“DEEMED OWNERSHIP OF HOUSE

PROPERTY UNDER INCOME TAX”

TAXATION LAW
Submitted by

VISHNU DHANGAL

ROLL NO 19193

Submitted to

MR. RAJAT DIXIT

(Assistant Professor of Law)

RAJIV GANDHI NATIONAL UNIVERSITY OF LAW,

PATIALA, PUNJAB
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 ACKNOWLEDGEMENT

I would like to take this opportunity to express my profound gratitude and

deep regard to Mr. Rajat Dixit (Assistant Professor of Law) for his guidance
and valuable feedback and constant support throughout the duration of
project. Her suggestions were of monumental help in the rough work of my
project.

I would also like to express my gratitude to Rajiv Gandhi National

University of Law, Patiala for giving me the topic that enriched my
knowledge. I also like to thank the library staff for constant support.

Lastly I am thankful to my parents and friends for their constant support and
coordination in the completion of the research work.

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 TABLE OF CONTENTS

1. INTRODUCTION..............................................................................................................4

1.1. WHO IS LIABLE TO PAY:.......................................................................................4

2. DEEMED OWNER............................................................................................................6

2.1. Essential conditions for taxing income under this head..............................................6

2.2. Meaning of the word owner........................................................................................7

2.3. Who is a 'deemed owner' for the purpose of payment of property tax?......................8

2.4. Transfer to a Spouse [Section 27(i)]:...........................................................................8

2.5. Transfer to a Minor Child [Section 27(i)]:..................................................................9

2.6. Holder of an Impartible Estate [Section 27(ii)]:........................................................10

2.7. Member of a Co-operative Society, etc. [Section 27(iii)]:........................................10

2.8. Person in Possession of a Property [Section 27(iiia)]:..............................................10

2.9. Person having right in a Property for a period not less than 12 years [Section
27(iiib)]:................................................................................................................................10

3. TREATMENT OF INCOME FROM CO-OWNED PROPERTY [SECTION 26].........11

4. TREATMENT OF INCOME FROM PROPERTY OWNED BY A PARTNERSHIP

FIRM........................................................................................................................................11

5. CASES WHERE INCOME FROM HOUSE PROPERTY IS EXPEMT FORM TAX...12

5.1. CASES.......................................................................................................................12

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 1. INTRODUCTION

Among the various sources of income that a person can have, income from house property is
one of the important heads of income under the Income Tax Act. House property is regarded
as a source of income for Income Tax purposes. In ordinary parlance, your income from
house property will presuppose that you have a house from which you are deriving income in
the form of rent. The scope of income from house property for the purpose of the Income Tax
Act, however, much wider. It is quite possible that the house property in question is not
giving you any rent as is the case when it remains vacant throughout the year or you may be
using it yourself for self- occupation. Yet, for the purpose of the Income Tax Act, you will
have income from house property. For what is tax under this head is not the actual rent but
the inherent capacity of the property to earn income. This is technically known as the
"Annual Value" of the property.

1.1. WHO IS LIABLE TO PAY:

We have been seen that the inherent capacity of a property consisting of any buildings or land
appurtenant thereto is subjected to tax under the head income from house property. But in
whose hands? The answer is in the hands of the owner of the property. The assessee must be
the owner. In case the assessee is not the owner, but gets rent from sub-letting a property, the
income will not be taxed as income from house property (but will be considered as income
from other sources

Generally , only the actual owner of a house is believed to be liable to pay tax. However, this
is not the case under the Income Tax Act. Under the Income Tax Act, it is not only a property
owner who is liable to pay tax on 'Income from House Property' . A deemed owner is also
liable to tax on such an income.

A deemed owner is an owner by implication, although he may not be the owner in the real
sense of the word. However such a person is treated as an owner and is liable to tax in the
same manner any owner. Specific provisions have been made under the Income Tax Act that
deal with tax on income from a residential property.

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These basic conditions must be met for any income to be taxed under this head:

The property should be a building or land adjacent to one The assessee must own the property
The property must not be used for the purpose of business or profession of the assessee. It
must be only rented out so as to derive rental income. Therefore, any income from a property
which is not owned by the assessee will not be treated as 'income from house property' but as
other income and other provisions of the Income Tax Act will apply.

In certain cases, the assessee, though not the owner of the property, is deemed to be the
owner of the property. That is, he is treated as owner of the property and income from that
property will be treated as his 'income from house property' .

Income chargeable to tax under the head “house property” Rental income from a property
being building or land appurtenant thereto of which the taxpayer is owner is charged to tax
under the head “Income from house property”.

Rental income from sub-letting

Rental income in the hands of owner is charged to tax under the head “Income from house
property”. Rental income of a person other than the owner cannot be charged to tax under the
head “Income from house property”. Hence, rental income received by a tenant from sub-
letting cannot be charged to tax under the head “Income from house property”. Such income
is taxable under the head “Income from other sources” or profits and gains from business or
profession, as the case may be.

Deemed owner

These are some conditions that make a person a deemed owner and liable to tax on property
income:

Gifting property

An individual who gifts property to his spouse or minor child will be treated as the deemed
owner of that property. Here, though legally the owner of the property is his spouse or minor
child, any income from that property will be treated as his income.

Holder of impartable estate

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The holder of an impartable estate will be treated as the owner of that entire property. For
example , where a Hindu Undivided Family (HUF) jointly holds property on behalf of all its
members, it will be treated as the owner, though legally, the property will be in the names of
individual members of the family.

Member of society

A member of cooperative society, company or other association of persons to whom a

building has been allotted under a house building scheme of the society will be treated as
deemed owner of that property

Section 53A

A person who meets the provisions of Section 53A of the Transfer of Property Act will be
treated as a deemed owner of the property concerned . Section 53A of the Transfer of
Property Act deals with situations where though the agreement to buy a property has not been
registered with the appropriate authority, the person who has purchased the property will be
treated as the owner of the property.

Long term lease holder

A person who has acquired rights through a long term lease of property will be treated as the
owner of that property, and income from that property will be taxable in his hands under
'income from house property' . For this purpose, a long-term lease means lease for a period of
more than 12 years.

2. DEEMED OWNER

2.1. Essential conditions for taxing income under this head

Income from house property is taxable in the hands of its legal owner in whose name the
property stands. "Owner" for this purpose means a person who can exercise the rights of the
owner not on behalf of the owner but in his own right.

A person entitled to receive income from a property in his own right is to be treated as its
owner, even if no registered document is executed in his name.

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The following three conditions must be satisfied before the income of the property can be
taxed under the head “Income from House Property”:

The property must consist of buildings and lands appurtenant thereto;

The assessee must be the owner of such house 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. If the property is used for own business or profession, it shall not be chargeable to tax.

Ownership includes both free-hold and lease-hold rights and also includes deemed
ownership.

Note :Please note that if you want to claim benefit of House loan Interest and House loan
repayment (80C) in that case also you must be owner of the house ,if you have no ownership
and just a co borrower then you can not avail benefit /deduction for Interest on house loan
and repayment of House loan.

2.2. Meaning of the word owner

For the purpose of charging income under this head, the word owner will cover a person who
can exercise the rights of the owner. However, a person exercising rights of owner on behalf
of any other person will not be treated as an owner for the purpose of this head. Following
points should be noted in this regard:

A person purchasing a property who is entitled to enjoy the rights of owner will be treated as
an owner for the purpose of this head even if the registered document has not been executed
in his favour.

In respect of a building constructed on leasehold land, the owner of the building will be
treated as the owner for the purpose of this head, even though he is not the owner of the land
on which building is standing. The position will remain same even if the building is to be
transferred to the lessor on completion of the lease.

Rental income from property is charged to tax under the head “Income from house property
in the hands of the owner of the property”.

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If a person receiving the rent is not the owner of the property, then rental income is not
charged to tax under the head “Income from house property” (E.g. Rent received by tenant
from sub-letting).

In the following cases a person may not be the registered owner of the property, but he will
be treated as the owner (i.e., deemed owner) of the property and rental income from property
will be charged to tax in his hands

2.3. Who is a 'deemed owner' for the purpose of payment of property tax?

Deemed owner is an owner by implication, he may not be the person under whose name
property is registered. Some instances in which a person who is not the owner of the property
is considered to be the owner for the purpose of tax levy are-

Deemed Owner of House Property (Section 27) - for computing House Property Income
According to Section 27 of Income-tax Act the assessee in following cases is deemed to be
the owner of the house property, though not owner of the house property

2.4. Transfer to a Spouse [Section 27(i)]:

If an individual transfers any house property to his or her spouse otherwise than for adequate
consideration, the transferor in that case is deemed to be the owner of the property so
transferred. This would, however, not cover cases where a property is transferred to a spouse
in connection with an agreement to live apart.

Exception - In case of transfer to spouse in connection with an agreement to live apart, the
transferor will not be deemed to be the owner. The transferee will be the owner of the house
property.

Note 1:- Where the individual transfers cash to his/her spouse or minor child and the
transferee acquires a house property out of such cash, the transferor shall not be treated as
deemed owner of the house property. Such transaction will, however, attract clubbing
provisions.

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Note-2: The above rule is not applicable in case of Son/daughter in law .So if you have more
than one self-occupied house and wants to out from deemed let out provisions the you may
transfer property in the name of your daughter in law then you will not be treated as deemed
owner of the house and if house is self-occupied then it will be counted in account of
daughter in law and you will be out of deemed to be let out property provision .Such
transaction covered under clubbing provision but as shown above income from such house
will be zero as treated as self-occupied by daughter in law.

2.5. Transfer to a Minor Child [Section 27(i)]:

If an individual transfers any house property to his or her minor child otherwise than for
adequate consideration, the transferor in that case is deemed to be the owner of the house
property so transferred. This would, however, not cover cases where a property is transferred
to a minor married daughter.

Where the individual transfers cash to his/her spouse or minor child and the transferee
acquires a house property out of such cash, the transferor shall not be treated as deemed
owner of the house property. Such transaction will however, attract clubbing provisions
discussed under Chapter 9.

Exception - In case of transfer to a minor married daughter, the transferor is not deemed to be
the owner.

Note Where cash is transferred to spouse/minor child and the transferee acquires property out
of such cash, then the transferor shall not be treated as deemed owner of the house property.
However, clubbing provisions will be attracted.

Eg: Mr. A transfers his house property worth 10 lakhs to Mrs.A out of love and affection. In
such a case, though Mrs. A is the legal owner, Mr.A will be liable to tax as deemed owner of
such property.

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 2.6. Holder of an Impartible Estate [Section 27(ii)]:

The holder of an impartible estate shall be deemed to be the individual owner of all properties
comprised in the estate. The impartible estate, as the word itself suggests, is a property which
is not legally divisible.

2.7. 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 leased under a House Building Scheme of a
society/company/association, shall be deemed to be owner of that building or part thereof
allotted to him although the co-operative society/company/association is the legal owner of
that building.

2.8. Person in Possession of a Property [Section 27(iiia)]:

A person who is allowed to take or retain the possession of any building or part thereof in
part performance of a contract of the nature referred to in section 53A of the Transfer of
Property Act shall be deemed owner of that house property. This would cover cases where
the (a) possession of property has been handed over to the buyer, (b) sale consideration has
been paid or promised to be paid to the seller by the buyer, (c) sale deed has not been
executed in favour of the buyer, although certain other documents like power of
attorney/agreement to sell/will etc. have been executed. The buyer would be deemed to be the
owner of the property although it is not registered in his name.

2.9. Person having right in a Property for a period not less than 12 years
[Section 27(iiib)]:

A person who acquires any right 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 than 12 years shall be deemed to be the owner of that building or part thereof. This will
not cover the case where any right by way of a lease is acquired from month to month basis
or for a period not exceeding one year.

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Eg: A lets out a property to Miss B on a lease of 9 years. However, Miss B has a right to
renew the lease for a further period of 3 years. Here, Miss B shall be deemed as an owner of
the property u/s 27.

3. TREATMENT OF INCOME FROM CO-OWNED PROPERTY

[SECTION 26]

I. Where property is owned by two or more persons, whose shares are definite and
ascertainable, then the income from such property cannot be taxed as income of an
AOP.

II. The share income of each such co-owner should be determined in accordance with
sections 22 to 25 and included in his individual assessment.

III. Where the house property owned by co-owners is self-occupied by each of the co-
owners, the annual value of the property of each co-owner will be Nil and each co-
owner shall be entitled to a deduction of 30,000/1,50,000, as the case may be, under
section 24(b) on account of interest on borrowed capital.

IV. Where the house property owned by co-owners is let out, the income from such
property shall be computed as if the property is owned by one owner and thereafter
the income so computed shall be apportioned amongst each co-owner as per their
specific share.

4. TREATMENT OF INCOME FROM PROPERTY OWNED BY A

PARTNERSHIP FIRM

I. Where an immovable property or properties is included in the assets of a firm, the

income

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 II. from such property should be assessed in the hands of the firm only. (ii) Hence, the
property income cannot be assessed as income of the individual partner in respect of
his share in the firm.

5. CASES WHERE INCOME FROM HOUSE PROPERTY IS

EXPEMT FORM TAX

5.1. CASES

In Gujarat State Co-operative Union v. CIT it was held that: “The language of the
provision emphasizes that the sole purpose of the existence of the institution should be
educational. So the income of such institutions is contemplated. Therefore, mere existence of
profit will not disqualify the institution if the sole purpose of its existence is not profit-
making but is educational activity.”

In CIT v. Ashoka Charity Trust , it was held that “even though the assessee received
voluntary contributions from non-charitable institutions, the expenditure incurred should be
considered to have been met out from the income derived from property held under trust.”

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