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Income From House Property-6

Income From House Property-6

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Published by s4sahith

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Published by: s4sahith on Dec 17, 2009
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Applied Direct Taxation
Income From House Property
This Study Note includesVarious Provisions of the Income Tax Act for computation of income under thehead “Income From House Property”
Under this head, income derived from House Property by its Owner is determined. Law prescribesdetermination of income, being the Annual Value (S. 23) and certain deductions (S. 24) there from.Concept of ownership and restriction on deductions are prescribed.
The annual value of property consisting of any buildings or lands appurtenant thereto of whichthe assessee is the owner is chargeable to income-tax under the head ‘Income from houseproperty’. The exception to this rule is such portions of such property as the owner occupies forthe purposes of any business or profession carried on by him the profits of which are chargeableto income-tax.The word ‘building’ is not confined in its scope only to dwelling houses.
Chennai Properties& Investments Ltd.
136 Taxman 202/266 ITR 685 (Mad.)Therefore, if the following three conditions are satisfied, income is taxable under the head“Income from house property”:(a)the property should consist of any buildings or lands appurtenant thereto ;(b)the assessee should be the owner of the property ; and(c)the property should not be used by the owner for the purpose of any business orprofession carried on by him, the profits of which are chargeable to income-tax.If any one condition is not satisfied, the property income cannot be charged to tax under thehead “Income from house property”.
[Section 27]
In the following circumstances, not legal owners of a property, but some other person is deemedto be the owner for the purposes of including “Income from house property” in his taxableincome:
Applied Direct Taxation
(i) Transfer to a spouse [Section 27(i)] –
When transfer of house property by an individual tohis or her spouse otherwise than for adequate consideration, the transferor is deemed to be theowner of the transferred property.
Exception –
In case of transfer to spouse in connection with an agreement to live apart, thetransferor will not be deemed to be the owner. The transferee is owner of the house propertyand is also liable to tax on income from the property.
(ii) Transfer to a minor child [Section 27(i)] –
In case of transfer of house property by anindividual to his or her minor child otherwise than for adequate consideration, the transferorwould be deemed to be owner of the house property transferred.
Exception –
In case of transfer to a minor married daughter, the transferor is not deemed to bethe owner. 
Note -
Where cash is transferred to spouse/minor child and the transferee acquires propertyout of such cash, then the transferor shall not be treated as deemed owner of the house property.However, clubbing provisions will be attracted in case of a minor child not being minor marrieddaughter.
(iii) Holder of an impartible estate [Section 27(ii)] –
The impartible estate is a property whichis not legally divisible. The holder of an impartible estate shall be deemed to be the individualowner of all properties comprised in the estate.After enactment of the Hindu Succession Act, 1956 all the properties comprised in an impartiblestate by custom is to be assessed in the status of a HUF. However, section 27(ii) will continue to be applicable in relation to impartible estates by grant or covenant.
(iv) Member of a co-operative society etc. [Section 27(iii)] –
A member of a co-operative society,company or other association of persons to whom a building or part thereof is allotted or leasedunder a House Building Scheme of a society/company/association, shall be deemed to beowner of that building or part thereof allotted to him although the co-operative society/company/ association is the legal owner of that building.
(v) Person in possession of a property [Section 27(iiia)] –
A person who is allowed to take orretain the possession of any building or part thereof in part performance of a contract of thenature referred to in section 53A of the Transfer of Property Act shall be the deemed owner of that house property. This would include cases where the—(1)possession of property has been handed over to the buyer(2)sale consideration has been paid or promised to be paid to the seller by the buyer(3)sale deed has not been executed in favour of the buyer, although certain other documentslike power of attorney/agreement to sell/will etc. have been executed.
Applied Direct Taxation
Income From House Property
In all the above cases, the buyer would be deemed to be the owner of the property although itis not registered in his name.
(vi) Person having right in a property for a period not less than 12 years [Section 27(iiib)] –
A person who acquires any rights in or with respect to any building or part thereof, by virtue of any transaction as is referred to in section 269UA(f) i.e. transfer by way of lease for not less than12 years, shall be deemed to be the owner of that building or part thereof.
Exception –
Any rights by way of lease from month to month or for a period not exceeding oneyear.
[Section 23]
It is Gross Annual Value less municipal taxes paid.Gross Annual Value of any property is determined as follows:(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 (
), the amountso received or receivable; or(c)where the property or any part of the property is let and was vacant during the whole orany part of the previous year and owing to such vacancy the actual rent received orreceivable by the owner in respect thereof is less than the sum referred to in clause (
), theamount so received or receivable :
Deduct municipal taxes
From the gross annual value computed above, deduct municipaltaxes (including service taxes) levied by any local authority in respect of the house property.
 Municipal taxes are deductible only if (a) these taxes are borne by the owner, and (b) are actually paid byhim during the previous year, irrespective of the period to which it relates.
Municipal taxes, levied by local authority but not paid by the assessee during the previousyear, are not deductible. If property is situated in a foreign country, municipal taxes levied byforeign local authority are deductible if such taxes are paid by the owner.The remaining amount left after deduction of municipal taxes is net annual value.Nil Annual ValueWhere the property consists of a house or part of a house which—(a)is in the occupation of the owner for the purposes of his own residence; or(b)cannot actually be occupied by the owner by reason of the fact that owing to hisemployment, business or profession carried on at any other place, he has to reside at thatother place in a building not belonging to him,

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