1. Sections 22 to 27 of the Act deal with the subject of taxation of “Income from house property”.

Section 22 : Annual value of property is taxable under the head “Income from House property”.

Section 23 : Determination of ‘Annual value’

Section 24 : Allowable deductions from “Income from House property”

Section 25 : Amounts not deductable from “Income from House property”

Section 25A : Special Provision for arrears of rent and unrealised rent received subsequently.

Section 26 : Property owned by co-owners

Section 27 : Situations where the ownership shall be deemed, for taxing income from house property

Income From House Property

2. Section 22 provides for taxation of ‘annual value’ of a property consisting of any buildings or lands appurtenant thereto. The term ‘buildings’ includes any building- office building, godown, storehouse, warehouse, factory, halls, shops, stalls, platforms, cinema halls, auditorium etc. as long as they are not used for business or profession by owner. Land appurtenant includes land adjoining to or forming a part of the building. It would depend on the nature of the land, whether it is appurtenant to the residential building, factory building, hotel building, club house, theatre etc. and will include courtyards, compound, garages, car parking spaces, cattle shed, stable, drying grounds, playgrounds and gymkhana.

2.1 Some critical issues on Section 22

  • Tax imposed under section 22 is a tax on `annual value’ of house property. The purpose for which the building is used by the tenant is also immaterial.
  • Income arising out of the building or a part of the building is covered under this section. Existence of a building is an essential prerequisite.
  • Any income, arising out of vacant land, is not covered under this section even though it may be received as rent, ground rent or lease rent. Such income would be assessable as income from other sources. Even rent, arising out of open spaces, or quarry rent, is taxed as income from other sources.
  • It does not make any difference, if the property is owned by a limited company, a firm, a HUF or individual.
  • When the property is used by the owner for his business or profession, the ‘annual value’ of property is not charged in the hands of the owner.
  • When a firm carries on business or profession in a building owned by a partner, no income from such property is added to the income of the partner, unless the firm pays the partner any rent for the same.
  • For the purpose of section 22, the owner has to be a legal owner. However, the Supreme Court in the case of CIT v/s. Podar Cement (P) Ltd. etc. 226 ITR 625 (SC). held that ‘owner’ is a person who is entitled to receive income from the property in his own right. The requirement of registration of the sale deed in the context of Section 22 is not warranted.
  • Annual value of property is assessed to tax under section 22 in the hands of owner even if he is not in receipt of income or even if income is received by some other person.
  • If the assessee is not the owner of the building, but is a lessee and he sublets the property, he would be taxed under the head ‘Income from other sources’.
  • Co-ownership: In case where property is owned jointly by two or more persons, and where shares of such joint owners are definite and ascertainable, the income of such house property will be assessed in the hands of each co-owner separately. For the purpose of computing income from house property the rent/ annual value will be taken in proportion to his share in the property. In such an eventuality, the relief admissible under section 23(2) shall also be separately allowable to each such person [Explanation to Section 26]. However, where the share is not definite, the income of the property shall be assessed as that of an Association of persons.(s 26)

3. Deemed ownership (Section 27)

In the following situations the ownership shall be deemed for taxing income from house property in view of Section 27 of the Act:

i. When house property is transferred to spouse (otherwise than in connection with an agreement to live apart) or minor child (not being a married daughter) without adequate consideration (Section 2 7(i))

ii. In the case of holder of an impartible estate (Section 27(ii))

iii. A member of a cooperative society, company etc. to whom a building or part thereof has been allotted or leased under a house building scheme (Section 27(iii)). Thus, when a flat is allotted by a cooperative society or a company to its members/shareholders who enjoy the flat, technically the co-operative society/company may be the owner. However, in such situations the allottees are deemed to be owners and it is the allottees who will be taxed under this head.

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, is deemed as the owner of that building (or part thereof) [Sec. 27 (iiia)].

iv. 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) by virtue of any such transaction as is referred to in section 269UA(f) [i.e. if a person takes a house on lease for a period of 12 months or more, is deemed as the owner of that building or part thereof] [Sec. 27 (iiib)].

(v) 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.[Sec. 27 (vi)].

4 Determination of ‘annual value’ of the property [Sec. 23]

‘Annual Value’ is inherent capacity of property to yield income. The inherent capacity has been defined as the sum for which the property might reasonably be expected to be let from year to-year. It is not necessary, that the property should be actually let. It is also not necessary that the reasonable return from property should be equal to the actual rent realized when the property is, in fact, let out. Under Section 23 (1) of the Income tax Act, annual value of property shall be deemed to be the following:

i. The sum for which the property might reasonably be expected to be let out from year to year;

ii. 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

iii. Where the property or 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 clause (a) the amount so received or receivable.

4.1 Annual value to be calculated as under:

1. Where RC Act applicable

(i) Standard rent under the Rent Control Act; or

(ii) Actual rent received Whichever is higher

2. Where RC Act is not applicable:

(i) Municipal Value or

(ii) Fair Rent or

(iii) Rent Received whichever is higher

Sub-section 2: The annual value of a house or part of a house shall be taken as nil if the property

  • is occupied by the owner himself for the purpose of his own residence or,
  • if such house or part thereof cannot be occupied by him because his employment, business or profession is carried on at any other place and, he has to reside at that other place in a building that does not belong to him.

4.2 Some critical issues, on annual value:

  • ALV would not be taken nil if the house or part thereof is actually let during the whole or any part of the previous year; or if any benefit there from is derived by the owner.
  • If the property consists of more than one house, ALV would be taken nil in respect of only one of such houses, at the option of the assessee.
  • The annual value of the house(s), (other than the house in which the assessee has exercised option) shall be determined under sub-section (1) as if the house (s) had been let out
  • From the annual value as determined above, municipal taxes will be deducted only if the property is let out during the whole or any part of the previous year and Municipal taxes are borne by the land lord and paid during the year.
  • Where the municipal taxes have become due but not been actually paid, the same will not be allowed. Municipal taxes are allowed only on payment basis even if the taxes belonged to a different year.
  • Unrealised rent will be excluded from rent received/ receivable only if the conditions are satisfied: (Expl. to Section 23(1) r.w Rule 4). These conditions are (1) the tenancy is bona fide (2) the defaulting tenant has vacated, or steps have been taken to compel him to vacate the property (3) the defaulting tenant is not in occupation of any other property of the assessee and (4) the assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless.

5. Deductions permitted from Income from house property [Sec. 24]

Amount left after deduction of municipal taxes is net annual value. Following permissible deductions are allowed from Annual Value in cases of let out properties (Section 24).

(1) Deduction equal to 30% of the annual value, irrespective of any expenditure incurred by the taxpayer (s.24(a)). No other allowance for depreciation, repairs, maintenance etc. would be allowable.

(2) Interest on borrowed capital (s.24(b)). Interest on borrowed capital is allowable as deduction on accrual basis (even if account books are kept on cash basis) if capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the house property.

5.1 Some critical issues on deduction of interest:

1 The interest is deductible on ‘payable’ basis i.e. on accrual basis. Hence it should be claimed on yearly basis even if no payment has been made during the year.

2 For claiming interest, it is not necessary that the lender should have a charge on the property for the principal amount or the interest amount.

3 Interest payable for outstanding interest is not deductible (Shew Kissan Bhatter v. CIT (1973) 89 ITR 61 (SC).

4 Taxpayer cannot claim deduction for any brokerage or commission paid for arranging loan either as a onetime arrangement or on periodical basis till the loan continues.

5 In terms of circular No. 28 dated 20th August 1969, if an assessee takes a fresh loan to pay back the earlier loan, the interest on the fresh loan would be deductible.

6 Interest on borrowing can be claimed as deduction only by the person who has acquired or constructed the property with borrowed fund. It is not available to the successor to the property (if the successor has not utilized borrowed funds for acquisition, etc).

7 In case of Central Government employees, interest on house building advance taken under the House Building Advance Rules (Ministry of Works and Housing) would be deductible on the basis of accrual of interest which would start running from the date of drawl of advance. The interest that accrues in terms of rule 6 of the House Building Advance Rules is on the balances outstanding on the last day of each month (Circular No. 363, dated June 24, 1983).

8 Interest for pre-construction period: In such a case, interest paid/ payable before the final completion of construction or acquisition of the property will be aggregated and allowed for five successive financial years starting with the year in which the acquisition or construction is completed. Please note that this deduction is not allowable if the loan is utilized for repairs, renewal or reconstruction.

9 Interest payable to Non resident: As per section 25, interest chargeable under the Income tax Act, which is payable outside India 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 under section 163) shall not be deducted in computing the income chargeable under the head “Income from house property”.

6. Set off and carry forward of loss in cases of house property :

(1) Where the property has been let out, loss from one house property can be set off against the income from another house property. The remaining loss, if any, will be set off against incomes under any other heads like salary, business etc. In case the loss does not get wiped out completely, the balance will be carried forward. (Sections 70 and 71).

Please note with effect from financial year 2017-18 Govt has restricted the limit of set off of loss from house property against other heads of Income to Rs. 2 Lakh. Till financial year 2016-17 there was no restriction and assessee was allowed to set-off any loss from house property against other heads of Income. Please note the restriction is placed on set-off of losses and not on the amount of home loan interest that can be claimed as a deduction under Section 24 for a rented house property, the losses which could arise on account of such interest repayment can be set off only to the extent of Rs 2 lakhs. Such loss in excess of Rs. 2 Lakh can be carried forward for upto 8 Assessment Years succeeding the year of loss and can be set off against Income under the head House Property.

(2) In regard to carried forward losses, Section 71B will apply. Carried forward loss under the head “Income from house property” shall be allowed to be carried forward and set off in subsequent years (subject to a limit of 8 assessment years) against income from house property.

7. Income from house property is wholly exempt from tax in following situations

  1. Income from any farmhouse forming part of agricultural income;
  2. Annual value of any one palace in the occupation of an ex-ruler; Section 10(19A)
  3. Property Income of a local authority; Section 10(20)
  4. Property income of any registered trade union; Section 10(24)
  5. Property income of a member of a Scheduled Tribe;
  6. Property income of a statutory corporation or an institution or association financed by the Government for promoting the interests of the members either of the Scheduled Castes or Scheduled tribes or both;
  7. Property income of a corporation, established by the Central Govt. or any State Govt. for promoting the interests of members of a minority group;
  8. Property income of a cooperative society, formed for promoting the interests of the members either of the Scheduled Castes or Scheduled tribes or both;
  9. Property Income, derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities by an authority constituted under any law for the marketing of commodities;
  10. Property income of an institution for the development of Khadi and village Industries;’
  11. Self-occupied house property of an assessee, which has not been rented throughout the previous year;
  12. Income from house property held for any charitable purposes;
  13. Property Income of any political party. Section 13A

8. House Property income of NRI’s in India

Property is a favourite Indian asset because of its ability to generate regular cash flows through rent. As per section 5(1) of Income-tax Act, global income of the Resident is taxable in India. In case of non-resident, income which is received or deemed to be received or accrues or deemed to accrue in India is taxable as per section 5(2). As per section 9(1)(i), income from property is taxable in India. Definition of NRI for the purposes of repatriation will be that of the FEMA and for the purposes of income tax, it is given in section 6.

8.1 Some critical issues on NRI income from property

  • Rent proceeds can be credited to the NRE or NRO account. Rent proceeds received in these accounts can be freely repatriated. If the NRI does not have an NRE or NRO account, the proceeds can also be directly remitted abroad, but the NRI would need an appropriate certificate from a chartered accountant certifying that all taxes have been duly paid.
  • As per section 195, tax will be deducted at source by the payer of the rent. The payer of the rent must obtain a TAN number and deduct TDS from the rent amount. He must also provide a TDS certificate to the NRI.
  • NRI is also a resident of another country for tax purposes. In most cases, countries levy tax on residents on their global income. In such cases, we need to refer to the Double Taxation Avoidance Agreements (DTAA) that India has entered into with various countries.
  • India-US DTAA for instance, provides that rent from immovable property will be taxed in the country in which the property is situated. So NRIs who are residents of US would have to pay tax on rental income in India. However they would still have to declare that income while filing their tax returns in US. They would get credit for taxes paid in India.
  • Deemed rental income will also apply to NRI: There will be no income tax on a self-occupied property. The other property, whether rented out or not, will be deemed to be given on rent. If the NRI has not shown the rent on second property, it has to be calculated as per provisions of section 23.
  • Income Tax Act does not specify if either or both these properties must be situated only in India. From the reading of the IT Act, the rule of ‘more than one property’ will apply to global properties, not just to the properties situate in India. In other words, if an NRI owns a house in any other country and lives there, he will have to pay tax on the property in India. Example, if an NRI is resident in USA and he owns and lives in a house in USA. He also owns a house property in India. Even if he does not give the property in India on rent, he would have to pay income tax on deemed rent in India determined as per section 23.
  • Inherited property: Once an NRI inherits a property, he becomes the owner. Therefore, the property qualifies for the same tax rules as if he had purchased the property.
  • As per the provisions of the Income Tax Act, NRI must also pay advance tax.

9. Some critical issues on House Property income

  • If the tax payer constructed a house property by borrowing interest free loan; and he had to take interest bearing loan to repay the above interest free loan. Interest paid on such loan borrowed for repayment of original loan for acquiring house property is allowed even though the original loan is interest free;
  • When the owner of the building gets along-with the rent, rent or hire of other assets (furniture) or charges for different services provided in the building, then if the composite rent is separable then the portion of rent for building will be taxed as “income from house property” and the rent for other things under “Income from other sources” depending on facts.
  • When the composite rent is not separable then, the composite rent is taxed as “Income from house property” or “Income from other sources” depending on the facts of the case.
  • Main criteria for deciding whether the rent is assessable as income from house property or as business income depends upon the fact that whether the assets are exploited commercially or whether the same are let out for enjoying the rent.
  • Even if a company is formed for the sole object of acquiring and letting out immovable properties, the rental income would be taxable as “Income from House property” and not as business income.
  • The annual value of property, owned by a person during the previous year, is taxable in the relevant Assessment year, even if the assessee is not the owner of the property during the assessment year.
  • Unrealised rent subsequently recovered would be taxable in the year of receipt. However, in such case, it is not necessary that the assessee continues to be the owner of the property in the year of receipt also.(Section 25A)
  • When the owner of a building receives arrears of rent from such a property, the same shall be deemed to be the income from house property of the year of receipt irrespective of whether or not the assessee is the owner of the property in that year. 30% of the receipt shall be allowed as deduction towards repairs, collection charges etc. No other deduction will be allowed. (Section 25A)
  • When flat is registered in both the spouse’s names, full EMIs are paid by only one spouse, then that spouse remains the deemed owner of the house (Section 27) and income from house property will be added in transferor spouse’s income.
  • Depreciation cannot be claimed on the property on which income from house property is admitted and 30 % of the annual value is claimed as deduction. The AO has to disallow the depreciation of the properties (if claimed) from which property income is assessed under Income from House property.

10. Documents/ Information to be collected by the A.O. for examining Income from House Property:

  1. Nature of property given on rent (Bungalow/Flat/Land etc.)
  2. Location of property, Size (extent of Property/ Built-up area) of property.
  3. Rent Agreements/lease agreements/leave and license agreement by whatever name called
  4. Details of Deposits received in connection with renting/ leasing of property and the interest payable on the said deposits.
  5. Details of other immovable properties owned and usage of the properties.
  6. In case of vacant property – Rent Control Act, Municipal Valuation of Property for the purpose of determination of Annual Letting Value.
  7. Agreement for services, furniture & fixtures, in case part of payment relates to services or provisions other than property.
  8. In case of co-ownership, shares and documentary evidence.
  9. Evidence for deductions claimed under Section 24 of the I.T. Act.
  10. In case of Home loan taken for the property, interest certificate from the Bank
  11. In case of other loans taken for purchase of property, necessary bank documents/statements for the interest claimed.
  12. In case second loan taken to repay the first loan taken for the property, necessary linkage documents.
  13. Relevant documents depending on the situation to examine the ownership or otherwise under Section 27 of the I.T. Act.
  14. In case of claim of set off of loss under House property, necessary IT Returns of earlier years for loss allowed to be carry forward.
  15. In case rent is paid to Non Resident, proof of TDS under Section 195 of the Act and proof of payment in to government account.
  16. In case interest is paid to Non Resident, proof of TDS under Section 195 of the Act and proof of payment in to government account. (Section 25). In case TDS is not deducted, details of person assessable as agent of the NRI
  17. In case of Non Resident claiming credit for the tax paid outside India under DTAA, proof of tax paid given by the authorities of that country.

11. Case Laws on Income from House Property

Note : Case laws given in the book “Case Laws In favour of the Department” may be verified for more information.

  • Under common law ‘owner’ means a person who has got valid title generally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, Registration Act etc. But in the context of Section 22 of the Income tax Act, having regard to the ground realities and further having regard to the object of the Income tax Act, namely, “to tax the income’’, ‘owner’ is a person who is entitled to receive income from the property in his own right. The requirement of registration of the sale deed in the context of Section 22 is not warranted.

CIT v. Podar Cement (P) Ltd. 226 ITR 625 (SC).

  • Contribution of capital by partners in the form of land – No document evidencing Registration of transfer by partner in favour of partnership under Registration Act. – Transfer not genuine – Land does not become property of firm – House property income to be assessed in the hands of partners

CIT Vs Kashiram Ramgopal Agencies (Gau) 231 ITR 10

  • Firm transferring its immovable property to partners without a registered deed – Transfer is invalid – Rental income from property to be assessed in the hands of firm.

CIT Vs Palaniappa Enterprises (Mad) 234 ITR 635 Jansons Vs CIT (Kar) 154 ITR 432

Ram Narain & Brothers Vs CIT (All) 73 ITR 423

S.N. Syed Mohammed Saheb & Bros. Vs CIT (Ker) 68 ITR 791

  • Purchase of properties in joint names of partners with funds of firm – Properties treated as that of firm right from inception and depreciation claimed on it – Income from properties treated as firm’s income and divided among partners – Properties cannot be transferred to partners by book entries of firm – Income from property cannot be assessed as that of AOP but belong to firm.

Abdul Kareemia & Bros Vs CIT (AP) 145 ITR 442

  • A gift by a Mohammedan to his wife in lieu of the dower debt after marriage is sale of property – Such a transfer has to be made by a registered instrument if value of immovable property is more than Rs.100 – Till such registration, house property income to be assessed in the hands of the husband

CIT Vs Syed Saddique Imam and Others (Patna)111 ITR 475, 117 ITR 62

  • Let out property – Fair rental value can be determined under Section 23(1)(a) by ITO If tenant sub-let it at a higher rent, the same can be adopted as fair rental value

CIT Vs G. Ramesan (Ker) 241 ITR 426 N. Nataraj Vs DCIT (Mad) 266 ITR 277

  • Property let out for less than standard rent – Annual Letting Value is standard rent.

CIT Vs Parasmal Chordia (Mad) 233 ITR 147 Visveswaraya Ind. Res. Dev. Centre Vs DCIT (ITAT, Mum) 59 ITD 156

  • Where the property has not been let out at all during the year, there is no question of granting any vacancy allowance under Section 23(1)(c) – Period for which a let out property may remain vacant cannot exceed period for which property has been let out

Vivek Jain Vs ACIT (AP) 202 Taxman 499 ; 63 DTR 174

  • Provisions of Section 23(1)(c) dealing with vacancy allowance applies only to a property which is let out – Self-occupied property is not eligible for vacancy allowance

Ramesh Chand Vs ITO (ITAT, Agra) 21 DTR 257; 29 SOT 570 ; 130 TTJ 12

  • Agreement to sell property – Property in occupation of agreement holder and owner not receiving rent – Owner voluntarily foregoing rent – No vacancy allowance.

CIT Vs Dhun D. Dalal (Mad) 233 ITR 143

  • Surcharge on Municipal tax collected by assessee from its tenants – Part of Annual Value.

ACIT Vs Poddar Projects Ltd. (Kol) 92 ITD 468

  • To avail exemption, property must be in the occupation of the owner for his own residence and not by his relative even if it was free of cost

Jashvidyaben C. Mehta Vs CIT (Guj) 172 ITR 680

  • Where property is let out to employer and got re allotted, benefit of self-occupation is not available

D.R. Sunder Raj Vs CIT (AP) 123 ITR 471

  • Building let out to employees of subsidiary company who are separate and independent assesses – Not entitled to exemption since it cannot be treated as used for the purpose of business of assessee

CIT Vs T.V. Sundaram Iyengar & Sons Ltd. (Mad) 271 ITR 79

  • Relief for unoccupied property owing to employment or business at a different place, is available only to an ‘individual’ and not to an HUF

Deepak L. Banker Vs CIT (Mad) 145 CTR 489

  • Increase of rent with retrospective effect under compromise
    settlement with tenant – Assessable as arrears of rent

B.M. Gupta & Sons (HUF) Vs ACIT (Del) 299 ITR 410

  • Interest-free security deposit taken by assessee hugely disproportionate to monthly rent charged – Device to circumvent liability to income tax – Notional interest on security deposit to be treated as income from House Property

CIT Vs Streetlite Electric Corporation (P&H) 336 ITR 348

ITO Vs Baker Technical Services (P) Ltd. (ITAT, Mumbai-TM) 125 ITD 1

CIT Vs M/s Transmarine Corporation (SC) SLP CC 8999/09 in CA no. 5470/2011 – order dated 15/07/2011.

  • If a particular expenditure (eg. brokerage) is not specifically provided to be deductible, deduction thereof cannot be claimed under Section 24 since the word used is ‘namely’

CIT Vs H.G.Gupta & Sons (Del) 149 ITR 253

ITO Vs Chunilal Jain (ITAT, Gau) 60 TTJ 448

Tube Rose Estates (P) Ltd. Vs ACIT (ITAT, Del) 123 ITD 498 Aravali Engineers P. Ltd. Vs CIT (P&H) 335 ITR 508

Piccadily Holiday Resorts Ltd Vs DCIT (ITAT, Del) 94 ITD 267

  • Deduction of interest on borrowed capital – Assessee to prove nexus with acquisition / construction / reconstruction / repair / renewal of property.

CIT Vs Four Fields (P) Ltd. (P&H) 231 ITR 262 K. Sunandamma Vs CIT (Kar) 164 ITR 446

CIT Vs Indramani Devi Singhania (All) 189 ITR 124

  • Assessee inheriting property with mortgage from his father – Assessee also took loan for investment in shares and other business on the security of this property – Taking second loan to pay off all previous loans – Original loan taken by assessee and father not for the purpose of construction / acquisition of House Property – Interest paid on loan not deductible

K.S. Kamalakannan Vs ACIT (ITAT, Chennai) 10 ITR (Trib) 321

CIT Vs Murlidhar Kanodia & Sons (HUF) 204 ITR 760 (All)

  • Advance received by builder from buyers of flat – Failure to deliver in time and interest paid – Capital not borrowed for construction of property – Not deductible from House Property income.

Akash & Ambar Trust Vs CIT (Cal) 268 ITR 93

  • Only interest on capital / mortgage / charge is deductible from House Property income – Not interest on interest i.e., compound interest.

Shew Kissen Bhatter Vs CIT (SC) 89 ITR 61

  • Interest paid on a mortgage created to secure unpaid consideration for the purchase of the property could not fall under Section 24(1)(iv) or (vi)

Govinda Bhatt Vs CIT (Mad) 235 ITR 528

  • Borrowed money utilized for paying a tenant, for handing over possession of property or for surrendering tenancy right – Interest on such loan not allowable as deduction

ACIT Vs Virender Singh (ITAT, Del) 104 ITD 365

  • Partition creating only life interest to karta – During subsistence of his life interest, karta to pay annual charge to his sons and wife – Amount so paid by Karta, not allowable as creation of charge was voluntary.

CIT Vs Late Sohanlal ( by L/H ) (Del) 257 ITR 242 CIT Vs Satyanarayana Sikaria (Gau) 238 ITR 855

  • As per lease agreement, lessees were to carry out day-to-day repairs – No deduction to lessor on account of repairs.

A.K. Mahindra Vs ITO (ITAT, Del) 44 ITD 430

  • Damages recovered by tenant by way of adjusting from rent payable- Not deductible.

ITO Vs Purshottam Lal Roongata Family Welfare Trust (ITAT,SB-Jaipur) 58 ITD 19

  • Assessee-company was engaged in business of construction and development of residential/commercial units. It had given some commercial units on lease and received rent there from. Assessee claimed that leasing of residential/ commercial units was also commercial utilization of immovable property and, hence, income derived there from was to be assessed as income from business. Assessee failed to prove that lease rent received by it was from exploitation of property by way of complex commercial activities – therefore income was assessable under head ‘Income from house property’

Roma Builders (P.) Ltd. VS. Jt CIT (OSD) 131 ITD 91 (MUM.)

  • There was no manufacturing activity during the relevant previous year and it had sold its machinery. But on the other hand, the lease of land and building was continuing. This being so, the lease rental was clearly from exploitation of property which was neither a complex commercial activity nor a lease of property along with machinery, furniture and fittings. Therefore, such lease income had to be assessed under ‘Income from house property’. Further, clearly the assessee was not carrying on any business during the relevant previous year. Therefore, its claim that carry forward business losses ought to have been considered for set off against lease rentals could not be accepted

Asst. CIT Vs. T&R Welding Products (India) Ltd. [2010] 129 TTJ 250 (CHENNAI)

  • Deemed owner – Assessee-company acquired on lease office premises in question vide agreement dated 30-3- 1995 – Lease period was for ten years with option of further renewal – Assessee let out said premises for a rent for a period of five years with option of renewal – Whether since assessee was in possession of property with full transferable rights and had been receiving rent from sub-tenant in his own capacity being owner of property, lower authority rightly treated assessee as deemed owner under section 27(iiib) – Held, yes [In favour of revenue]

Radio Components & Transistors Co. Ltd. Vs. ITO, Ward 2(3)(1), Mumbai 50 SOT 237 (MUM.)

  • It is not permissible to add notional interest on interest free security deposit to actual rent received for arriving at ALV. If Assessing Officer can show that rateable value under municipal laws does not represent correct fair rent, then he may determine same on basis of material/evidence placed on record.

CIT, Delhi, Central III VS. Moni Kumar Subba [2011] 333 ITR 38 (DELHI)(FB)

  • Assessee-company let out its two properties to wife of one of its Directors, namely ‘R’ – ‘R’ sub-letted said properties at a much higher rent within a short span of four months – Assessing Officer thus, held it a colourable device to avoid tax, determined ALV at an amount which ‘R’ was getting from sub-tenant. On facts, it could be concluded that rent agreement between assessee-company and ‘R’ was generated as a device not only to reduce tax liability of assessee-company but also with a view to allow ‘R’ to enjoy fruits of property of assessee-company.

Pramila Estates (P.) Ltd. VS. ITO [2009] 27 SOT 133 (MUM.)

  • Assessee-company was partner in a firm – On dissolution of firm it took over all its assets and liabilities, including a building – It also undertook to pay amounts standing to credits of erstwhile partners and claimed deduction of interest on amount so payable from rental income from building shown as ‘income from house property’ – Here no relationship of borrower and lender had come into existence and, therefore, it could not be said that assessee acquired building with aid of borrowed capital. Therefore interest paid was not allowable under section 24(1)(vi)

CIT Vs. Four Fields (P.) Ltd [1998] 231 ITR 262 (PUNJ. & HAR.)

  • Section 27(iiib), read with Sections 22 and 56 – Deemed owner – Since tenancy was unregistered and on month to month basis, provisions of section 27(iiib) would not apply and, thus, assessee could not be treated as deemed owner of property. Therefore, impugned order passed by authorities below was treating the income under other sources to be upheld.

Tushar Pravinchandra Shah Vs. Dy CIT, Central Circle-1, Baroda [2011] 129 ITD 178 (AHD.)

  • Assessee had shown rental income of Rs. 1 lakh per annum for property having constructed area of 1,23,490 sq ft based on an lease agreement entered into with lessee – Besides that assessee had also received interest-free deposits of Rs.67 crores which had been diverted interest-free to assessee’s sister concerns. Approved valuer valued annual letting value of total constructed area at Rs.75,63,360 which was admitted by assessee as fair rental value of property under section 23 and on that basis, Assessing Officer, determined income from house property. Assessing Officer also imposed penalty under section 27 1(1)(c). Explanation offered by assessee was neither substantiated nor was shown to be bona fide, Explanation (1) to section 271(1)(c) came into play and penalty was rightly imposed upon assessee.

PSB Industries India P ltd vs CIT 211 Taxman 173 (Delhi)

Authored by – K. Madhusudan, Addl CIT, Range 1, Ahmedabad

(Republished with Amendments)

Please note- That Certain case laws may not be reflecting the Law on the date of Republication i.e. on 18th August 2018. so you are requested to please check the relevant section / Rules before relying on Case Laws.

More Under Income Tax


  1. Vaibhav Raijada says:

    Assessee is tenant of building. If the building gets destroyed due to natural calamity, whether assessee eligible to claim any benefit ? Can you please determine taxability in House Property?
    If compensation received subsequently, what is the tax implication?

  2. Rupin Merchant says:

    Suppose four person buy an office in co ownership. One of the co owner is using the office. The question is whether he should calculate depreciation on his part and what about other 4 co owners.

  3. Shreyans Kothari says:

    i have 3 flats. One in which i reside and other two are elsewhere but in the same building & on the same floor next to one another. I have combined the flats into one by breaking the partition wall. Now, for computation of Income From House Property, whether i calculate Deemed income from each flat separately or i can consider them as one?

  4. Rahul says:

    I’m living in a house owned by my mother and paying rent of the taxable part of the house. The same house is also Self Occupied by my mother for her living purpose. Please guide if the Income of rent is taxable to her and what deduction can she claim for self occupency.

  5. videshi mahato says:

    I have purchased a flat as co-owner with my spouse and house building loan is applied as co-applicant. But loan is repaying only from my account. There is not any contribution of spouse in relation to consideration for ownership.Does it the case of Deemed owner?

  6. Sai Lakshmi says:

    Our Tenants are staying from 2004 – taken flat for rent for office use at Hyderabad – Now recently from Sep’15 the Rent Rs 14500/- and maintenance charges 350/- + water charges 300/- is to be paid = 15,150/- Now they started deducting TDS @ 10% on complete amount as till now I am not liable to pay any taxes until now as my income is
    below the slab. Pl advise henceforth how to avail this deducted amount and what should we decide upon to maintain this.

    Sai lakshmi

  7. swetha says:

    My father owns the house property out of which i also have a share (but not legally transferred in my name). Out of the monthly rent received by him, he transfers the amount relating to my share of property to my account. Can the amount so received from my father, towards the rent from my share of property which is not legally in my name, be shown as income while preparing my tax return. If so, under what head if income.

  8. rahul says:

    Dear Ashok,
    you can also claim only 2 lakh maximum deduction for the housing loan interest payment as per income tax rule.

    Rahul Shahi

  9. Rahul says:

    can a director of a company give his office premises rent free to the company will he be taxed separately as deemed income? any case law to support it might be of great help too.

  10. Ashok says:

    I have two houses in Delhi. one house is self occupied and another house is on rent from which I get 10500 rent per month. I have taken loan of 50 lacs on this second house. When I approached my employer to consider the loss from house property not as 2 lacs but entire interest paid during the financial year, he simply refused. His logic was employer is following provisions of TDS and in TDS provisions employer cannot give benefit of giving larger loss from house property than 2 lacs on housing loan. Instead he suggested that I can claim deduction at the time of filing the return.
    I find this a bit hard to digest where first you give more money in Tax and then claim it back. Can you for sure tell me that employer should give the benefit to employee as per TDS rules, which at present he is denying.

  11. Nilesh Gandhi says:

    I want to inform you that, all the information given above is very deeply and important for me and useful for practical purposes.

    Actually our company doing business of construction and development of industrial park or industrial units and let our on lease rent basis or sub letting basis.

    So pls tell me under which head the rental income is chargeable and explain with reasons also.

    Please give reply as early as possible.

    Thanks & Regards,
    Nilesh Gandhi

  12. C R Srinivas says:


    Rental income of a property was shown for full 12 months in which about 3 months was receivable at the year end (say asst year 2011-12). During the next year (asst year 2012-13), tenant vacated the premises without paying 3 months rent. Can the unrealised rent shall be deductible as expenditure against income from house property of other properties

  13. Deepak BHADRA says:

    Can I claim depriciation on
    my house property bought on huf
    Also I have one commercial property on huf
    Also I have one commercial property on huf which I have rented

  14. Raja says:

    Dear Sir

    I am raja from Bangalore Our issue is that Our grand father(age 87) as a bungalow in is name and we all live in it. for some pity reasons due to is age he is fighting with us and he is threatening my father to leave the house and he is stating he will name is house to others(middle men who are supporting him}and we are from poor background accept the house we don’t have anything with us if we file case against him what shall we have to do does the property will be legally in my fathers name

    So what is the solution to the problem Reply in this will be highly appreciated

    Thank you

  15. Rachna says:

    In case of saif Ali khan vs the tribunal, it was held that brokerage and society maintenance charges are deductible expense from income from house property. Pl advise

  16. J. Soni says:

    I am currently staying with my parents and the property is in name of my parents.

    I have bought one new home and is let out (both properties are in same location).

    Can I claim full deduction of the amount of interest paid or is it restricted to Rs. 1,50,000.

    Is it necessary that there should be two properties in my name to be let out.

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