Section 20(1)

The annual value of property consisting of any buildings or lands appurtenant thereto, owned by the assessee

shall be chargeable to income-tax under the head “Income from house property”.

Annual value of Property to be determined as per section 21

Section 20(2)

The provisions of sub-section (1) shall not apply to such portions of the property,

as the assessee may occupy for his business or profession, the profits of which are chargeable to income-tax.

(a)

Buildings include not only residential buildings, but also factory buildings, offices, shops, godowns and other commercial premises.

(b)

Land appurtenant means land connected with the building like garden, garage etc.

(c)

Income from letting out of vacant land is, taxable under the head “Income from other sources” or “Profits and gains from business or profession”, as

(a)

Owner is the person who is entitled to receive income from the property in his own right.

(b)

The requirement of registration of the sale deed is not warranted.

(c)

Ownership includes both free-hold and lease-hold rights.

(d)

Ownership includes deemed ownership (discussed later in point 2.11)

(e)

The person who owns the building need not also be the owner of the land upon which it stands.

(f)

The assessee must be the owner of the house property during the previous year. It is not material whether he is the owner in the assessment year.

(g)

If the title of the ownership of the property is under dispute in a court of law, the decision as to who will be the owner will be determined by Income-tax Department till the court gives its decision to the suit filed in respect of such property.

(a)

The property may be used for any purpose i.e., commercial or residential purpose

(b)

It should not be used by the owner for the purpose of any business or profession carried on by him, the profit of which is chargeable to tax.

(c)

The income earned by an assessee engaged in the business of letting out of commercial properties on rent would be taxable as business income.

Supreme Court ruling in Rayala Corporation (P) Ltd. v. Asstt. CIT (2016) 386 ITR 500

(a)

Annual value of house property will be charged under the head “Income from house property”, where it is held by the assessee as stock-in-trade of a business also.

(b)

However, the annual value of property being held as stock in trade would be treated as NIL for a period of two years from the end of the financial year in which certificate of completion of construction of the property is obtained from the competent authority, if such property is not let-out during such period [Section 23(5)].

(c)

Where the assessee is a builder/construction company, the house property would be its stock-in-trade and rental income therefrom would be assessable under the head “Income from House Property”.

However, where the assessee is engaged in the business of letting out of commercial properties, income therefrom would be assessable under the head “Profits and gains of business or profession”.