Income is taxable under the head ‘house property’ if it arises from a property consisting of any building or lands appurtenant thereto. For computation of income under this head, a house property is classified into three categories – let-out, self-occupied and deemed let-out house property.
The income from a house property is computed on basis of its annual value. Numerous factors are considered to compute annual value such as municipal valuation, fair rent, standard rent and actual rent. Even if a property is not actually let-out during the year, annual value of a property is computed on notional basis and, accordingly, charged to tax. However, if property is self-occupied or cannot be occupied by the owner due to his employment, business or profession at any other place, then the annual value of any two of such properties is taken as ‘nil’.
In general, only the actual owner of a house is believed to be liable to pay tax. But, this is not the case under the Income Tax Act. According to 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, though 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 as any owner.
Assessee should be the Owner
Income is taxable under the head, “Income from house property” only if the assessee is the owner of a house property: the word “owner” includes a legal owner as well as deemed owner.
- Legal owner:
To become an owner of a property, a person must hold the legal title of the property in his name. He must be able to exercise the rights of the owner, not on behalf of the owner but in his own right.
- Deemed owner:
Although, in certain situation, despite of not holding the legal ownership of a property, a person is considered as deemed owner of the property, and, accordingly, income from such property is chargeable to tax in his hands even though he is not the legal owner of such property.
➢ For the purpose of section 22 of the Act, owner may be an individual, HUF firm, company, cooperative society or association of persons, etc.
➢ Annual value of property is assessed to tax under section 22 of the Act in the hands of owner even if he is not in receipt of income.
➢ It is not required that ownership should extend to the site on which building stands as well as the superstructure.
➢ Income from subletting is not taxable under section 22 of the Act – Income from subletting is not taxable as income from house property.
Section 27 states that 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.
(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 the society, company or association, as the case may be, 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 of the nature referred to in section 53A of the Transfer of Property Act, 1882, shall be deemed to be the owner of that building or part thereof;
(iiib) a person who acquires any rights in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in clause (f) of section 269 UA, shall be deemed to be the owner of that building or part thereof.
- Transfer to Spouse or Minor Child –
When an individual transfers a house property without adequate consideration to his/her spouse or his/her minor child, the transferor is deemed as owner of the property. This rule is, though, not applicable, if an individual transfers a house property to his/her spouse under an agreement to live apart or to his or her minor married daughter.
- Holder of Impartible estate –
The holder of impartible estate is deemed as owner of the property.
- Property held by company/association of persons/cooperative society –
A member of co-operative society, company or other association of persons to whom a building or a part thereof is allotted or leased under the house building scheme of the society, company or association, is treated as deemed owner of such property.
- A person who has acquired a property under power of attorney transaction –
If a person has obtained a property under a “power of attorney transaction” by satisfying the conditions of section 53A of the Transfer of Property Act, he is deemed as owner of the property, although he may not be the “registered owner” of the property. Section 53A of the Transfer of Property Act requires the following conditions:
Condition 1: There is an agreement in writing between the purchaser and the seller.
Condition 2: The purchaser has paid the consideration or he is ready to pay the consideration (if there is no consideration as in the case of gift, then section 53A of the Transfer of Property Act is not applicable).
Condition 3: The purchaser has taken the possession of the property.
If the aforesaid three conditions are satisfied, the purchaser becomes the deemed “owner” of the property for the purpose of income-tax, even if he is not the registered owner of the property.
- A person who has acquired a right in a building under Sec 269UA(f) –
If a person acquires a right in a building by virtue of a transaction which is referred to in section 269UA(f), then he is deemed as owner of the property. Broadly speaking, section 269UA (f) covers the case of taking a property on lease for a term of not less than 12 years (whether fixed originally or there is a provision for extension of term and the aggregate period is not less than 12 years). This provision of deemed ownership does not cover any right by way of a lease from month to month or for a period not exceeding one year.
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.
- Dr. Jyoti Rattan, Taxation Laws (Bharat Law House Pvt. Ltd., New Delhi, Eleventh Edition, 2019)
- Income Tax Act, 1961, bare Act, Commercial Law Publishers (India) Pvt. Ltd
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