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Income Tax Laws – I

Notes Ownership of House Property

It is only the owner (or deemed owner) of house property who is liable to tax on income under
this head. Owner may be an individual, firm, company, co-operative society or association of
persons. The property may be let out to a third party either for residential purposes or for
business purposes. Annual value of property is assessed to tax in the hands of the owner even if
he is not in receipt of the income. For tax purposes, the assessee is required to be the owner in the
previous year only. If the ownership of the property changes in the relevant assessment year, it
is immaterial as the tax is to be paid on the income of the previous year.

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Caution Income from subletting is not taxable under section 22.

Example: A owns a house property. He lets it out to be B. B further lets it (or a portion of
it) out to C. Rental income of A is taxable under the head ‘Income from house property’. However,
since B is not the owner of the house, his income is not taxable as income from house property,
but as income from other sources under section 56.
Deemed Owner

Section 27 of the Income Tax Act provides that, in certain circumstances, persons who are not
legal owners are to be treated as deemed owners of house property for the purpose of tax
liability under this head.

1. If an individual transfers a house property to his or her spouse (except in connection with
an agreement to live apart) or to a minor child (except a married daughter) without
adequate consideration, he is deemed as the owner of the property for tax purposes.
However, if an individual transfers cash to his or her spouse or minor child, and the
transferee acquires a house property out of the gifted amount, the transferor shall not be
treated as the deemed owner of the house property.
2. The holder of an Impartible Estate is deemed to be the owner of all the properties comprised
in the estate.
3. A member of a co-operative society, company or association of persons, to whom a property
(or a part thereof) is allotted or leased under a house-building scheme of the society,
company or associate ion, is deemed to be the owner of such property.

4. A person who has acquired a property under a power of attorney transaction, by satisfying
the conditions of section 53A of the Transfer of Property Act, that is under a written
agreement, the purchaser has paid the consideration or is ready to pay the consideration
and has taken the possession of the property, is the deemed owner of the property, although
he may not be the registered owner.
5. A person who has acquired a right in a building (under clause (f) of section 269UA), by way
of a lease for a term of not less than 12 years (whether fixed originally or extended through
a provision in the agreement), is the deemed owner of the property. This provision does
not cover any right by way of a lease renewable from month to month or for a period not
exceeding one year Ownership must be of the superstructure. It is not necessary that the
assessee is also the owner of the land. Thus, when a person obtains a piece of land on lease
and constructs a building on it, the income from such building will be taxed in his hands
as income from house property.

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