30 September 2011
CASE : ONE OF OUR CLIENT IS A PARTNERSHIP FIRM WHICH HAS DISCONTINUED ITS BUSINESS BEFORE 3 YEARS BUT STILL HAS NOT DISOLVED THE FIRM. NOW THE FIRM IS HAVING ONE HOUSE PROPERTY WHICH IT HAS GIVEN ON RENT AND IT GENERATES RENT INCOME.
MY QUESTION IS WHERE THIS INCOME SHOULD BE SHOWN 1) IN HOUSE PROPERTY OR 2) BUSINESS INCOME OR 3) OTHER SOURCES?
06 October 2011
it is income from house property.pls refer section.22 of income tax act.
Section 22 provides for taxation of ‘annual value’ of a property consisting of any buildings or lands appurtenant thereto, of which the assessee is owner, under the head “income from House Property”. Tax imposed under section 22 is a tax on ‘annual value’ of house property and is not a tax on “House Property”. However, if a house property is occupied by a taxpayer for the purpose of business or profession carried on by him (the profits of which are chargeable to income tax), annual value of such property is not chargeable to tax under the head ‘Income from House Property’. In the earlier discussion, the phrase ‘lands appurtenant thereto’ has also been used. It needs to be clarified in this context that income from letting of vacant plots of land when there is no adjoining building will not be taxed under this head (but will be taxed as income from other sources). The existence of a building is, therefore, an essential prerequisite. Building will, of course, include residential house (whether let out or self occupied), office building, factory building, godowns flats, etc. as long as they are not used for business or profession by owner. And the purpose for which the building is used by the tenant is also immaterial. Thus, income from letting out godowns will be taken as income from house property. It does not make any difference at all if the property is owned by a limited company or a firm. CONDITIONS NECESSARY FOR TAXING INCOME FROM HOUSE PROPERTY These are: • The property should consist of any building or land appurtenant thereto • The assessee should be the owner of the property • The property should not be used by the owner for the purpose of any business or profession carried on by him, the profits of which are chargeable to tax. Unless all the aforesaid conditions are satisfied, the property income cannot be charged to tax under the head ‘Income from House property’.
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