Income from House Property

The process of computation of income under the head “Income from house property” starts with the determination of annual value of the property. The concept of annual value and the method of determination is laid down in section.

The annual value of any property comprising of buildings or lands appurtenant thereto of which the assessee is the owner is chargeable to tax under the head “Income from house property”.

Exceptions - Annual value of the following properties are chargeable under the head “Profits and gains of business or profession”. Portions of property occupied by the assessee for the purpose of any business or profession carried on by Properties of an assessee engaged in the business of letting out of.

CONDITIONS FOR CHARGEABILITY

(1) Property should consist of any building or land appurtenant there to.

• Buildings include not only residential buildings, but also factory buildings, offices, shops, godowns and other commercial.
• Land appurtenant means land connected with the building like garden, garage etc.

Note: It may be noted that Income from letting out of vacant land is, however, taxable under the head “Income from other sources” or “Profits and gains from business or profession”, as the case may be. 

(2) Assessee must be the owner of the property 

Owner is the person who is entitled to receive income from the property in his own

• The requirement of registration of the sale deed is not
• Ownership includes both free-hold and lease-hold
• Ownership includes deemed ownership (discussed later in para 11)
• The person who owns the building need not also be the owner of the land upon which it.
• The assessee must be the owner of the house property during the previous year. It is not material whether he is the owner in the assessment year.
• If the title of the ownership of the property is under dispute in a court of law, the decision as to who will be the owner chargeable to income-tax under section 22 will be of the Income-tax Department till the court gives its decision to the suit filed in respect of such property.

(3) Use of property 

The property may be used for any purpose, but it should not be used by the owner for the purpose of any business or profession carried on by him, the profit of which is chargeable to tax.

Note: The income earned by an assessee engaged in the business of letting out of properties on rent would be taxable as business income and not as income from house property [Rayala Corporation (P) Ltd. v. Asstt. CIT (SC) (2016) 386 ITR 500].

(4) Property held as stock-in-trade etc. 

Annual value of house property will be charged under the head “Income from house property”, where it is held by the assessee as stock-in-trade of a business also. However, the annual value of property being held as stock in trade would be treated as nil for a period of 2 years from the end of the financial year in which certificate of completion of construction of the property is obtained from the competent authority, if such property is not let-out during such period [Section 23(5)].

COMPOSITE RENT

(1) Meaning of composite rent 

The owner of a property may sometimes receive rent in respect of building as well as 

• other assets like say, furniture, plant and
• for different services provided in the building, for e.g
• Lifts
• Security
• Power backup

The amount so received is known as “composite rent”.

(2) Tax treatment of composite rent

Where composite rent includes rent of building and charges for different services (lifts, security etc.), the composite rent has to be split up in the following manner -

• The sum attributable to use of property is to be assessed under section 22 as income from house property.
• The sum attributable to use of services is to be charged to tax under the head “Profits and gains of business or profession” or under the head “Income from other sources”, as the case may.

(3) Manner of splitting up If let out building and other assets are inseparable

Where composite rent is received from letting out of building and other assets (like furniture) and the two lettings are not separable i.e. the other party does not accept letting out of building without other assets, then the rent is taxable either as business income or income from other sources, the case may be.

This is applicable even if sum receivable for the two lettings is fixed separately.

(4) If let out building and other assets are separable

Where composite rent is received from letting out of building and other assets and the two lettings are separable i.e. letting out of one is acceptable to the other party without letting out of the other, then

• Income from letting out of building is taxable under “Income from house property.
• Income from letting out of other assets is taxable under “Profits and gains of business or profession” or Income from other sources”, as the case may.

This is applicable even if a composite rent is received by the assessee from his tenant for the two lettings.

INCOME FROM HOUSE PROPERTY SITUATED OUTSIDE INDIA

• In case of a resident in India (resident and ordinarily resident in case of individuals and HUF), income from property situated outside India is taxable, whether such income is brought into India or
• In case of a non-resident or resident but not ordinarily resident in India, income from a property situated outside India is taxable only if it is received in.