Owner & Deemed Owner of House Property under Section 27 of Income Tax Act, 1961

By | July 18, 2014

Who is considered the Owner of House Property as per Section 27 of the Income Tax Act and Meaning of Deemed ownership under Section 27 (i) (ii) (iii) (iiia) (iiib)

Owner is a person who legally owns the house-property. He is chargeable to tax in respect of his property. But in some cases what happens is some person shall be treated as the owner of the house-property even though the legal owner is some other person this is known as deemed ownership under section 27 of the Income Tax Act. Accordingly, the following person shall be deemed to be the owner of the house-property and shall be taxed in the hands of the deemed owner.

  • Individual who transfer the property to spouse or minor child without adequate consideration or  without any valid reason like agreement  to live apart.
  • Holder of an impartable estate. Impartible estate means property which is not legally divisible. The holder of such property is treated as deemed owner. Example X has a property consisting of flat and 4000 sqft of land. He divides his land among his 2 sons i,e. 2000 sqft to each of them. Ownership of flat has not been transferred but given to younger son. However, elder son is having the right to enjoy the benefit. In such case, youngest son shall be treated as holder of an impartible asset (i.e. flat). Also in case of HUF karta can be treated as holder of impartable estate though legally the property will be in the name of an individual member of the HUF.
  • a member of a co- operative society, company or other association of persons to whom a building or part thereof is allotted or leased under a house building scheme of the society, company or association, as the case may be, shall be deemed to be the owner of that building or part thereof;
  • Person buying the house without registration but fullfilling the conditions give under section 53A of Transfer of Property Act, 1882. As per section 53A, Where any person contracts to transfer for consideration any immoveable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession.
  • Person has take the property on lease for period more than 12 years

There are few basic conditions which needs to be fulfilled for Income to be treated as Income From House Property  

  • There should be building or land appurtenant thereto
  • The person should be the owner of the property or deemed owner as the income tax act
  • The property is not used 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 fulfilled, the property income cannot be charged to tax under the head ‘Income from House property’.

Important Case Laws related to Ownership under Head Income From House Property

S. 27 of IT Act, 1961—Income from house property—In the present case, the assessee-company was running a five star hotel and the lawn on which the hotel was constructed belonged to NDMC which had executed a licence deed in favour of the assessee granting it licence for a period of 99 years for running of the said hotel. However, adjacent to the hotel, there was another building constructed on that very lawn and that building was not used for hotel business of the assessee but the apartments of that building were given on sub-licence basis to different parties for carrying on business. The assessee was not charging any lease rent or licence fee from those parties. Therefore, in view of the provisions of s. 27(iii), sub-licensee who would be the owner of the said property and thus, the Assessing Officer cannot charge annual letting value of said building under the head  Income from house property —CIT vs. C.J. International Hotels Ltd.

S. 22, 27(iiib), 269UA(f)(i) of IT  Act, 1961—Income from house property—In sec. 27 and 269UA of the Act, the word “lease of property” is used for the purposes of conferring right upon the persons who qualifies to become a deemed owner of the property under s.22 of the Act. Before the assessee can be so considered as a deemed owner of the property in question, he must have taken the property on lease for a term not less than 12 years, because it excludes lease from month to month or for a period not exceeding one year. Since the tenancy in question is unregistered and month to month basis, the provisions of s. 27(iiib) of the Act would not apply. Therefore the claim of the assessee for deemed ownership of the building in question under s. 22 r/w s. 27(iiib) and 269UA(f)(i) of the Act so as to qualify for deduction under s. 24 of the Act rightly rejected by the authorities and thus, the income derived by the assessee form house property, sale of air conditioners and other sources is liable to be treated as “income from other sources”—Tushar Pranvinchandra Shah vs. Dy. CIT (2011) 7 ITR (Trib) 776 (ITAT-Ahd)

S. 27(iiib) of IT Act, 1961—Income from house property—Any amendment made, though apparently for prospective operation, intending to clarify and further explain the provision of existing law is always retrospective in its operation. Therefore, substitution of cl. (iii) and addition of cl. (iiia) and further cl.(iiib) of s. 27 w.e.f. 1.4.1988 is clarifactory in nature and has retrospective operation. Since it is found that the property owned by the company in the manner as mentioned in s. 27, itself is utilized without retaining real control ownership interest therein for the purpose of carrying on business, therefore, the income derived therefrom cannot be treated to be income from house property and it shall be treated to be income from business activities—Bhadi Properties (P) Ltd. vs. ACIT

S. 22, 27 & 28(i) of IT Act, 1961—Income from house property—Under s. 22, the annual value of the property consisting of any building or land or land appurtenant thereto of which the assessee is the owner shall be chargeable to income-tax under the head income from the house property. In the present matter the assessee got tenancy rights initially for 11 months which was extended upto 20 years. Under the lease agreement assessee developed the property and therefore, assessee got a right to receive the lease rentals from tenants and, accordingly, for the purpose of s. 22 the assessee become owner of the property and the income therefrom is chargeable under the head  Income from house property and not as business income—ACIT vs. Kanwaljeet Singh (HUF) (2011) 135 TTJ 688 (ITAT-Delhi)

Sec. 24(5) & 27(A) of Wealth tax Act, 1957 – Appeal(Tribunal) – By an ex-parte order Tribunal partly allowed the appeal of the assessee. Assessee filed a miscellaneous application for setting aside the ex-parte order which was refused by the Tribunal. Held that Tribunal could not be faulted for the absence of  the assessee as the Tribunal had taken all the requisite steps to ensure that an opportunity of hearing was made available to the assessee. – Gauhati Roller Flour Mills Ltd. Vs. Union of India & Ors.

Reference: – As Per Section 27 (i) (ii) (iii) (iiia) (iiib) Of the Income Tax Act 1961

27. ” Owner of house property”,” annual charge”, etc., defined for the purposes of sections 22 to 26-

(i) an individual who transfers otherwise than for adequate consideration any house property to his or her spouse, not being a transfer in connection with an agreement to live apart, or to a minor child not being a married daughter, shall be deemed to be the owner of the house property so transferred;

(ii) the holder of an impartable estate shall be deemed to be the individual owner of all the properties comprised in the estate;

(iii) a member of a co- operative society, company or other association of persons to whom a building or part thereof is allotted or leased under a house building scheme of the society, company or association, as the case may be, shall be deemed to be the owner of that building or part thereof;

(iiia) a person who is allowed to’ take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 2 (4 of 1882 ), shall be deemed to be the owner of that building or part thereof;

(iiib) a person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in clause (f) of section 269UA, shall be deemed to be the owner of that building or part thereof;

(iv) ” annual charge” means a charge to secure an annual liability, but does not include any tax in respect of property or income from property imposed by a local authority, or the Central or a State Government;

(v) ” capital charge” means a charge to secure the discharge of a liability of a capital nature;

(vi) taxes levied by a local authority in respect of any property shall be deemed to include service taxes levied by the local authority in respect of the property.

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