Section 22 of the Income Tax Act, 1961, deals with the computation of annual value of property consisting of buildings or lands appurtenant thereto. It states that the annual value of such property, other than the portions occupied by the owner for business or profession, shall be chargeable to income tax under the head “Income from house property”.

In simpler terms, Section 22 determines the taxable income from a property based on its hypothetical rental value if it were let out. This hypothetical rent is known as the annual value of the property.

Here are the key points to note about Section 22:

1. Scope: Section 22 applies to all types of immovable property, including residential, commercial, and industrial properties.
2. Determination of Annual Value: The annual value is determined in three ways:
3. Rent Receivable: If the property is let out, the annual value is the rent actually received or receivable by the owner.
4. Hypothetical Rent: If the property is not let out, the annual value is the rent that could reasonably be expected if it were let out.
5. Nil Value: If the property is occupied by the owner for residential purposes or cannot be occupied due to the owner’s employment or business elsewhere, the annual value is nil.
6. Taxability: The annual value of the property, as determined above, is considered income from house property and is chargeable to income tax.

                          WHO IS OWNER

Section 22 of the Income Tax Act, 1961 deals with income from house property. It states that the annual value of property consisting of any buildings or lands appurtenant thereto of which the ASSESSE is the owner shall be chargeable to income-tax under the head “Income from house property”.

An ASSESSE is considered an owner of a property under section 22 if they have:

1. Legal title to the property: This means that the ASSESSE has a valid title document, such as a sale deed or a gift deed that proves their ownership of the property.
2. Actual possession of the property: This means that the assesses has physical possession of the property and is able to use it for their own purposes. If the property is let out to tenants, the assesses is still considered an owner as long as they retain the right to possession.
3. Monetarized interest in the property: This means that the ASSESSE has a financial interest in the property, such as through a joint ownership arrangement or a mortgage. Even if the ASSESSE does not have physical possession of the property, they are still considered an owner if they have a monetized interest.

There are a few exceptions to this rule. For instance, if the ASSESSE is a partner in a firm and the property is used by the firm for carrying out business or professional activities, then the income from the property is not taxable under section 22. However, if the partner pays any rent to the firm, then that amount will be taxable as income from other sources.

In addition, if the assesses occupies a portion of the property for the purposes of any business or profession carried on by them and the profits of which are chargeable to income-tax, then that portion of the property is not considered for the calculation of annual value under section 22.

Section 22 is a crucial provision of the Income Tax Act as it governs the taxation of income arising from the ownership of immovable property in India. Understanding the definition of an owner under this section is essential for taxpayers to correctly assess their tax liability and comply with the relevant regulations.

                               EXAMPLE

Example:

A resident individual, Mr. Ram, owns a residential house property in Chennai, Tamil Nadu, and India. He purchased the property in his own name and is the sole owner of the property. Mr. Ram lets out the property to a tenant and receives rent from the tenant for the property. In this case, Mr. Ram is considered the owner of the house property under Section 22 of the Income Tax Act, 1961, and is liable to pay income tax on the rental income he receives from the property.

Conditions for an individual to be considered an owner under Section 22:

1. Legal ownership: The individual should have legal ownership of the house property. This means that their name should be registered as the owner of the property in the relevant land records.
2. Right to receive rent: The individual should have the right to receive rent from the property. This means that they should have the authority to lease out the property and collect rent from the tenants.
3. Use of property for residential purposes: The property should be used for residential purposes. This means that it should be primarily used for living, not for any commercial or business activity.
4. Ownership during the previous year: The individual should have been the owner of the house property during the previous year. This means that they should have owned the property on or before March 31st of the previous financial year.

Exceptions to the definition of owner:

1. Property leased out for business purposes: If the property is leased out for business purposes, the individual is not considered the owner under Section 22. In this case, the income from the property is taxable under the head “Profits and gains of business or profession.”
2. Property under dispute: If the ownership of the property is under dispute in a court of law, the individual is not considered the owner under Section 22 until the court makes a final decision.

In the given example, Mr. Ram fulfils all the conditions to be considered the owner of the house property under Section 22. He has legal ownership of the property, the right to receive rent, and the property is used for residential purposes. Additionally, he was the owner of the property during the previous year. Therefore, Mr. Ram is liable to pay income tax on the rental income he receives from the property.

                        FAQ QUESTIONS

Q: What constitutes ownership of a house property for tax purposes?

A: Ownership of a house property for tax purposes generally refers to the legal title of the property as evidenced by a registered sale deed or other valid property transfer document. The person or entity holding the legal title is considered the owner for tax purposes, even if they do not reside in the property or receive rental income from it.

Q: Are joint owners considered owners for tax purposes?

A: Yes, joint owners are considered owners for tax purposes. Each joint owner is liable for tax on their proportionate share of the rental income from the property. The proportionate share is typically determined based on the ownership percentage specified in the property ownership document.

Q: What about tenants-in-common?

A: Tenants-in-common are considered owners for tax purposes. Each tenant-in-common has a distinct and separate ownership interest in the property, and they are liable for tax on their proportionate share of the rental income. The proportionate share is typically determined based on the percentage of undivided interest each tenant-in-common holds.

Q: Are life estate holders considered owners for tax purposes?

A: Yes, life estate holders are considered owners for tax purposes for the duration of their life estate. A life estate is a legal interest in property that grants the life tenant the right to possess and use the property for their lifetime. The life tenant is liable for tax on the rental income from the property during their lifetime.

Q: What about minors or incapacitated individuals who own house property?

A: In cases where a minor or incapacitated individual owns house property, a legal guardian or trustee is typically responsible for managing the property and handling tax matters related to the property’s income. The guardian or trustee is considered the owner for tax purposes and is liable for tax on the rental income from the property.

Q: Are there any exceptions to these ownership rules?

A: Yes, there are a few exceptions to these ownership rules. For instance, if a property is held in trust for a specific beneficiary, the beneficiary may be considered the owner for tax purposes, even if they do not have legal title to the property. Additionally, if a property is acquired through a leasehold, the lessee may be considered the owner for tax purposes during the lease term.

Q: Where can I find more information about ownership and tax on house property?

A: The Income Tax Act, 1961, and related tax regulations provide detailed information on ownership and tax on house property. You can also consult with a tax advisor or refer to authoritative tax publications for more comprehensive guidance.

                          CASE LAWS

1. CIT vs. Mrs. Kamalabai (1967) 64 ITR 606 (SC): In this landmark case, the Supreme Court held that the “owner” for the purposes of Section 22 includes not only the legal owner but also any person who is in possession of the property and who has taken full payment for the property, even if the ownership has not yet been transferred in the records. This concept is known as “part performance of a contract” and is based on the principle that equity looks upon as done that which ought to be done.
2. CIT vs. P.R. Mehta (1977) 108 ITR 1033 (SC): This case further clarified the concept of “owner” by stating that the person who has contracted to purchase a property and has taken possession of the property, even if the sale deed has not been executed, is the “owner” for the purposes of Section 22. This is because the person has acquired an equitable interest in the property and is entitled to its possession and enjoyment.
3. CIT vs. Gopi Kishan Agarwal (1988) 168 ITR 442 (SC): In this case, the Supreme Court held that a person who has gifted a property but continues to be in possession of the property is still considered the “owner” for the purposes of Section 22. This is because the gift is not complete until the property is actually transferred to the done.
4. CIT vs. N.K. Jain (1991) 188 ITR 661 (SC): This case dealt with the situation where a co-operative society had allotted a flat to a member, but the conveyance deed had not been executed. The Supreme Court held that the member was the “owner” for the purposes of Section 22, even though the legal ownership remained with the co-operative society.
5. CIT vs. Smt. Shivani Madan (2023) 10 Taxmann.com 660 (ITAT): This recent case dealt with the situation where a husband and wife jointly purchased a property, but the sale deed did not specify their respective shares. The Income Tax Appellate Tribunal (ITAT) held that in such cases, the husband and wife would be deemed to have equal shares in the property, and the income from the property would be taxable in their hands in equal proportions.