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Unit 8: Income from House Property

Property Used for Own Business or Profession Notes

The owner of a house property is not liable to tax under this head if the property is used by him
for his own business or profession. But the business or profession should be such whose income
is chargeable to tax. Chargeability to tax does not mean that the income is actually taxed. It is
possible that in a particular year the profits are not sufficient enough to attract tax liability. What
it means is that the income from such business or profession is not exempt from tax.
If an employer builds quarters for residential use by his employees and the letting out of these
quarters is considered as incidental to his business, the income from such property is not taxable
under this head, because the property in this case is considered to be used by the owner for his
own business. It shall, therefore, be taxed as business income.

The above position will not change even if the buildings are let out to government authorities
for locating their undertakings like Banks, Post Office, Police Station, Central Excise Office, etc.,
provided the dominant purpose of letting out the accommodation is to enable the assessee to
carry on his business more efficiently and smoothly. Also, income from paying-guest
accommodation is taxable as income from business.
Where house property owned by a partner is used by the firm (neither it is let out to the firm nor
any rent is obtained for it) for its business purposes, the partner is entitled to the exemption.

The reason for this exemption is that the notional rent of property is not allowable as a permissible
deduction while computing business income, if a person carries on the business or profession in
his own house property.

Composite Rent

In some cases, the owner obtains rent of other assets (like furniture) or he charges for different
services provided in the building (for instance, charges for lift, security, air conditioning, etc.),
apart from obtaining the rent of the building. The amount so recovered is known as composite
rent.
If the owner of a house property gets a composite rent for the property as well as for services
rendered to the tenants, composite rent is to be split up and the sum which is attributable to the
use of property is to be assessed in the form of annual 72 values under section 22. The amount
which relates to rendition of the services (such as electricity supply, provisions of lifts, supply of
water, watch and ward facilities, etc.) is charged to tax under the head ‘Profits and gains of
business or profession’ or under the head ‘Income from other sources’.
If there is letting of machinery, plant and furniture and also letting of the building and the two
lettings form part and parcel of the same transaction or the two lettings are inseparable, then
such income is taxable either as business income or income from other sources. This happens in
the case of letting out of hotel rooms, theatres, auditoriums, etc. It is commonly understood that
the charges per day for a room in a hotel are not specifically for the room only. In fact, a major
portion of room tariff is for the amenities and services provided in the hotel. Similar is the case
where a cinema house is let out at composite rent charged for the building, furniture, machines,
equipment, staff, power consumption, etc. In all such cases, the composite rent received by the
owner of the property is not to be split up and nothing is taxable as income from house property.

Rental Income of a Dealer in House Property

If a person is engaged in the business of purchasing house properties with the purpose of letting
them on high rents and disposing off those properties which are not profitable for this purpose,
the rental income from such property will not be taxed as business income. Any rent from house

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