll no: - 03
VII Semester

S.S. Jain Subodh Law College

 TABLE OF CONTENTS

1. Certificate.3
2. Acknowledgement.4
3. Research Methodology.5
4. Case List....6
5. Abstract ................................7
6. Heads of Income....8
7. Meaning and Condition Necessary.10
8. Computation of Income.12
9. Determination of Annual Value of House Property13
10. Amount not Deductible from Income from House Property..14
11. Special Provisions for Cases Where Unrealised Rent Allowed As Deduction is
Realised Subsequently(Section 25-A).15
12. Unrealised Rent Received Subsequently to be Charged to Income Tax (Section 25-
AA).16
13. Special Provisions for Arrears of Rent Received(Section 25-B)...17
14. Property Owned by Co-owners18
15. Conclusion
16. Bibliography

CERTIFICATE
2
This is to certify that ANUPAM BHARGAVA of VII Sem of (B.A.LL.B) has prepared and
submitted the project report enclosed with under my direct and close supervision that this is a
bonafide piece of work done by him. It has not been submitted to any other university or it has it
been published at any time earlier.

MS. SALONI MATHUR

Signature

ACKNOWLEDGEMENT
3
I take this opportunity to express our humble gratitude and personal regards to MS. SALONI
MATHUR for inspiring me and guiding me during the course of this project work and also for
her cooperation and guidance from time to time during the course of this project work on the
topic.

JAIPUR (Student sign)

10TH DECEMBER 15 ANUPAM BHARGAVA

RESEARCH METHODOLOGY
4
Aims and Objectives:
The aim of the project is to present a detailed study of the topic INCOME FROM
HOUSE PROPERTY forming a concrete informative capsule of the same with an insight into
its relevance in Administrative Law.

Research Plan
The researchers have followed Doctrinal method.

Scope and Limitations:

In this project the researcher has tried to include different aspects pertaining to the
concept of Importance of Income from House Property special attention is also provided on
Taxation Law, basis of object of Income from House Property, impact of judicial
pronouncements on Income from House Property and lastly conclusion.
.
Sources of Data:
The following secondary sources of data have been used in the project-
Case Study
Websites
Case Laws
Books

Method of Writing and Mode of Citation:

The method of writing followed in the course of this research project is primarily
analytical. The researcher has followed Uniform method of citation throughout the course of this
research project.

CASE LIST

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 Bihar State Co-operative Bank Ltd v. C.I.T. (1960) 39 I.T.R 114(SC).
Smt. Sneh Lata v. C.I.T. (1966) 61 I.T.R. 139 (All)
Shri Sobhag Mal Lodha v. C.I.T. (1967) 63 I.T.R. 424 (All)
K.S. Venkataraman & Co. Ltd v. State of Madras (1966) 60 I.T.R. 112 (SC).
C.I.T. v. Bossoto Bros. Ltd., (1940) 8 I.T.R. 41 (Mad.).
Mrs. Roma Bose v. I.T.O. (1974) 95 I.T.R. 299 (Cal.)

ABSTRACT

6
House property consists of any building or land appurtenant thereto of which the assesse is the
owner. The appurtenant lands may be in the form of a courtyard or compound forming part of the
building. But such land is to be distinguished from an open plot of land, which is not charged
under this head but under the head Income from Other sources or Business Income, as the
case may be. Besides, house property includes flats, shops, office space, factory sheds,
agricultural land and farm houses. Further, house property includes all type of house properties,
i.e., residential houses, godowns, cinema building, workshop building, hotel building, etc.

Income from house property is one among the taxable heads of income as per
the Income Tax act. It constitutes the income earned from a property by his/her owner.
Property hereby refers to any building (house, office building, godown, factory, hall, shop,
auditorium, etc.) and/or any land attached to the building (e.g. Compound, garage, garden, car
parking space, playground, gymkhana, etc.).
This is the only head of income, which taxes notional income (except under some circumstances
under capital gains, income from other sources). The taxability may not necessarily be of actual
rent or income received but the potential income, which the property is capable of yielding.
While self-occupied and rental property are within the purview under this head, income from
vacant house is dealt with under the head income from other sources.

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CHAPTER 1 : - HEADS OF INCOME

Section 14 provides that save as otherwise provided by this Act i.e. THE INCOME TAX ACT
1961, all income shall for the purpose of charge of income tax and computation of total income,
can be classified under the following heads of income.

A. Salaries
B. Income from House Property
C. Profits and Gains of Business and Profession
D. Capital Gains
E. Income from Other Sources

In order to be chargeable to income-tax an income must be brought under anyone of the heads
stated above. The words save as otherwise provided under this Act refer only to the
exemptions granted under this.

In short the following points must be remembered in this context:-

1. The Income-tax is only levied on the assesses total income classified and chargeable
under the various heads of income.
2. Charge under specific head of income is obligatory. In other words, income which is
chargeable under a specific head cannot be charged under a different head in lieu of or in
addition to being charged under its specific head. Income cannot be assessed under wrong
head merely because the assesse has returned it under wrong head.1
3. Heads of Income and sources of income both the expression do not have the same
meaning. Source indicates the specific source from which a particular income sprang or
arose and thus it does not indicate the head of income.2 There may be more than one
source of income for same head of income.3
4. Section 4 levies the charge on the total income of the assessee. Section 5 defines the
range of the total income. Section 14 classifies the total income and sections 15 to 59

1
Bihar State Co-operative Bank Ltd v. C.I.T. (1960) 39 I.T.R 114(SC).
2
Smt. Sneh Lata v. C.I.T. (1966) 61 I.T.R. 139 (All)
3
Shri Sobhag Mal Lodha v. C.I.T. (1967) 63 I.T.R. 424 (All)

8
 quantify it. Section 143 authorizes the Income -Tax Officer to assess total income in the
manner prescribe the thereunder.4
5. If a particular item of income falls under two heads, the assessee has right to choose the
head which subjects him to lesser tax.5 However, if there is no doubt about the head
under which a particular income falls the income will have to be taxed under that head
and there is no option either for the assesse or the Department to vary the head in regard
to such income.
6. An income which does not fall under any of the heads mentioned in Clauses A to D of
Section 14, it will be charged under the residuary head, Income from other sources.6

4
K.S. Venkataraman & Co. Ltd v. State of Madras (1966) 60 I.T.R. 112 (SC).
5
C.I.T. v. Bossoto Bros. Ltd., (1940) 8 I.T.R. 41 (Mad.).
6
Mrs. Roma Bose v. I.T.O. (1974) 95 I.T.R. 299 (Cal.)

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CHAPTER 2 :- MEANING AND CONDITIONS NECESSARY

House property consists of any building or land appurtenant thereto of which the assesse is the
owner. The appurtenant lands may be in the form of a courtyard or compound forming part of the
building. But such land is to be distinguished from an open plot of land, which is not charged
under this head but under the head Income from Other sources or Business Income, as the
case may be. Besides, house property includes flats, shops, office space, factory sheds,
agricultural land and farm houses. Further, house property includes all type of house properties,
i.e., residential houses, godowns, cinema building, workshop building, hotel building, etc.

Section 22 to 27 deals with the income from house property. The provisions of section 22
indicate that income will be chargeable to income tax under the head Income from house
property if the following conditions exist: -

1. There should be House property- Under Section 22 house property means building and
lands appurtenant thereto. The property other than buildings have been excluded from the
operations of the section. The lands which are not appurtenant to any building are not
included within the meaning of the term house property. Thus the income derived from
vacant plot of land on which no building has been erected is not chargeable under the
head of income from house property but can be charged under the head of income from
other sources. Here the term building means a structure possessing some annual
value. Thus temporary camps or tents cannot be included within the meaning of the term
building. Similarly, income from zamindari is also not assessable under this head but
may be taxed under the head of Income from other Sources. However the term
building or land appurtenant thereto includes market costing of shops, building,
godowns and open space and therefore income derived by the owner from letting out of
the shops, building, godowns, may be assessed under the head of Income from house
property. Thus where a company is incorporated with the object to develop market
consisting of shops and stalls etc. the income derived by the company by letting out the
market shops and stalls may be taxed under this head. It is to be noted that where a
building is erected and let out on lease for the purpose of running hotel the letting of the

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 building cannot be taken as carrying on business and the income is the income from the
house property and not income from business.7 But where the assesse is carrying on the
business of running hotel and subsequently he lets out fully equipped hotel to someone,
income derived by him from such letting out will be taxed as income from business.
2. The assesse must be owner of the House property: - Owner of the house property is
liable to pay tax in respect of income from house property. Here owner means a person
who exercise the right of owner not on behalf of the owner but his own right. Unlike
English law the Indian law recognizes only type of ownership which is legal ownership.
The beneficial or equitable ownership is not recognized by the Indian law. Where a house
property legally vests in the trustees, trustees should be liable to pay income tax in
respect of income derived from house property. Similarly where a person is declared
insolvent, his property vests in the Official Assignee and for the purpose of income tax
assessment in respect of income derived from house property, the Official Assignee is
treated as owner of the house property. But a Receiver appointment by the court for the
purpose of managing the house property cannot be treated as owner of the house
property and he cannot be held liable to pay income tax in respect of the income derived
from the house property.
3. The house property must not be occupied by the assessee for the purpose of any
business or profession carried on by him the profits of which are chargeable to
income tax: - Section 22 does not apply to a case where: (a) the owner occupies house
property for the purpose of any business or profession carried on by him and (b) the
profits of such business or profession are chargeable to income tax. In the other words,
where the house property is occupied by the owner for the purpose of his business or
profession the profits of which are chargeable to income-tax , no tax can be chargeable to
income tax no tax be charged in respect of annual value of such property under this head.
Its reason is that in such a condition the house property becomes one of the assets of
business and since income from the business is taxed in the hands of owner it is
considered unfair to the deal with the house property separately and set national income
therefore.

7
See Sultan Bros v. C.I.T.(1964) 51 I.T.R. 353 (SC).

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 CHAPTER 3 : - COMPUTATION OF HOUSE PROPERTY INCOME

PARTICULARS AMOUNT

1) Municipal value xxx

2) Fair value
xxx

(A) Whichever is higher in 1 and 2 xxx

3) Standard value (value by Rent control Act)
xxx

(B) Whichever is lower in A and 3 xxx

4) Rent Receivable
xxx
(-) Self Occupied Rent xxx

(-) Unrealized Rent xxx

xxx
Whichever is higher in B and 4
xxx
(- ) Vacant Period

Gross Annual Value xxx

(-) Municipal Tax

xxx

Net annual value

xxx
Less Statutory Deduction 30% of NAV (Section 24(a)) xxx

Less Interest On Housing loan xxx

Taxable income of House property

xxx

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CHAPTER 4 : - DETERMINATION OF ANNUAL VALUE OF HOUSE
PROPERTY

Where we first have the municipal value which is given by (1)Municipal council and (2)Fair
value of house which decided by owner himself. We compare both whichever is higher between
the two the (A) value shall carry forward and then we get Standard Value of the property which
is[ value by Rent Control Act](3). Then we compare whichever is lower between (3) and (A)
point will carry forward (B). After that we see how much rent has been received by the asessee
(4). Whichever is higher between (B) and (4) we less the vacant property. Lessing the vacant
property we gent Gross Annual Value by subtracting Municipal tax from Gross Annual Value we
get the Net Annual Income of House property. Less the deduction under Section 24(a) i.e.
Statutory Deduction (30% of NAV) and Interest on Housing Loan Section 24(b) we get the
taxable value of House Property.

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CHAPTER 5 : - AMOUNT NOT DEDUCTABLE FROM INCOME FROM
HOUSE PROPERTY

There are certain incomes which are exempted from income from House property: -

(1) Income from Farm House.Income from one place of ex-ruler.

(2) Income from house property held by scientific research association.
(3) Income from House property held by charitable trust.
(4) Income From House Property held by local authorities
(5) Self-occupied property.
(6) House property held by trade union.
(7) House property used for business and profession.
(8) Income from house property held by universities and recognized educational institution.
House property held by political party.

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CHAPTER 6 : - SPECIAL PROVISIONS FOR CASES WHERE
UNRELISED RENT ALLOWED AS DEDUCTION IS REALISED
SUBSEQUENTLY (SECTION 25-A)

Where a deduction has been made under clause (X) of sub-section (1) of section 24 as it stood
immediately before its substitution by the Finance Act, 2001 in the assessment for any year in
respect of rent from property let to a tenant which the assesse cannot realize and subsequently
during any previous year the assessee has realized any amount in respect of such rent the amount
so realized shall be deemed to be income chargeable under the head of Income from House
Property and accordingly charged to income tax without making any deduction under section 23
or section 24 as it stood immediately before its substitution by Finance Act 2001 as the income
of that previous year whether the assesse is owner of property in that year or not.

The provision to find out the Unrealized Rent is:-

1. Bad debts related before Previous Year 2001-02

Taxable Amount=Bad debts Recovered- (Total Bad Debts Bad Debts Allowed by
I.T.O.).
2. Bad Debts related to Previous Year 2001-02 or after
Taxable Amount= Bad Debts Recovered- (Fair Rent- Rent in Previous Year).

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CHAPTER 7 : - UNREALISED RENT RECEVIED SUBSEQUENTLY TO
BE CHARGED TO INCOME TAX (SECTION 25-AA)

Where the asessee cannot realized rent from property let to a the tenant and subsequently the
assesse has realized any amount in respect of such rent, the amount so realized shall be deemed
to be income chargeable under the head of Income From House Property and accordingly
charged to income tax as the income of that previous year in which such rent realized whether or
not the assessee is the owner of that property in previous year.

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CHAPTER 8 : - SPECIAL PROVISION FOR ARREARS OF RENT
RECEIVED (SECTION 25-B)

25- B. where the assesse: -

A) Is the owner of any property consisting of any buildings or land appurtenant thereto
which has been let to 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 per cent of such amount for repairs of and
collection of rent from the property, shall be deemed to be the income chargeable under the head of
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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CHAPTER 9 : - PROPERTY OWNED BY CO-OWNERS (SECTION 26)

Where property consisting of buildings 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 section 22 to 25 shall be
included in his total income.

For the purpose of this section, in applying the provision of sub-section 2 of section 23 for
computing the share of each such person as is referred to in this section, such share shall be
computed as if such person is individually entitled to the relief provided in that sub section.

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CHAPTER 10 : - CONCLUSION

In last we can conclude that the head Income from house property is important concept of
taxation law. The head states that the assesse should be the owner of the house and there should
be a house property and the property should not be used in business and profession. There are
some properties also which are exempted from this head they are house of ex ruler, self-
occupied house, house used in business and profession etc. The taxable amount of House
property is calculated by Net Annual Value and Deducting the deduction i.e. Statutory and
interest on loan on house property. We can say the assesee have to show his income received
from house property to pay tax to Government.

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 BIBLIOGRAPHY

BOOKS:

KAILASH RAI

WEBSITES:

www.incometaxindia.gov.in

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