Section 22 provides for taxation of ‘annual value’ of a property consisting of any buildings or lands appurtenant thereto. The term ‘buildings’ includes any building- office building, godown, storehouse, warehouse, factory, halls, shops, stalls, platforms, cinema halls, auditorium etc. as long as they are not used for business or profession by owner. Land appurtenant includes land adjoining to or forming a part of the building. It would depend on the nature of the land, whether it is appurtenant to the residential building, factory building, hotel building, club house, theatre etc. and will include courtyards, compound, garages, car parking spaces, cattle shed, stable, drying grounds, playgrounds and gymkhana.
Some critical issues on Section 22
Tax imposed under section 22 is a tax on `annual value’ of house property. The purpose for which the building is used by the tenant is also immaterial.
Income arising out of the building or a part of the building is covered under this section. Existence of a building is an essential prerequisite.
Any income, arising out of vacant land, is not covered under this section even though it may be received as rent, ground rent or lease rent. Such income would be assessable as income from other sources. Even rent, arising out of open spaces, or quarry rent, is taxed as income from other sources.
It does not make any difference, if the property is owned by a limited company, a firm, a HUF or individual.
When the property is used by the owner for his business or profession, the ‘annual value’ of property is not charged in the hands of the owner.
When a firm carries on business or profession in a building owned by a partner, no income from such property is added to the income of the partner, unless the firm pays the partner any rent for the same.
For the purpose of section 22, the owner has to be a legal owner. However, the Supreme Court in the case of CIT v/s. Podar Cement (P) Ltd. etc. 226 ITR 625 (SC). held that ‘owner’ is a person who is entitled to receive income from the property in his own right. The requirement of registration of the sale deed in the context of Section 22 is not warranted.
Annual value of property is assessed to tax under section 22 in the hands of owner even if he is not in receipt of income or even if income is received by some other person.
If the assessee is not the owner of the building, but is a lessee and he sublets the property, he would be taxed under the head ‘Income from other sources’.
Co-ownership: In case where property is owned jointly by two or more persons, and where shares of such joint owners are definite and ascertainable, the income of such house property will be assessed in the hands of each co-owner separately. For the purpose of computing income from house property the rent/ annual value will be taken in proportion to his share in the property. In such an eventuality, the relief admissible under section 23(2) shall also be separately allowable to each such person [Explanation to Section 26]. However, where the share is not definite, the income of the property shall be assessed as that of an Association of persons.(s 26)
Source : Taxguru