Section 22 : Income From House Property.

Statutory Provisions.

22. Income from house property.- 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”.
23. Annual value how determined.- (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.

Explanation.—For the purposes of clause (b) or clause (c)
of this sub-section, the amount of actual rent received or
receivable by the owner shall not include, subject to such
rules as may be made in this behalf, the amount of rent
which the owner cannot realise.
(2) Where 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 his employment, business or
profession carried on at any other place, he has to reside
at that other place in a building not belonging to him,
the annual value of such house or part of the house shall
be taken to be nil.

(3) The provisions of sub-section (2) shall not apply if—
(a) the house or part of the house is actually let during the
whole or any part of the previous year; or
(b) any other benefit therefrom is derived by the owner.
(4) Where the property referred to in sub-section (2)
consists of more than one house—
(a) the provisions of that sub-section shall apply only in
respect of one of such houses, which the assessee may, at
his option, specify in this behalf;
(b) the annual value of the house or houses, other than the
house in respect of which the assessee has exercised an
option under clause (a), shall be determined under sub-
section (1) as if such house or houses had been let.

24. Deductions from income from house property.- Income
chargeable under the head “Income from house property”
shall be computed after making the following deductions,
namely:—
(a) a sum equal to thirty per cent of the annual value;
(b) where the property has been acquired, constructed,
repaired, renewed or reconstructed with borrowed capital,
the amount of any interest payable on such capital:

Provided that in respect of property referred to in sub-
section (2) of section 23, the amount of deduction shall not
exceed thirty thousand rupees :
Provided further that where the property referred to in
the first proviso is acquired or constructed with capital
borrowed on or after the 1st day of April, 1999 and such
acquisition or construction is completed within three years
from the end of the financial year in which capital was
borrowed, the amount of deduction under this clause shall
not exceed one lakh fifty thousand rupees.

Provided also that no deduction shall be made under the
second proviso unless the assessee furnishes a certificate,
from the person to whom any interest is payable on the
capital borrowed, specifying the amount of interest
payable by the assessee for the purpose of such acquisition
or construction of the property, or, conversion of the
whole or any part of the capital borrowed which remains
to be repaid as a new loan.

Explanation.—For the purposes of this proviso, the
expression “new loan” means the whole or any part of a
loan taken by the assessee subsequent to the capital
borrowed, for the purpose of repayment of such capital.

25. Amounts not deductible from income from house
property.-25. Amounts not deductible from income from
house property.- Notwithstanding anything contained in
section 24, any interest chargeable under this Act which is
payable outside on which tax has not been paid or
deducted and in respect of which there is no person in
India who may be treated as an agent , shall not be
deducted in computing the income chargeable under the
head “Income from house property”.
26. Property owned by co-owners.- Where property
consisting of buildings or buildings and lands appur-
tenant 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.
27. “Owner of house property”, “annual charge”, etc.,
defined.- For the purposes of sections 22 to 26—
(i) an individual who transfers otherwise than for
adequate consideration any house property to his or her
spouse, not being a transfer in connection with an
agreement to live apart, or to a minor child not being a
married daughter, shall be deemed to be the owner of the
house property so transferred;

(ii) the holder of an impartible estate shall be deemed to be the individual owner of all the properties comprised in the estate . as the case may be. shall be deemed to be the owner of that building or part thereof. (vi) taxes levied by a local authority in respect of any property shall be deemed to include service taxes levied by the local authority in respect of the property. company or association. (iiib) 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. . shall be deemed to be the owner of that building or part thereof . company or other association of persons to whom a building or part thereof is allotted or leased under a house building scheme of the society. (iii) a member of a co-operative society. shall be deemed to be the owner of that building or part thereof . (iiia) a person who is allowed to take or retain possession of any building or part thereof in part performance of a contract .

1. One Banku Behari Saha executed a will on November 24. Benode Behari Saha Lane and No. 12. a Thakurbari at premises No. namely.I. . No. The dedication in the Will opens with the following paragraph: “According to the wishes of my revered father I have built the edifice of a temple. namely.T. etc. in close proximity to our said family dwelling house and have installed therein the deity of Sri Sri Iswar Benode Behari (an image of Sri Sri Iswar Radha Krishna) and Sri Iswar Benodeswar Mahade and have been performing the Puja worship and seva. 12. Biman Behari (68 ITR 815) Facts. Manicktola Street. 122A. Benode Behari Saha Lane. Sri Sri Iswar Benode Behari and Sri Sri Iswar Benodeswar Mahadev at two of the dedicated properties. 1925. both in the town of Calcutta. of the same. v. C.Case Laws. and dedicated several properties to two deities installed by him. This property is my estate long enjoyed and possessed.

By this instrument of Will I dedicate to the deity Sri Sri Iswar Benode Behari and Sri Sri Iswar Benodeswar Mahadev established by me the properties as included in the schedules of this will . the Income-tax Officer computed the bona fide annual value of these premises at the amounts which they were likely to fetch if let out in the open market. The assessee objected to the assessment of an annual value of the two premises and appealed before the Appellate Assistant Commissioner. The reasons which appealed to the Appellate Assistant Commissioner were: The premises situated in Calcutta are the temples of the two deities . a temple was actually constructed on the site. Under the provisions of the Will . . For the relevant assessment years . Nobody save and except the Brahmin performing the Worship of the deity and servants shall ever be competent to reside in the said property and the said Thakurbari shall never be used as a place of agitation and meeting or for any public functions. From the time of my death the aforesaid properties shall be used in the aforesaid Dev Seva and for pious acts.

In the above view the Appellate Assistant Commissioner allowed the objection of the assessee. found that these premises were not let out and no income accrued therefrom to the assessee. In fact. The addition of any amount as letting value from these two properties would be therefore deleted in each of the two assessments under appeal. The Appellate Tribunal agreed with the order of the Appellate Assistant Commissioner deleting the bona fide income from two premises mentioned above with the following observations: “The Income-tax Officer computed the bona fide annual value of the house at the amount which they are likely to fetch if let out in the open market. Against the order of the Appellate Assistant Commissioner. however.These premises have not been let out and no income accrues therefrom. the revenue appealed before the Appellate Tribunal. The Income-tax Officer therefore was not justified in adding any income on account of these premises. . the Will specifically says that nobody save and except the priest performing the worship of the deity and its servants shall ever be competent to reside in the temple and it shall never be used as a place of agitation or meeting or for the sake of any public function. The Appellate Assistant Commissioner has. In the earlier assessment no such addition has been made.

appealed on the following point of law: “Whether. the Commissioner of Income-tax. The annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year. on the facts and in the circumstances of the case. . it is quite obvious that these premises have no letting value and the Appellate Assistant Commissioner was. other than such portions of such property as he may occupy for the purposes of any business.” Thereupon. profession or vocation carried on by him the profits of which are assessable to tax. justified in excluding from the assessment the annual value thereof. therefore. the Tribunal misdirected itself in law in holding that premises in question situated I Calcutta. In view of the injunctions contained in the will against the residence of any body in the premises apart from the priest performing the worship of the deity and its servants. states that : The tax shall be payable by the assessee under the head ‘income from property’ in respect of the bona fide annual value of property consisting of any buildings or lands appurtenant thereto of which he is the owner. had no bona fide annual value under the Income-tax Act?” Provisions regarding “income from house property” under the Income-tax Act.

that may merely reduce the letting value but it cannot be said.R.M. Commissioner of Income-tax [(1946) 14 I. Vakil v. namely.M. 298] and Sir Currimbhoy Ebrahim Baronetcy Trust v. Commissioner of Income-tax . The letting value of a property. Where a property is not actually let. Commissioner of Income-tax [(1963) 48 I.It is clear from the provisions regarding “income from house propety” that even where a property is not let and even where it does not produce any income. In D. can be objectively ascertained on reasonable basis. the Income-tax Officer is to proceed on the basis of a notional income. D. that because of the existence of a restrictive clause there can be no notional annual income deemed to arise from the premises. even then there ought to be included in the annual income of the owner a notional income from the property. Vakil v. which the property might reasonably be expected to yield from year to year. If there be restrictions on the letting of the premises.T. 507]. it was held that .T. This proposition of law has been supported by two decisions of the Bombay High Court. . without more.R. whether let or not.

the assessee does not escape taxation.“The legislature has expressly provided that the tax shall be payable by the assessee in respect of the bona fide annual value irrespective of the question whether he receives the value or not. it is clear that the income from property is thus an artificially defined income and the liability arises from the fact that the assessee is the owner of the property. The Income Tax Act provides that for the purposes of the expression ‘annual value’ shall be deemed to mean the sum for which the property might reasonably be expected to let from year to year. Therefore. It is again significant to note that the word used is ‘might’ and not ‘can’ or ‘is.’ Reading the provisions .” The argument that in the present case the trustees are prevented from letting out the property to any one makes no difference. It is further provided that if the owner occupies the property he has to pay tax calculated in the manner provided therein. by reason of the fact that the property is not let out. The liability to tax does not depend on the power of the owner to let the property as it also does not depend on the capacity of .

in view of the injunction contained in the will against the residence of any body in the premises (apart from the priest performing the worship of the deity and its servants). In this view answer the question referred is in the affirmative and in favour of the revenue. that the Tribunal was not correct in holding that. But because of the existence of the injunction. the premises have no letting value. The law has laid down an artificial rule by which the amount is to be considered the income of the assessee from immovable property and provided that he should be taxed on that footing. Therefore the argument of the Revenue on this point is correct. In that view of the law. That injunction in the will be of relevant consideration in finding out the bona fide value and the weight of the injunction may very much reduce the bona fide letting value of the house. . we have to uphold the contention of the Revenue. notional or otherwise. the premises cannot be said to have no letting value.the owner to receive the bona fide annual value of the property.

. The order of assessment was confirmed in appeal by the Appellate Assistant Commissioner and by the Tribunal. The appellant has obtained special leave to appeal against the order of the Tribunal. the company purchased ten bighas of land in the town of Calcutta and set up a market therein.721 from the tenants or occupants of stalls. v. The Income Tax Officer assessed the income derived from shops and stalls under Section 22 of the Income Tax Act. \ In 1946.I. and (2) to promote and develop markets.T. The appellant assessee is a private company registered under the Indian Companies Act incorporated with the following objects amongst others. Contention of the appellant assessee. and stalls on platforms on that land. (1961) 42 ITR 49 Facts . For the relevant Assessment Year . C. (1) to buy and develop landed properties. the appellant received Rs 53.145 as income from the tenants of shops and Rs 29. 2. East India Housing & Land Deveopment Trust Ltd. The appellant constructed shops.

But on that account. the income derived from letting out property belonging to the appellant does not become “profits or gains” from business under the Income Tax Act. required to obtain a licence from the Corporation of Calcutta and to maintain sanitary and other services in conformity with the provisions of that Act and for that purpose has to maintain a staff and to incur expenditure.The appellant contends that because it is a company formed with the object of promoting and developing markets. its income derived from the shops and stalls is liable to be taxed under Section 28 of the Income Tax Act as “profits or gains of business” and that the income is not liable to be taxed as “income from property” under Section 22 of the Act. The appellant is undoubtedly under the provisions of the Calcutta Municipal Act. profession (5) income from other sources and . (4) profits and gains of business. Reasoning of the Court. the following six different heads of income are made chargeable. (3) income from property. (2) interest on securities. (1) salaries. Under the Income Tax Act.

profit and gain is made having regard to the sources from which income is derived. The character of that income is not altered because it is received by a company formed with the object of developing and setting up markets. Referred cases.(6) capital gains. If the income from a source falls within a specific head . . This classification under distinct heads of income. the fact that it may indirectly be covered by another head will not make the income taxable under the latter head. Income Tax is undoubtedly levied on the total taxable income of the tax payer and the tax levied is a single tax on the aggregate taxable receipts from all the sources: it is not a collection of taxes separately levied on distinct heads of income. The income derived by the company from shops and stalls is income received from property and falls under the specific head described in Section 22. But the distinct heads specified in the Act indicate that the sources are mutually exclusive and income derived from different sources falling under specific heads has to be computed for the purpose of taxation in the manner provided by the appropriate section.

the heads of income. manage and deal with a block of buildings having let out the rooms as unfurnished offices to tenants was held chargeable to tax under head of “income from property “ and not under the head of income from business or profession. Salisbury House Estate Ltd. are mutually exclusive. In Fry v. Calcutta v. CIT [(1928) 3 ITC 23] . profits and gains enumerated . CIT [(1958) SCR 79] The Court explained that under the scheme of the Income Tax Act. The taxing authorities sought to charge the income from letting out of the rooms as receipts of trade chargeable. In Commercial Properties Ltd. The company provided a staff to operate the lifts and to act as porters and watch and protect the building and also provided certain services.. but that claim was negatived by the House of Lords holding that the rents were profits arising from the ownership of land assessable under “income from property” and that the same could not be included in the assessment under “ business income as trade receipts.In the United Commercial Bank Ltd. each specific head covering items of income arising from a particular source. such as heating and cleaning to the tenants at an additional charge. [LR (1930) AC 432] a company formed to acquire. v.

the income came more directly and specifically under the head property than income from business. build houses and let them to tenants and whose sole business was management and collection of rents from the said properties. The primary source of income from the stalls is occupation of the stalls. The character of the income is not altered merely because some stalls remain occupied by the same occupants and the remaining stalls are occupied by a shifting class of occupants. It was observed in that case that merely because the owner of the property was a company incorporated with the object of owning property. and it is a matter of little importance that the occupation which is the source of the income is temporary.income derived from rents by a company whose sole object was to acquire lands. The income received by the appellant from shops is indisputably income from property: so is the income from stalls from occupants. . The Revenue Authorities were therefore right in holding that the income received by the appellant was assessable under Section 22 of the Income Tax Act. the incidence of income derived from the property owned could not be regarded as altered. was held assessable under Section 22 and not under Section 28 of the Income Tax Act. The appeal therefore fails and is dismissed with costs.

the assessee came to an agreement with the Raja under which the Raja accepted a half share in the said property in lieu of the loan advanced and also 1/3rd of the outstanding liability of the bank. Lahore and a loan of Rs 18 lakhs from the Raja of Jubbal. This arrangement came into effect on November 1. Sometime in the year 1946 it purchased the a Hotel in Lahore for a sum of Rs 46 lakhs. 3. 1951. The Hotel was declared an evacuee property and consequently vested in the Custodian in the Pakistan. For that purpose it raised a loan of Rs 30 lakhs from M/s Bharat Bank Ltd.T.. . After the creation of Pakistan. R. Lahore became a part of Pakistan. The loan taken from the bank was partly repaid but as regards the loan taken from the Raja. (1971) 3 SCC 369 Facts: The assessee is a registered firm deriving income from interest on securities.B. business and other sources.I. Jodha Mal Kuthiala v. C. property.

16. the assessee claimed losses of Rs 1. Rs. the assessee continued to be the owner of the property for the purposes of computation of income under Section 22 of the Income-tax Act”.599 and Rs 1. .In its return for the three relevant assessment years. in Pakistan. 1.599 respectively but showed the gross annual letting value from the said property at Nil.00. Since the property in question had vested in the Custodian of Evacuee Property. However at the instance of the assessee . the Income-tax Officer held that no income or loss from that property can be considered in the assessee’s case.16. The High Court on an analysis of the various provisions of the Pakistan (Administration of Evacuee Property) Ordinance. The Tribunal held that the interest paid is a deductible allowance . The Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. The loss claimed was stated to be on account of interest payable to the bank. the Tribunal submitted the following question for consideration of the High Court: “whether on the facts and in the circumstances of the case. In second appeal the Tribunal came to the conclusion that the assessee still continued to be the owner of the property for the purpose of computation of loss.723. He accordingly disallowed the assessee’s claim in respect of the interest paid to the bank.

the owner is that person who is entitled to the income. the assessee cannot be considered as the owner of that property. for the purpose of Section 22 of the Act. Therefore for the purpose of that Act. he still continued to be the owner. It was contented that the High Court erred in opining that the assessee was not the owner of the property. Therefore the word “owner” in Section 22 refers to the legal ownership and not to any beneficial interest in the property. . Contention of the Revenue It was contended on behalf of the Revenue that the income-tax is concerned with income. Contention of the assessee.1949 came to the conclusion that for the purpose of Section 22 of the Act. So long as the assessee had a right to that property in whatever manner . The property vested in the Custodian only for the purpose of administration and the assesse still continued to be its owner. that right might have been hedged in or restricted. gains and profits. The expression “owner” means the person having the ultimate right to the property.

notwithstanding anything contained in any law or agreement to the contrary relating thereto. 1947. (ii) The Custodian may also demolish or dismantle any evacuee property which in his opinion cannot be repaired. be pleased to impose. or sell the site of such property and the materials thereof. The Custodian is also empowered to . The Ordinanace empowers the Custodian to restore the evacuee property to the lawful owner subject to such conditions as he may. we have to look to the provisions of the Ordinance governing administration of evacuees property in Pakistan. It provides that all evacuee property shall vest and shall be deemed always to have vested in the Custodian with effect from the 1st day of March. For deciding the question whether the assessee was the owner of the property for the purpose of Section 22 of the Act during the relevant accounting years.Reasoning of the Court. .. The Custodian has powers to take possession of the evacuee property. M The Ordinance permits the Rehabilitation Authority to allot evacuee property to the refugees. (i) sell any evacuee property.

On the other hand. He could not mortgage that property. All the rights that the evacuee had in the property he left in Pakistan were exercisable by the Custodian excepting that he . He could not realise the income of the property. The rights of the evacuee over the property has been curtailed to a great extent. It is a power to deal with the estate. He could not lease that property. He could realise its income. The evacuee could not take possession of his property. in law means management and settling of that estate. the Custodian could take possession of that property. The expression “administration” in relation to an estate. He could not sell that property without the consent of the Custodian. He could alienate the property and he could under certain circumstances demolish the property.Therefore a perusal of the Ordinance makes it clear that it is an Ordinance to provide for the administration and management of evacuee property.

could not appropriate the proceeds for his own use. he was the legal owner of the property. the Custodian was the owner of that property. Section 22 of the Income Tax Act says that : The tax shall be payable by an assessee under the head ‘Income From Property’ in respect of the bona fide annual value of property consisting of any buildings or lands apurtenant thereto of which he is the owner. He merely had some beneficial interest in that property. No doubt that residual interest in a sense is ownership. who had all the powers of the owner. profession or vocation carried on by him the profits of which are assessable to tax subject . The property having vested in the Custodian. The question is who is the “owner” referred to in Section 22 ? Is it the person in whom the property vests or is it he who is entitled to some beneficial interest in the property? . other than such portions of such property as he may occupy for the purposes of any business. The evacuee could not exercise any rights in that property except with the consent of the Custodian. In the eye of the law.

like all other laws have to be interpreted reasonably and in consonance with justice.It must be remembered that Section 22 brings to tax the ‘income from property and not the interest of a person in the property. It is true that equitable considerations are irrelevant in interpreting tax laws. it would create many difficulties. . If the thousands of evacuees who left practically all their properties as well as businesses in Pakistan had been considered as the owners of those properties and businesses as long as the ‘Ordinance’ was in force then those unfortunate persons would have had to pay income-tax on the basis of the annual letting value of their properties and on the income. not on behalf of the owner but in his own right. the owner must be that person who can exercise the rights of the owner. if evacuees are considered as owners of the property. A property cannot be owned by two persons. each one having independent and exclusive right over it. gains and profits of the businesses left by them in Pakistan though they did not get a penny out of those properties and businesses. But those laws. From the practical point of view also . Hence for the purpose of Section 22.

Referred Cases. The Court held that the property did not by reason of the adjudication of the debtor cease to be a subject fit for taxation and the Official Assignee was the “owner” of the property and he could rightly be assessed in respect of the income from that property under Section 22. The powers of the Custodian are no less than that of the Official Assignee . The question arose whether the Official Assignee could be taxed in respect of the income of the property under Section 22. In that case on the adjudication of a person as insolvent under the Insolvency Act. The question as to who is the owner of a house property under Section 22 of the Act in similar circumstances . . certain house property of the insolvent vested in the Official Assignee. came up for consideration before the Calcutta High Court in the matter of The Official Assignee for Benga [5 ITR 233 (HC)].

During period of insolvency . The Court in Official assignee case relied on the decision in The Commissioner of Inland Revenue v. After some time he was discharged from insolvency on payment of composition and was reinvested in his estate. and that. his properties vested with trustees.The assessee is trying to restrict the meaning of the word “owner “ by putting before it the qualifying adjective “beneficial”. . During the insolvency. What was argued was that the Official assignee had no legal interest in the properties themselves. in paying the tax. But such contention cannot be accepted . The contention of the respondent was that the right to these properties was in him all the time. The claim arose in the following circumstances: The respondent was owner of certain properties and was declared insolvent . the trustee paid income-tax on the full annual value of the properties in question. That appeal related to a claim for refund of income-tax to which the respondent claimed to be entitled in respect of “personal allowance” . they were merely vested in him for the purposes of the administration of them in the interest of the creditors of the insolvent. Fleming [14 TC 78].

But this cannot be possibly described as income of the respondent. Rejecting this contention. he cannot have any claim to abatement of it for income-tax purposes. It was not income that went or could go into the pocket of the Respondent as income.the trustee was really paying it on his behalf . and he and he alone had the right to put it into his pocket as income.” . and accordingly everything depends upon the soundness of the proposition that the income consisting in the annual value of those properties was truly income of the Respondent. The right to this abatement is said to have passed to the Respondent himself in virtue of the reinvestment in his estate which occurred upon his discharge . the Court held that : “Unless during the years in question the annual value of the properties was income of the Respondent.that is on his income – and that consequently there arose in each of the years in which the payment was made a right to deduct his “personal allowance” from the annual value of the properties. It was part of the income arising from the estates vested in the trustee for the Respondent’s creditors. How then can it be said to have reached his pocket as income on his subsequent reinvestiture. Any income that did arise from those estates was income of the trustee as such.

For this contention reliance was placed on the observations in Amur Singh v. It was observed that : “The position. The law recognised his ultimate ownership subject to certain limitations. Custodian. The evacuee may come back and obtain return of his property. as also an account of the management thereof by the Custodian. But the evacuee has not lost his ownership in it.For determining the person liable to pay tax. . The appellant contended that despite the fact the evacuee property was taken over by the Custodian and that he had been conferred with large powers to deal with it.” But observations in A mur Singh’s case is of no help to appellant in the present case. in its general aspect. Evacuee Property. Those observations were made in a different context. is that all evacuee property is vested in the Custodian. an evacuee from Pakistan who owned that property before he migrated to India still continued to be the owner of the property. Punjab [AIR 1957 SC 599]. the test laid down by the court was to find out the person entitled to that income.

. It cannot be denied that an evacuee from Pakistan has a residual right in the property that he left in Pakistan. the question for consideration was whether the right of an evacuee in respect of the property left by him in the country from which he migrated was property right for the purpose such right guaranteed by the Constitution. But the question is not regarding right to property in legal sense but the real question is. very often there is no such person.. can that right be considered as ownership within the meaning of Section 22 of the Act. The word “owner” has different meanings in different contexts.Therein.. Hence the focus of that section is on the receipt of the income. Section 22 seeks to bring to tax income of the property in the hands of the owner. The appellant also pointed to the observations on concept of ownership in Pollock on Jurisprudence : “Ownership may be described as the entirety of the powers of use and disposal allowed by law. The owner of a thing is not necessarily the person who at a given time has the whole power of use and disposal. We must look for the person having the residue of all such power when we have accounted for every detached and . Under certain circumstances a lessee may be considered as the owner of the property leased to him.

[28 ITR 510]. The settlement deed provided that : Such properties “shall henceforth and for ever be held and enjoyed by the Nawab and his male heirs as may be . is the owner for the purpose of section 22.limited portion of it. The appellant next placed relaince on the decision of the Calcutta High Court in Nawab Bahadur of Murshidabad v. However . The fact that any other person may have residual ownership does not make a difference to the position with regard to receipt of income. The Income Tax Act is concerned with receipt of income from property and whosoever receives the income from property . and he will be the owner even if the immediate power of control and use is elsewhere”. ownership as legal right and ownership under Section 22 of the Income Tax Act have different connotations. on the then Nawab of Murshidabad under a deed of settlement . The facts of that case were: Properties which belonged to the ancestors of the Nawab of Murshidabad as rulers. Commissioner of Income-tax. settled by the Secretary of State for India . some time after the territories had been conquered by the British. were.

as the dual status of the Nawab as the holder of the estate and as an individual ceased. Nawab was therefore liable to be assessed to income-tax on the income of such properties. even though they are under certain restrictions with regard to the alienation of the properties. it could not be said that the Nawab for the time being was not the “owner” of such properties for the purposes of Section 22 of the Income Tax Act. One of the conditions was that the Nawab was not entitled to sell or alienate the properties except with the approval of the Governor of Bengal. with and subject to the incidents. limitations and conditions as to the inalienability and otherwise hereinafter contained”. after the deed of settlement . This decision therefore does not give any support to the contentions of the appellant that he is the owner . The Court held that.” The Court further held that the word “owner” in Section 22 of the Act applies to owners of the whole income. “Whatever might have been the original nature of the “State properties”.successively entitled to hold the said title in perpetuity. The question arose whether Nawab of Murshidabad was liable to pay tax in respect of the income of those properties under Section 22 of the Act. powers.

Therefore under the circumstances of the case the assessee cannot be considered to be the owner of Hotel in Pakistan during the relevant assessment years for the purpose of Section 22of the Act.of the hotel for relevant time . Hence the appeal fail and is dismissed. it was under the administration of Custodian of evacuees property in Pakistan. .

Nature of income - Assessee showed rental income received from properties as income from business in return .Tribunal held that income was from business and it would be treated as such .High Court set aside such order and held that income derived by letting out of properties would be assessed only income from house property . Holding that properties and earning income by letting out those properties is the main objective of the company. (2015 SC) Case Note: Direct Taxation . 4.Whether income derived by Company from letting out property is to be treated as income from business or it is to be treated as rental income from house property Held. Vs.Letting out of property . In the return that was filed.Assessing Officer refused refuse to tax same as business income and considered as income from house property . CIT. entire income which accrued and was assessed . Chennai Properties and Invest. allowing the appeal: (1) Main object of the Appellant company is to acquire and hold the properties and to let out those properties. Ltd.

Commissioner of Income Tax. rightly disclosed the income under the Head Income from Business. [6 ] (3) The judgement passed by the present Court in the case of 'Karanpura Development Co. [11] . there is no other income of the Assessee except the income from letting out of these properties. present appeal is allowed and set aside the judgment of the High Court and restore that of the Income Tax Appellate Tribunal. Accordingly. West Bengal squarely applies to the facts of the present case. It cannot be treated as 'income from the house property'. It is so recorded and accepted by the Assessing Officer himself in his order. Ltd. [5] (2) It transpires that the entire income filed in the return was through letting out of the properties.in the said return was from letting out of these properties. Thus. [9] (4) The circumstances of the present case concludes that letting of the properties is the business of the Assessee. The Assessee therefore. v.

however.Facts: Objective of Assessee Company was to acquire the properties in the city and to let out those properties. it was in the nature of rental income. the present appeal is filed. He. refused to tax the same as business income. Reasoning of the Court. The Commissioner of Income Tax (Appeals) allowed appeal of the Assessee by holding that income was from business and directed that it should be treated as such and taxed accordingly. A perusal of the impugned judgment of the High Court would show that it has primarily rested its decision on the basis of . The Assessee had rented out such properties and the rental income received therefrom was shown as income from business in the return filed by the Assessee. Hence. thus. since the income was received from letting out of the properties. held that it would be treated as income from house property and taxed the same accordingly under that Head. According to the Assessing Officer. The High Court allowed appeal of the Department by holding that the income derived by letting out of the properties would not be income from business but could be assessed only income from house property. The Income Tax Appellate Tribunal confirmed that order. The Assessing Officer.

Commissioner of Income Tax. What we emphasise is that holding the aforesaid properties and earning income by letting out those properties is the main objective of the company. The Memorandum of Association of the Appellant-company which is placed on record mentions main objects as well as incidental or ancillary objects in clause III. entire income which accrued and was assessed in the said return was from letting out of these properties. it is clear that the question which is to be determined on the facts of this case is as to whether the income derived by the company from letting out this property is to be treated as income from business or it is to be treated as rental income from house property.the judgment of this Court in 'East India Housing and Land Development Trust Ltd. It is so recorded and accepted by the assessing officer himself in his order. It transpires that the return of a total income of Rs. The main object of the Appellant company is to acquire and hold the properties known as "Chennai House" and "Firhavin Estate" both in Chennai and to let out those properties as well as make advances upon the security of lands and buildings or other properties or any interest therein. Commissioner ofIncome Tax' 1964 (5) SCR 807. (A) and (B) respectively. v. West Bengal (1961) 42 ITR 49 as well as the Constitution Bench judgment of this Court in 'Sultan Brothers (P) Ltd. From the aforesaid facts. 244030 was filed for the assessment year in question and the entire . It may further be recorded that in the return that was filed. v.

This Court while holding that the income shall be treated as income from the house property. of the opinion that the character of that income which was from the house property had not altered because it was received by the company formed with the object of developing and setting up properties. there is no other income of the Assessee except the income from letting out of these two properties. the main objective of the company was to develop the landed properties into markets. With this background. we first refer to the judgment of this Court in East India Housing and Land Development Trust Ltd. Thus. the question arose for consideration was: whether the rental income that is received was to be treated as income from the house property or the income from the business. It so happened that some shops and stalls. had been rented out and income was derived from the renting of the said shops and stalls. We have to decide the issue keeping in mind the aforesaid aspects. That was a case where the company was incorporated with the object of buying and developing landed properties and promoting and developing markets. "Chennai House" and "Firhavin Estate". rested its decision in the context of the main objective of the company and took note of the fact that letting out of the property was not the object of the company at all.income was through letting out of the aforesaid two properties namely. In those facts.'s case which has been relied upon by the High Court. Thus. . The court was therefore. which were developed by it.

It was highlighted and stressed that the . That was also a case where the company. This Court first discussed the scheme of the IncomeTax Act and particularly six heads under which income can be categorised/classified. It was pointed out that before income. in the said case. inter alia. which was the Assessee. it is well advised to discuss the law laid down authoritatively and succinctly by this Court in 'Karanpura Development Co. The income which was received from letting out of those mining leases was shown as business income. of acquiring and disposing of the underground coal mining rights in certain coal fields and it had restricted its activities to acquiring coal mining leases over large areas. Department took the position that it is to be treated as income from the house property. profits or gains can be brought to computation. Thus. the Court pointed out that the deciding factor is not the ownership of land or leases but the nature of the activity of the Assessee and the nature of the operations in relation to them. another head. Commissioner of Income Tax. developing them as coal fields and then sub-leasing them to collieries and other companies. West Bengal' 44 ITR 362 (SC). Ltd. was formed with the object. identical issue arose before the Court. These heads are in a sense exclusive of one another and income which falls within one head cannot be assigned to.. It would be thus. clear that in similar circumstances. or taxed under. they have to be assigned to one or the other head. Thereafter. v. Before the Constitution Bench judgment in the case of Sultan Brothers (P) Ltd. the leasing out of the coal fields to the collieries and other companies was the business of the Assessee.

The diving line is difficult to find.objects of the company must also be kept in view to interpret the activities. but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with its property. it came to the conclusion that income had to be treated as income from business and not as income from house property. i.'s case. where the letting or sub-letting is part of a trading operation. is summed up in the following words: As has been already pointed out in connection with the other two cases where there is a letting out of premises and collection of rents the assessment on property basis may be correct but not so. House of Lords in England and US Courts were taken note of. Constitution Bench judgment of this Court has clarified that merely an entry in the object clause showing a particular object would not be the determinative factor to arrive at an conclusion whether the income is to be treated as income from business and such a question would depend upon the circumstances of . Ltd. After applying the aforesaid principle to the facts.'s case squarely applies to the facts of the present case. Privy Counsel. We are of the opinion that the aforesaid judgment in Karanpura Development Co. ultimately. The position in law. number of judgments of other jurisdictions. it is possible to say on which side the operations fall and to what head the income is to be assigned. No doubt in Sultan Brothers (P) Ltd. In support of the aforesaid proposition.e. which were there before the Court.

A commercial asset is only an asset used in a business and nothing else. allow this appeal and set aside the judgment of the High Court and restore that of theIncome Tax Appellate Tribunal. letting of the properties is in fact is the business of the Assessee. The Assessee therefore. . We. We find nothing in the cases referred. This is so stated in the following words: We think each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. viz. Therefore. stated the circumstances of the present case from which we arrive at irresistible conclusion that in this case. We do not further think that a thing can by its very nature be a commercial asset. and business may be carried on with practically all things. to support the proposition that certain assets are commercial assets in their very nature. It is for this reason. we have. it is not possible to say that a particular activity is business because it is concerned with an asset with which trade is commonly carried on. We are conscious of the aforesaid dicta. rightly disclosed the income under the Head Income from Business. at the beginning of this judgment.each case. whether a particular business is letting or not. accordingly.. laid down in the Constitution Bench judgment. It cannot be treated as 'income from the house property'.

The appellant was the successful bidder and was handed over possession of the market portion on 28. construction of entire common amenities like toilet blocks. Accordingly.05.1993.. MHADA handed over the ground floor of the to Market Department of Municipal Corporation Greater Bombay (“MCGB”). etc. (2017 SC) Facts. including demolishing the existing platform and. 5. . thereafter. The premises allotted to the appellant was a bare structure.However. Therefore. there was a reservation for Municipal retail market on the plot on which MHADA had put up the construction. The appellant firm participated in the auction to acquire the right to conduct the market on the market portion. including construction of walls. The Maharashtra Housing and Developing Authority (“MHADA”) had constructed certain buildings . after taking possession of the premises. Raj Dadarkar & Associates V CIT. the appellant spent substantial amount on additions/alternations of the entire premises. it was the appellant who had to make the entire premises fit to be used a market. the Market Department of the MCGB auctioned the market portion on a monthly license [stallage charges] basis to run municipal market. In 1993. In terms of the auction.

The appellant constructed 95 shops and 30 stalls of different carpet areas on the premises under the market name “Saibaba Shopping Centre”. in terms of the conditions of the auction. The appellant also obtained. The reasons given by the revenue for so computing the income under the head “Income from House Property” were: (i) By virtue of Section 27(iiib) of the Act. cleanliness and upkeep of the market premises. electricity charges. The appellant firm was responsible for day-to-day maintenance. Essentially. The appellant filed the returns of income offering the income from the aforesaid shops and stalls sub-licensed by it under the head “Profits and Gains of Business or Profession” . etc. (c) Service Charges for providing various services. computed the income from the shops. and the stalls under head “Income from House Property” of the Act. The income was also assessed accordingly. necessary registration certificate for running a business under the Shop and Establishment Act and other licenses/permissions from MCGB and other Government and semi-Government bodies for carrying on trading activities on the said premises. The appellant also had to incur/pay water charges. the appellant was . utilities. the appellant collected the following types of receipt from the sub-licensees: (a) Compensation from sub- licensees (b) Leave & License fees. taxes and repair charges. later on the revenue reopened the assessment and reassessment order was framed. including security charges.reconstructing the same according to the new plan sanctioned by the MCGB. However.

“deemed owner” of the premises as it had acquired leasehold right in the land for more than 12 years. Contentions of the Assessee. Further. The High Court confined its discussion only on one aspect viz.. the appellant preferred an appeal before the High Court. etc. via Special Leave to Appeal. sub-letting the premises was . it was totally ignored that the main business of the appellant was to take the premises on rent and to sub-let those premises. the words. like loan application. the revenue held that the income received by the appellant from the market stalls was assessable as “Income from House Property” under the Act. The High Court. it treated the income as “income from house property”. Since the entire focus of the High Court was on the aforesaid aspect and. Being aggrieved by the order of the Revenue . “lease” were used. The High Court. in some correspondence. have been filed. (iii) Property tax has been levied on the appellant. committed grave error in approaching the entire matter from an erroneous angle. (ii) In agreements for sub-licensing the words “lease compensation” were used instead of “license fees” and deposits were referred as “sub-lease deposits”. Accordingly. Thus. in the process. as to whether the appellant was ‘deemed owner’ of the properties in question within the meaning of Section 27(iiib) of the Act and after holding it to be so. dismissed the appeal filed by the appellant It is this judgment of the High Court against which present appeals.

This was the sole and the only activity of the appellant. it was in furtherance of the aforesaid object that. Section 27(iiib) as well as Section 269UA(f) of the Act which reads as under: “Section 27(iiib) . appellant. Reasoning of the Court. Thus. constructed the market area thereupon and gave the same to various persons on sub-licensing basis. Thus.” According to him. the appellant participated in the auction held by a Market Department of the MCGB. referred to the deed of partnership firm of appellant.a person who acquires any rights (excluding any rights by way of a lease from month to month . as a business activity. which reads as under: “The Partnership shall take the premises on rent and to sub-let or any other business as may be mutually agreed by the parties from time to time. as a result. the sole intention of the appellant was to establish a retail hub wherein various small retailers could come together and carry on their business in an organised and systematic manner. was the business income.the business of the appellant firm and income earned. He referred to the object clause of the firm as per the partnership deed. In order to support the aforesaid contention. sub-licensing the premises was only a part of this predominant object of the appellant. the appellant would be treated as deemed owner of these premises in terms of Section 27(iiib) of the Act. It is not in dispute that having regard to the terms and conditions on which the leasehold rights were taken by the appellant in auction.

and includes allowing the possession of such property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act. pointed out towards the appellant acquiring rights in or in respect of the building or part thereof. which rights were clearly traceable to Section 269UA(f) of the Act. On that basis. the appellant was permitted to carry out additions and alterations which he did. the BMC permitted sub-letting of the shops and stalls in stilt portion. shall be deemed to be the owner of that building or part thereof. even if the appellant is deemed owner of the premises in question. the manner in which the appellant after making necessary constructions sub- licensed to various types of traders etc. Thereafter. means transfer of such property by way of sale or exchange or lease for a term of not less than twelve years. As pointed out above. 1882 . the High Court pointed out the circumstances under which the Market Department of MHAD had auctioned the market area wherein the appellant was the successful tenderer."transfer". Section 269UA(f) . the High Court concluded that reading of various clauses harmoniously as per the which the rights were given to the appellant in the said property. as noted above. the aforesaid conclusion is not even disputed by the the appellant. since the letting out the place and earning rents . The submission was.or for a period not exceeding one year) in or with respect to any building or part thereof.— (i) in relation to any immovable property referred to in sub-clause (i) of clause (d). by virtue of any such transaction as is referred to in clause (f) of section 269UA.

These are: Salaries. Commissioner of Income Tax Central III. Tamil Nadu & Anr. therefore. in a summary form. His submission was that the dominant test has to be applied and once it is found that dominant intention behind the activity was that of a business. It is on that basis rules for computing income and permissible deductions which are contained in different provisions of the Act for each of the aforesaid heads. Section 14 of the Act enumerates five heads of income for the purpose of charge of income tax and computation of total income. (ii) Rayala Corporation Private Limited v. Capital gains and Income from other sources. In support. Income from house property. (2015) 14 SCC 793.. is chargeable to tax. scheme of the Act about the computation of the total income. the rental income would be business income. we may state. (2016) 15 SCC 201. subject to statutory exemptions. then the income generated from sub-licensing the market area and earned by the appellant should be treated as income from business and not income from the house property. provisions for computing the income from house property are contained in Sections 22 to 27 of the Act and profits and gains of business . are to be applied.therefrom is the main business activity of the appellant. Profits and gains of business or profession. Chennai v. For example. has to be classified in one of the aforesaid heads. A particular income. Section 4 of the Act is the charging Section as per which the total income of an assessee. Before dealing with the respective contentions. Assistant Commissioner of Income Tax. the appellant referred to the following two judgments: (i) Chennai Properties and Investments Limited.

Tests which are to be applied for determining the real nature of income are laid down in judicial decisions. How annual value is to be determined is provided in Section 23 of the Act.or profession are to be computed as per the provisions contained in Sections 28 to 44DB of the Act. On the facts of a particular case. It is not a collection of distinct taxes levied separately on each head of the income. There may be instances where a particular income may appear to fall in more than one head. It is also to be borne in mind that income tax is only One Tax which is levied on the sum total of the income classified and chargeable under the various heads. These kind of cases of overlapping have frequently arisen under the two heads with which we are concerned in the instant case as well. normally such an income is to be treated as income from house property. income from the house property on the one hand and profits and gains from business on the other hand. the appellant is . in case provisions of Section 22 of the Act are satisfied with primary ingredient that the assessee is the owner of the said building or lands appurtenant thereto. income has to be either treated as income from the house property or as the business income. namely. Wherever there is an income from leasing out of premises and collecting rent. ‘Owner of the house property’ is defined in Section 27 of the Act which includes certain situations where a person not actually the owner shall be treated as deemed owner of a building or part thereof. Section 22 of the Act makes ‘annual value’ of such a property as income chargeable to tax under this head. on the interpretation of the provisions of these two heads. In the present case.

it can still be treated as business income if letting out of the premises itself is the business of the assessee. that merely because there is an entry in the object clause of the business showing a particular object.held to be “deemed owner” of the property in question by virtue of Section 27(iiib) of the Act. in the first instance. Such a question would depend upon the circumstances of each case. where the income may have been derived from letting out of the premises. would not be the determinative factor to arrive at a conclusion that the income is to be treated as income from business. We do not further think that a thing can by its very nature be a commercial asset. and business may be carried on with practically all things. CIT. it is not possible to say that a particular activity is business because it is concerned with an asset with which trade is commonly carried on. A commercial asset is only an asset used in a business and nothing else. We . It is so held by the Constitution Bench of this Court in Sultan Bros. under certain circumstances. v. On the other hand. is the question. It may be mentioned. (1964) 5 SCR 807 and we reproduce the relevant portion thereof: “ We think each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. (P) Ltd. What is the test which has to be applied to determine whether the income would be chargeable under the head “income from the house property” or it would be chargeable under the head “Profits and gains from business or profession”. Therefore.

In the instant case. the appellant has not produced or referred to any material. to support the proposition that certain assets are commercial assets in their very nature. which are as follows: (a) The appellant which is a partnership firm is to take the premises on rent and to sub-let those premises. case. (b) The aforesaid clause also mentions that partnership firm may take any other business as may be mutually agreed upon by the partners. In the instant case. the object clause which is contained in the partnership firm is to take the premises on rent and to sub-let. Matter has to be examined on the facts of each case as held in Sultan Bros. by legal fiction contained in Section 27(iiib) of the Act. the appellant is treated as “deemed owner”. the business activity is of taking the premises on rent and sub-letting them. Before us. (P) Ltd.” In view thereof. In the present case. we find that ITAT had specifically adverted to this issue and recorded the findings on this aspect in the following manner: . Thus. it is to be seen as to whether the activity in question was in the nature of business by which it could be said that income received by the appellant was to be treated as income from the business. the object clause.find nothing in the cases referred. reading of the object clause would bring out two discernible facts. On the other hand. as contained in the partnership deed. Even otherwise. apart from relying upon the aforesaid clause in the partnership deed to show its objective. would not be the conclusive factor. therefore.

The assessee collected 20% of monthly rent as service charges. occupiers of the shops/stalls as rent and service charges. Ltd.” The ITAT being the last forum insofar as factual determination is concerned. As rightly held by the Assessing Officer. collected extra money from the allottees. In our opinion. electricity. Such service charges were also used for providing services like watch and ward. The assessee has not established that he was engaged in any systematic or organized activity of providing service to the occupiers of the shops/stalls so as to constitute the receipts from them as business income. . The assessee collected charges for minor repairs. the same has to be held as income from house property. As per the terms of allotment by the BMC. In any case. The assessee. 263 ITR 143 will apply. water and electricity. The assessee has made bifurcation of the receipt from the.“…On this issue facts available on record are that the assessee let out shops/stalls to various occupants on a monthly rent. water etc. It was for the appellant to produce sufficient material on record to show that its entire income or substantial income was from letting out of the property which was the principal business activity of the appellant. these findings have attained finality.. This in our opinion was inseparable from basic charges of rent. in turn. and therefore. the assessee received income by letting out shops/stalls. the appellant did not argue on this aspect and did not make any efforts to show as to how the aforesaid findings were perverse. the assessee was bound to incur all these expenses. maintenance. decision of Hon’ble Supreme Court in the case of Shambu Investment Pvt. as mentioned above.

Ltd. In the present case. CIT. In Chennai Properties & Investments Ltd.No such effort was made. which was the business of the assessee. the court found that the entire income of the appellant was through letting out of the two properties it owned and there was no other income of the assessee except the income from letting out of the said properties. Reliance placed by the appellant on the judgments of this Court in Chennai Properties & Investments Ltd. CIT. which would be applicable which is discussed in Chennai Properties & Investments Ltd. we find that situation is just the reverse. case [East India Housing and Land Development Trust Ltd. CIT. (1962) 44 ITR 362 was applicable and the judgment of this Court in East India Housing and Land Development Trust Ltd. v. v. this Court came to the conclusion that judgment of this Court in Karanpura Development Co. That was a case where the company was incorporated with the object of buying and developing landed properties and promoting and developing markets. case and the reproduction thereof would bring home the point we are canvassing: With this background. On those facts. It so happened that some . and Rayala Corporation (P) Ltd. The judgment in East India Housing and Land Development Trust Ltd. Thus. (1961) 42 ITR 49 was held to be distinguishable. (1961) 42 ITR 49 (SC)] which has been relied upon by the High Court. would be of no avail. v. the main objective of the company was to develop the landed properties into markets. we first refer to the judgment of this Court in East India Housing and Land Development Trust Ltd.

. accordingly. which is held to be inapplicable in the instant case. fact situation was identical to the case of Chennai Properties & Investments Ltd. The Court was therefore. had been rented out and income was derived from the renting of the said shops and stalls. dismissed with cost. and for this reason. In those facts. .. rested its decision in the context of the main objective of the company and took note of the fact that letting out of the property was not the object of the company at all. Rayala Corporation (P) Ltd.shops and stalls. these appeals lack merit and are. followed Chennai Properties & Investments Ltd. For the aforesaid reasons. of the opinion that the character of that income which was from the house property had not altered because it was received by the company formed with the object of developing and setting up properties. which were developed by it. the question which arose for consideration was: whether the rental income that is received was to be treated as income from the house property or the income from the business? This Court while holding that the income shall be treated as income from the house property.” In Rayala Corporation (P) Ltd.