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Income From House Property

The document discusses various income tax rulings and provisions related to income from house property. It summarizes key judgements on whether income received from renting of property is business income or income from house property. It also discusses the tax exemption provided to builders for unsold properties under section 23(5) of the Income Tax Act. Finally, it provides examples on the deduction of interest paid on loans for self-occupied and co-owned properties.

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27 views13 pages

Income From House Property

The document discusses various income tax rulings and provisions related to income from house property. It summarizes key judgements on whether income received from renting of property is business income or income from house property. It also discusses the tax exemption provided to builders for unsold properties under section 23(5) of the Income Tax Act. Finally, it provides examples on the deduction of interest paid on loans for self-occupied and co-owned properties.

Uploaded by

Vicky D
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Income from House property

Unsold flat in the hand of builder liable to tax


under the head income from house property?
• CIT v. Ansal Housing and Constuction Ltd.(2013)
40 Taxmann.com305(Del.)
Delhi High Court held that the assessee was
engaged in business of construction and sale of flats
is liable to pay tax on notional rent in respect of
unsold flats, owned by the assessee at the end of
the relevant F.Y. if these flats are not let out.
• In view of Delhi High Court decision, Finance Act 2017, inserted new
section 23(5), which provided that-
Where the property consisting of any building or land appurtenant thereto
is held as stock in trade and the property or any part of the property is not
let out during the whole year or any part of the .PY. the annual value of
such property or part of the property for the period of one year from the
end of the F.Y. in which the certificate of completion of construction of the
property is obtained from the competent authority shall be taken to be nil.
Finance Act, 2019 extended the period of one year to two year
Example:
Construction completed – August , 2020
Exemption – 2021-2022, 2022-2023
Anik Financial Services (P) Ltd. v. ITO (2013) 35 Taxmann 430
(Mum) Trib.
• The Assessee company purchased an office which was used as it registered
office. However due to scaling down of business operation, it commercially
exploited the said premises as business service centre.
• The concept of business service centre is generally operational and workable
for temporary offices, for conducting meetings outside regular place or time.
• The Assesse company received rent of office premises from a single party.
• The Assessee company prepared a consolidated profit and loss account,
debiting the entire expenditure on the maintenance of office and claimed the
same as deductible business expenditure . It claimed entire receipts as
business income.
• The A.O. rejected the same and assessing the entire rental receipts as income
from house property.
• Tribunal held that where the concept of business service centre is
generally operational and workable for temporary offices, for
conducting meetings outside regular place or time , income received
by Assessee from renting of office premises to a single party was
assessable as income from house property.
Vikas Keshav v. ITO(2016) 71 Taxmann214 Pune Trib.

• Where Assesse intended to let out the property and took appropriate
efforts in letting the property but ultimately failed to let the same, in
terms of section 23(1)(c) , it annual value had to be regarded as nil.
Sunder raj v. CIT (1983) 123 ITR 47 (AP)
• The Assessee ,an employee working in VS Tobacco Co. Ltd. let out his
residential house to the employer on a monthly rent of Rs. 2,500 and the
same was in turn allotted rent free to the assessee by the employer for his
residential purposes. The assessee claimed that the income from house
property should be taken as nil under section 23(2), being self occupied by
him.
• Once the property is let out then it is considered to be let out house
property and it is immaterial that the same property assessee got from the
employer for residence. Assesse also getting monthly rent from that
particular property.
• Mr. X owned two adjoining flats in a building in Mumbai, where he is
residing with his family. Mr X also owned a flat in Pune, which is used
by his parents for residence purpose.
• A.O. is of view that Mr. X would be liable to pay income on the third
house on the basis of notional rent.
• Co-owned house property
In respect of self-occupied property each co-owner shall be allowed
deduction of actual interest subject to maximum of Rs. 2,00,000.
Suppose X and Y jointly owned a house property and used the property
for self residence. P.Y. ‘X’ paid interest on borrowed loan for purchasing
that particular house property Rs 2,10,000 and ‘Y’ paid interest Rs.
1,80,000.
X can claim deduction of Rs. 2,00,000(maximum limit)
‘Y’ can claim deduction of Rs. 1,80,000
Co-owned house property by husband and wife

• Case1 –Both husband and wife are co-owners of property and their respective
share in the property is 50:50 as they have made equal contribution.
- The interest shall be allowed as deduction in equal ratio provided the husband
and wife pay the same from their respective source of income.
- Further, the repayment of loan should be made in equal ratio.
- Suppose ‘X’ and ‘Y’ are husband and wife, having equal share in a house
property. P.Y. paid interest on loan Rs. 4,10,000 taken for purchasing that
particular house.
- ‘X’ shall be allowed deduction of Rs. 2,00,000(maxi. Limit)[ 50% of 4,10,000=
2,05,000] &
- ‘Y’ shall be allowed deduction of Rs. 2,00,000(maxi. Limit)[ 50% of 4,10,000=
2,05,000]
• Case 2- Both husband and wife are co-owners of the property and their
respective shares in the property is 60:40 as they made contribution in that
ratio.
- The interest shall be allowed as deduction in 60:40 ratio provided the
husband and wife pay the interest in the ration 60:40 from their respective
source of income.
- Further, the repayment of loan should be made in the ratio of 60:40.
- Suppose ‘X’ and ‘Y’ are husband and wife, having equal share in a house
property. P.Y. paid interest on loan Rs. 4,00,000 taken for purchasing that
particular house.
- ‘X’ shall be allowed deduction of Rs. 2,00,000(maxi. Limit)[ 60% of
4,00,000= 2,40,000] &
- ‘Y’ shall be allowed deduction of Rs. 1,60,000[ 40% of 4,00,000= 1,60,000]
• Case 3- Husband is the sole owner of the house but loan has been taken in co-
borrower names as the bank advised them that they can get higher amount in
that case.
- The husband shall be allowed deduction for the entire amount of interest.
However in respect of self-occupied house, husband shall be allowed actual
interest subject to maximum of Rs. 2,00,000.
- The wife shall not be allowed any deduction as she is not the owner of the
property.

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