Section 22 and 23 - Income from House Property.

This is a very interesting section I came across. The section says:

"The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be
chargeable to income-tax under the head “Income from house property”.

I don't know why the Act and Laws take such a long path of words to convey something. I can see two reason

1. To keep the common man away from the law, so that lawyers can exploit them very easily
2. To keep the law from loop holes by specifying every nook and corner. But what I feel is this type of language will make more loop holes.

I will try to explane this section with Mr. X scenario (please correct me if I am wrong)...

If Mr. X holds a property for which Mr. X is the owner, he is liable to pay Income Tax under the head “Income from house property” for its annual value. If Mr.X is occupying some part of it for a business or profession he need not pay income tax for its annual value since it will reflect in his profit and he will be paying tax for that profit.

Here we must understand one term.
1, Annual Value of property

Section 23 sub-section (1) is giving an explanation to it. There are three clauses .
The points I understood is given in curly {} brackets.

(a).

The sum for which the property might reasonably be expected to let from year to year.{ Suppose a house owned by Mr.X will get reasonably Rs. 36000/- per year. Eventhough he didnt let it to anyone, the above amount will be considered as the value of property }

(b).

where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable { Suppose Mr.X given the abovesaid house for rent. He is getting 40000/- per year. Then the value of the property will be 40000/- in this case. }

(c).

where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable. { Suppose Mr.X given the abovesaid house for rent. Since the property was vacant for sometime he only got Rs. 30000/-. Then the value of the property will be 30000/- in this case. I am not much sure about this case. This is the maximum feasible interpretation I can give reading the clause. If it is wrong, please correct me. And the strong belief that I may be wrong is because goverment is losing (Is it??) something here}

Now we know what is the value of a property. Now according to the section 22 the value of a property is income taxable under the head "Income from house property". But there are some exceptions.

Any taxes levied by any local authority in respect of the property shall be deducted. If the value of a property is 40000/- and you paid some tax (like property tax), say 4000/- , then you have to pay tax only for 36000/- Rs.

Now Section 23- sub-section (2) says, If the property is used by the owner for his own residential purpose then the value of that property is "nil". Great relief, huh ??? . Eventhough you have a residential property in some place and you are not able to stay there because you have to stay somewhere else because of the professional reasons, then the value of your property will be considered as zero. But sub-section (3) says, if you given that property (or part of that property) to rent, then the sub-section (2) will not be valid. Which means you have to pay tax by the subsection (1) clause (a) or (b) whichever is applicable.

Now suppose you have three residential house as in the case of subsection (2), Whether the value of the property will be zero for all the three residential house???? Answer is a Big NO !!!!

Subsection (4) says, If the owner has multiple house like in sub-section(2), the assesee can opt which one of this he wanted to consider as in the case of sub-section(2). Value of a property will be applied for all the other houses under the owners custody.

This is what Section 22 and 23.

Now I will quote some important cases and the comments taken from Income Tax Department site, http://law.incometaxindia.gov.in . And the content is copyrighted by taxmann.

1, Actual receipt or accrual of income is not a requisite - What is charged under section 22 is the annual value of the ownership of the property irrespective of the fact whether or not any income was either actually received or had accrued to the assessee .

"Even in its ordinary economic sense, the expression 'income' includes not merely what is received or what comes in by exploiting the use of a property but also what one saves by using it oneself. That which can be converted into income can be reasonably regarded as giving rise to income. The tax levied under the Act is on the income (though computed in an artificial way) from house property in the above sense and not on house property"

For further details see the case
"
[2000] 243 ITR 89 (SC)
SUPREME COURT OF INDIA
Chelmsford Club
v.
Commissioner of Income-tax
D.P. WADHWA AND N. SANTOSH HEGDE, JJ.
CIVIL APPEAL NOS. 5364-65 OF 1995
MARCH 2, 2000
"

Asking the reader's view and comments.........
Let us have a constructive debate.......