Tax

S.S. Jain Subodh Law College

“INCOME FROM HOUSE PROPERTY”

Project Submission as per fulfillment fulfillment of Taxation Law

Submission To:

Submitted By:

MS. SALONI MATHUR  FACULTY OF TAXATION LAW

ANUPAM BHARGAVA Roll no: - 03 VII Semester S.S. Jain Subodh Law College

TABLE OF CONTENTS

1. Certificate…………………… Certificate……………………..………………………………………………… …………………………………………………3 3 2. Acknowledgement…………… Acknowledgement……………..………………………………………………… …………………………………………………4 4 3. Research Methodology………. Methodology……… .………………………………………………… …………………………………………………5 5 4. Case List……………………. List…………………….…………………………………………………...6 5. Abstract ……………………. …………………….………………….....……………... ………………….....……………..........................7 .......................7 6. Heads of Income…………..……………………………………………………..8 Income…………..……………………………………………………..8 7. Meaning and Condition Necessary…………………………………………….10 8. Computation of Income………………………………………………………….12 9. Determination of Annual Value of House Property……………………………13 Property…………………………… 13 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 25- A)…………………………………………….15 12. Unrealised Rent Received Subsequently to be Charged to Income Tax (Section 25AA)………………………………………………………………………………….16 13. Special Provisions for Arrears of Rent Received(Section 25- B)………………...17 14. Property Owned by Co-owners……………………………………………………18 Co- owners……………………………………………………18 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 m y 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 10TH DECEMBER 15

(Student sign) 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

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Websites

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Case Laws

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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 5

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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)

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K.S. Venkataraman & Co. Ltd v. State of Madras (1966) 60 I.T.R. 112 (SC).

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C.I.T. v. Bossoto Bros. Ltd., (1940) 8 I.T.R. 41 (Mad.).

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Mrs. Roma Bose v. I.T.O. (1974) 95 I.T.R. 299 (Cal.)

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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 propert y by his/her owner. Property hereby refers to any building (house, o ffice 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 pu rview 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 provid ed 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 assesse’s 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 u nder 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).  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) 2

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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 head s, 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

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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.). 6  Mrs. Roma Bose v. I.T.O. (1974) 95 I.T.R. 299 (Cal.) 5

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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 a re 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 recog nized 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. S imilarly 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.

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 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

xxx

Gross Annual Value (-) 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 s ection 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 b y 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 prope rty 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 propert y 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 an y 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, selfoccupied 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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