INCOME FROM HOUSE PROPERTY INCOME CHARGEABLE REAL & NOTIONAL This is the only head of income, which

taxes notional income (except under some circumstances under capital gains, income from other sources). The taxability may not necessarily be of actual rent or income received but the potential income, which the property is capable of yielding. Accordingly, if a person owns a property which is leying vacant, notional income with respect to such property may be liable to tax even though the owner may not have received any income from such property. Further, if the property is let out and the rent received is less than the potential rent which the property is capable of yielding, tax would be payable on the rent which the owner is capable of getting and not on the actual rent (Refer heading "Determination of annual value"). Though the head of chargeability of the income is Income from house property what is charged under this head not only the income from house (dwelling) but all income arising out of letting of building. In other words Sections 22 to 27 are wholly silent as to the purpose for which a building or a house property is to be used. This head of income can be aptly described as income from properties. CHARGEABILITY U/S 22 a. What is chargeable under this head? Annual value of property consisting of any building or land appurtenant thereto except such property which is used by assessee for the purpose of business and profession. If the building is used by the assessee for the purposes of his business or profession, no notional income from such building can be assessed to tax under the head "Income from house property" and no deduction on account of notional rent is available to the assessee while computing the income under the head "Income from business or profession". b. In whose hand such income is taxable? Income from house property is taxable in the hands of owner/deemed owner of the property. Owner is a person who is entitled to receive income from property in his own right. Income is chargeable in the hands of person even if he is not a registered owner. Rental income from sub-letting of property acquired on monthly tenancy basis or on lease for a period of less than twelve years may be taxable either as "Income from business or profession", where such letting is the business of the assessee or taxable as "Income from other sources". This would depend upon facts of each case. PROPERTY OWNED BY CO-OWNERS (SECTION 26) Where property consisting of buildings and lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not be assessed as an A.O.P. (Association of Persons) but the share of each person in the income from the property as computed under sections 22 to 25 (i.e., income from house property) shall be included in his total income. Owner includes deemed owner u/s 27 as under: Transfer to spouse without adequate consideration or to a minor child not being a married daughter. However, if the transfer is under an agreement to live apart, such transfer to the spouse would not be covered. Holder of impartial estate shall be deemed to be owner of all the properties comprised in the estate A member of a co-operative society, company or other association to whom a building is allotted or leased under a house building scheme of society, company or other association as a case may be. 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 (4 of 1882). A person who acquires any lease rights of not less than twelve years (excluding any rights by way of a lease from month to month or for a period not exceeding one year) Official assignee can be treated as owner for the purpose of section 22 except when the receiver is appointed by court. INCOME FROM PROPERTIES UNDER THE PERVIEW OF THE HEAD "INCOME FROM HOUSE PROPERTY" a. Predominantly, only income from letting out of building or land appurtenant thereto is taxable under the head "Income from house property". Accordingly, if letting out is of a bungalow along with the garden surrounding it, the income of the entire bungalow along with land appurtenant thereto; i.e., the garden would be taxed under this head. If the letting out is only of the vacant land, the rent received from such letting out of land is not taxable under the head "Income from house property". It may be taxable under the head "Income from business or profession" if the business of the assessee is to let out land or may be taxable as "Income from other sources" if letting out of land is not the business of the assessee. Further if composite rent is received for property as well as services and amenities, the annual value of such property is assessable under section 22 and profits arising

from services and amenities is chargeable to tax under section 28; i.e., business income or under section 56; i.e., income from other sources. b. Rental income from letting out of residential and commercial buildings is covered under this head of income. Where property constitutes stock in trade of business or where business of assessee is to let out house property, income is covered under the head profits and gains of Business & Profession. Further if letting out is subservient to the main business the annual value will not be chargeable u/s. 22 rather it will be chargeable under profits and gains of Business & Profession. c. Where an assessee let machinery, plant or furniture and also buildings, and the letting out of buildings is inseparable from the letting of the machinery, plant or furniture, the income from such letting, if it is not chargeable to tax under the head "Income from business or profession" would be taxable under the head "Income from other sources" . Refer Section 56(2)(iii). The Honble Supreme Court has in the case of Shambhu Investments (P.) Ltd. vs. CIT (2003) 263 ITR 143 (SC) held that income from letting out would be taxable under the head "Income from house property" primarily on the ground that letting of building was a primary object with additional right to use furniture, etc. DETERMINATION OF ANNUAL VALUE For determining the annual value, one has to first determine the gross annual value (GAV) which is the higher of : a. The sum for which the property might reasonably be expected to let from year to year. In cases of properties where Standard rent has been fixed, such sum cannot exceed the standard rent fixed (Refer Sheila Kaushish vs. CIT [1981] 7 Taxman 1 (SC) & Amolak Ram Khosla vs. CIT [1981] 7 Taxman 51 (SC)). However where property let was vacant during the whole or part of the previous year and rent actually received or receivable is less than expected rent, then rent actually received or receivable is taken as GAV. b. Where property is actually let out and the rent received or receivable is more than the amount determined in (a) above, the annual value would be the actual rent received. Note: Following amounts are not added to the GAV Amount of municipal tax realised from tenant Notional interest on amount received towards rent/security deposit from the tenant Repairs carried out by the tenant. ANNUAL VALUE TO BE TAKEN AS NIL IN CERTAIN CASES a. The annual value of a property which is in occupation of the owner for the purposes of his residence would be considered to be nil if he does not derive any other benefit from the said residential house. If the owner has more than one house for the purposes of his residence, the annual value of any one of such houses, at his option, would be considered to be nil. Notional income of other residential houses would be liable to tax. In such case owner may choose to consider the annual value nil (for computation purposes) in respect of the one property at his option. b. Similarly, if the assessee is owner of only one residential house which he is unable to occupy on account of his employment, business or profession carried on at any other place and on account of which he has to reside at that other place in a building not owned by him, the annual value of such house shall be nil. DETERMINATION OF NET ANNUAL VALUE (NAV) The following amounts are required to be reduced while determining the net annual value : a. Any taxes levied by any local authority, which are liable to be paid by the owner, only on actual payment thereof during the previous year; and b. The unrealisable rent subject to satisfaction of conditions prescribed under Rule 4. Amount of unrealised rent shall be equal to the amount of rent payable but not paid by a tenant of the assessee and so proved to be lost and irrecoverable where, the tenancy is bona fide the defaulting tenant has vacated, or steps have been taken to compel him to vacate the property the defaulting tenant is not in occupation of any other property of the assessee 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. UNREALISED RENT REALISED SUBSEQUENTLY SEC. 25AA

The entire amount of unrealised rent received in the PY shall be chargeable to tax in the year in which such amount is received. (The deduction u/s 23/24 shall not be allowed if the unrealised rent pertaining to period up to AY 2001-02 & deduction u/s 24(1)(x) in respect thereof was allowed in earlier years.) Unrealised rent received subsequently is chargeable to tax even if the house property is not owned by the assessee in the year of such recovery. ARREARS OF RENT RECEIVED S. 25B Where any arrears of rent is received which was not taxed earlier, such rent shall be assessed under the head "Income from house property" in the year in which such arrears are received i.e. taxable on receipt basis. The arrears would be taxable under this head irrespective of the fact whether the assessee is the owner of the buildings in the year in which such arrears are received. A deduction of 30% on account of repairs on the arrears of rent received would be allowed in the year in which such arrears are taxable. DEDUCTIONS ALLOWED WHILE COMPUTING INCOME UNDER THIS HEAD The following deductions shall be allowed from the annual value u/s. 24: a. 30% of the annual value as computed. b. Interest paid/payable on borrowed capital acquired for the purpose of acquisition, construction, repairs, renewals or reconstruction of house property subject to conditions and limits as mentioned herein after. Interest for the period prior to acquisition or construction of the premises would be deductible in five equal instalments starting from the year in which property is acquired or constructed. In case of self occupied House Property interest allowable is subject to following conditions: Sr. Particulars Limit of No. deduction (in Rs.) 1. Property acquired/constructed after 1st April, 1999 with borrowed capital (deduction is allowed only where such acquisition or construction is completed within 3 years from the end of the financial year in which capital was borrowed) 1,50,000.00 2. In all other cases. 30,000.00 Note: a. Interest on new loan taken to repay original loan is considered as loan taken for such acquisition, construction etc. (Refer CBDT Circular No. 28 dt. 20.08.1969). b. Where interest is claimed as a deduction, a certificate from the lender certifying the amount of interest payable should be furnished by the assessee. c. The list of deduction specified u/s 24 are exhaustive, no other deduction can be claimed other than specified therein. d. Interest on borrowed money which is payable outside India shall not be allowed as deduction u/s 24(b) unless the tax on the same has been paid or deducted at source and in respect of which, there is a person in India, who may be treated as agent of the recipient for such purpose. e. Brokerage or commission paid to arrange a loan for house construction will not be allowed. INCOME FROM OTHER SOURCES SYNOPSIS Section 2(24) defines the term "income" under the Act, and the same is charged to tax by section 4 of the Act. Section 14 enumerates the different heads under which the income of an assessee is classified, viz. A. salaries, B. Income from house property, C. profit and gains of business and profession, D. capital gains, and E. Income from Other sources. Income of every kind which is not to be excluded from the total income under the Act, and if it is not charged to tax under the heads A to D specified in Section 14, shall be charged under the head income from other sources. Thus Section 56 deals with this residuary head of income and covers all such taxable income, NATURE OF INCOME AND THE BASIS OF CHARGE

Sub-section 2 to section 56 enumerates various types of income which would be chargeable to tax under the residuary head, viz. a. Income by way of dividends [which includes deemed dividend as has been referred to in section 2(22)(e) of the Act]. Exemptions are: i. Dividend income referred to in section 115-O (on which dividend distribution tax has been paid), ii. Any income by way of income received in respect of units of a Mutual Fund, Administrator of a specified undertaking or from a specified company; (income arising from transfer of units is not exempt). b. Income by way of winning from lotteries, crossword puzzles, races, card games and other games, gambling or betting, etc. [Section 2(24)(ix)]. c. Any sum received from employees by way of contribution to any P.F., ESIC or superannuation fund if such income is not chargeable under the head Profit and Gains of Business or Profession [Section 2(24)(x)]. d. Any sum received under a key-man insurance policy including amount allocated by way of bonus on such policy, if not chargeable under the head Salaries or profit and gains of business or profession [section 2(24)(xi)]. e. Income by way of interest on securities if not chargeable under the head profit and gains of business or profession [section 2(24)(id)]. f. Income from letting of machineries, plants or furniture belonging to assessee, if not chargeable to tax under the head profit and gains of business or profession [section 2(24)(ii)]. g. Income from letting of machineries, plants or furniture belonging to assessee and also building, where letting of building is not separable from letting of such machineries etc. then entire income therefrom, if not chargeable to tax under the head profit and gains of business or profession. [Section 2(24)(iii)]. h. Any sum of money or specified properties, the aggregate value of which exceeds fifty thousand rupees in a year, received by an individuals or HUF from any person or persons other than the specified person/s or occasion, without any consideration (generally understood as "gift") the whole of such sum. This clause is amended by the Finance Act, 2009 w.e.f 1-10-2009 to bring to tax not only the sum of money received in cash but also to include specified properties other than cash received by an individual or HUF either without any consideration or inadequate consideration. The provisions of this clause apply to individuals and HUF where he/it receives any sum of money or any specified properties either without any consideration or for an inadequate consideration from a person or persons other than specified persons or occasion. The amount chargeable under this clause would be: i. In case of any sum of money, received in any previous year on or after 1.10.2009, where the aggregate value of which exceeds fifty thousand rupees, without any consideration the whole of such sum. ii. In case of any immovable property being land or building or both received on or after 1.10.2009 without consideration and if the stamp duty value of such property exceeds fifty thousand rupees the whole of such stamp duty value. (Thus any immovable property whose stamp duty valuation is less than fifty thousand rupees no addition would be made under this clause) Note : If the assessee claims before the AO that the value adopted or assessed by the stamp duty valuation authority exceeds fair market value of the property or if the stamp duty paid is subsequently revised in any appeal or revision the assessing officer may refer the valuation of such property to a valuation officer and the provisions of sub-section (2) of Section 50C and sub-section (15) of Section 155 shall apply accordingly. iii. a) In case of any property other than immovable property being following capital assets of the assessee viz. i. shares and securities, or ii. jewellery or archaeological collections, drawings, paintings, sculptures, iii. any work of art or bullion, received by the assessee in any previous year without any consideration and that aggregate fair market value of such property exceeds rupees fifty thousand then the whole of the aggregate fair market value of such property. b) In case of any property other than immovable property being following capital assets of the assessee viz. shares and securities or jewellery or archaeological collections, drawings, paintings, sculptures, any work of art or bullion, received by the assessee in any previous year for a consideration which is less than aggregate fair market value of such

property by rupees fifty thousand, the difference between the fair market value and the consideration received shall be the amount included as income. (Fair market value in case of property other than immovable property shall be the value which is determined in accordance with the method as may be prescribed.) Persons or occasions specified under clauses vi and vii of sub-section (2) of Section 56 : Any relative; i.e., spouse of the individual, brother or sister of the individual, brother or sister of the spouse of the individual, brother or sister of either of the parents of the individual, any lineal ascendant or descendants of the individual, any lineal ascendants or descendants of the spouse of the individual, and spouse of the persons referred to hereinbefore. (No definition of relative in respect of HUF has been laid down this is a grey area). On the occasion of marriage of the individual Under a will or by way of inheritance, In contemplation of death of the payer Amount received from any local authority as defined in the explanation to clause (20) of section 10 Amount received from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10 Any amount received from any trust or institution registered u/s 12AA. i. With effect from 1st June, 2010 where a firm or a company other than the one in which public are substantially interested, receives in any previous year, any property being shares of any company other than the company in which public are substantially interested without any consideration and that the fair market value of such property exceeds rupees fifty thousand than the whole of the aggregate fair market value of such property shall be included as income of the firm or the company as the case may be. any property being shares received by the assessee in any previous year for a consideration which is less than aggregate fair market value of such property by rupees fifty thousand, the difference between the fair market value and the consideration received shall be the amount included as income. [Note: Provisions of this section would not apply in case where the property which received by a transaction which is not regarded as transfer under clause ((via), or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47.] (For the purpose of this clause fair market value of property shall be the value which is determined in accordance with the method as may be prescribed.) i. The Finance Act, 2009 w.e.f. A.Y. 2010-11 provides for taxation of Interest on compensation or on enhanced compensation received in any year. Before the insertion of this section the compensation or enhanced compensation were generally spread over the years for which it was received. However as per the amended provisions irrespective of the method of accounting adopted by the assessee, the interest on the compensation/enhanced compensation shall be taxable only in the year in which such interest is received by the assessee. j. Apart from the income which are mentioned hereinabove any income which is chargeable to tax under the Act and does not fall in any other heads mentioned in section 14 (A-D), shall be charged to tax under this head. Applicability of [Section 145(1)] in case of income chargeable under this head Section 145(1) provides that income chargeable under the head income from other sources shall be computed either on cash or mercantile system of accounting, depending on the method of accounting regularly employed by the assessee. The assessee is also required to follow the Accounting Standards notified by The Central Government (for Accounting Standard refer notification No. 9949 [F. No. 132/7-95-TPL] dt. 25.1.1996). DEDUCTION ALLOWED FROM INCOME CHARGEABLE UNDER THIS HEAD [SECTION 57] In case of income from dividend (other than Dividend referred in section 115-O) or interest on securities

Any reasonable sum, paid by way of commission or remuneration to a banker or any other person for the purpose for realizing dividend (other than dividend referred to in Section 115-O), or interest as the case may be on behalf of the assessee. In case of sum received by assessee from his employees as contribution to any funds, etc. as referred to in Section 2(24)(x) Any amount paid or credited by the assessee to the employees account of the relevant fund/s as referred to in section 2(24)(x) of the Act, provided such sum is paid or credited by the assessee to the employees account of the relevant fund on or before due date specified under those Acts. In case of letting of machinery, plant, furniture, and building In respect of building: 1. amount paid by the assessee on the account of current repairs to the premises if the premises are occupied by the assessee otherwise than as the tenant. 2. any premium paid for the risk of damage or destruction to the premises and 3. depreciation and unabsorbed depreciation as per section 32 (i), subject however, to the provisions of section 38 which restrict such allowance based on usages. In respect of plant and machinery and furniture 1. amount paid by the assessee on the account of current repairs to the plant and machineries 2. any premium paid for the risk of damage or destruction to such plant and machineries and 3. depreciation and unabsorbed depreciation as per section 32, subject however, to the provisions of section 38 which restrict such allowance based on usages. In case of income in the nature of family pension received by family of the employee in whose hand such amount is chargeable Deduction is allowed to the extent of lower of (a) one-third of such income or (b) Rs. 15,000 (Rs. 12,000 up to the assessment year 1997-98). For this purpose family pension means a regular monthly amount payable by the employer to a person belonging to the family of the employee in the event of his death. In case of income of the nature Interest on compensation or on enhanced compensation received in any year Deduction is allowed of a sum equal to 50% of such Interest on compensation or on enhanced compensation received in any year. Other than this no other deduction will be allowed under any other clause of this section. Any other expenditure [general deductions Section 57(iii)] Any other expenditure (not being in nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning income chargeable under the head Income from other sources, is deductible. For the purpose of claiming deduction under this clause it is not necessary that expenditure incurred should result in earning of income [CIT vs. Rajendra Prasad Moody 115 ITR 519 (SC)] AMOUNTS NOT DEDUCTIBLE Following sum irrespective of whatever or not allowed as deduction under Section 57, shall not be deductible in computing the income under the head "Income from Other Sources". 1. Personal expenses of the assessee. 2. Any interest which is payable outside India on which tax has not been paid or deducted. 3. Any payment chargeable under the head Salaries, payable outside India, if tax has not been paid or deducted therefrom. 4. Any sum paid on account of wealth tax. 5. Any amount disallowed as per section 40A in so far as they are applicable to the income chargeable under this head as they may apply to income chargeable under profits and gains of business and profession. 6. In case of foreign company, expenditure in respect of royalty or fees for technical services as deductible under the provision of section 44D in so far as they are applicable to income chargeable under the head profit and gains. 7. In case of income in the nature of winning from lotteries, crossword puzzles, races including horse race and games of any sorts, etc, no deduction for expenses or allowances shall be allowed which are incurred in connection with such income. However, this provision of disallowance does not apply in computing income from the activity of owning and maintaining race horses of an assessee being the owner of the horses maintained by him for running in horse races. APPLICABILITY OF SECTION 14A

Further by virtue of section 14A, no deduction is allowed in respect of expenditure incurred by the assessee in relation to the income which does not form part of the total income under the Act. PROFITS CHARGEABLE TO TAX [SECTION 59] Section 59 provides for applicability of section 41(1) of the Act as it would be applicable to income chargeable under the head Profits and Gains of Business and Profession. Thus if any expenditure, loss or trading liabilities incurred by the assessee in any previous year and is allowed as deduction while computing the Income under this head and if later any amount of recovery is made against any such expenses, for which deduction was previously allowed under this head, shall be included in the income of the assessee in the year in which such recovery is made as "Income from Other Sources".