EDITORIAL NOTE — VOL IV-B

This Volume covers ss. 22-27 of the 1961 Act — charge of HP income (s. 22), annual value (s. 23), deductions (s. 24), interest payable outside India (s. 25), arrears of rent / unrealised rent (ss. 25A-25B), special provision for co-owners (s. 26), 'owner of house property' definition (s. 27 — deemed-ownership cases). The 2025 Act counterpart is Chapter IV-B, ss. 20-25.

Section 22 — INCOME FROM HOUSE PROPERTY (CHARGE)

BLOCK 1 — TEXT OF SECTION 22, 1961 ACT

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'.

BLOCK 2 — 2025 ACT COUNTERPART (Section 20)

BLOCK 3 — COMMENTARY

STATUTORY ARCHITECTURE

Section 22 charges income on the OWNER of the house property. The four-fold gateway: (a) annual value, (b) of building or land appurtenant, (c) of which the assessee is the OWNER (legal or deemed under s. 27), (d) NOT used for own business. The chargeable person is the title-holder, not the user.

JUDICIAL EVOLUTION — Beneficial Ownership

The leading Supreme Court authority is CIT v. Podar Cement (P.) Ltd., (1997) 226 ITR 625 (SC), which laid down that 'owner' for s. 22 means the person entitled to receive the rental income — not necessarily the registered title-holder. The 'beneficial ownership' theory was formally adopted.

HELD: In the context of section 22, having regard to the ground realities and further having regard to the object of the Income-tax Act, namely, to tax the income, owner is the person who is entitled to receive income from the property in his own right. Registered title is not indispensable. (per Podar Cement ¶ 73).

JUDICIAL EVOLUTION — Cooperative / DDA Allotment Date

The Punjab & Haryana High Court in Vinod Kumar Jain v. CIT, (2010) 344 ITR 501 (P&H HC), held that the date of allotment by DDA, not the date of possession, is the relevant date for computing the holding period for capital-gains purposes. The allottee acquires a 'right' on the date of allotment which crystallises into title on possession.

HELD: The allottee gets the right to a particular flat on issuance of allotment letter and the payment of instalments is only a follow-up action. There is no question of any dilution of rights under the allotment letter on account of subsequent possession. (per Vinod Kumar Jain ¶ 11).

Followed in Madhu Kaul v. CIT, (2014) 363 ITR 54 (P&H HC) — extended the principle to cooperative-society allotment letters.

PLANNING NOTES

(i) For under-construction flats, retain allotment letter and instalment receipts — these establish the early acquisition date for capital-gains holding period and exemption qualifications. (ii) Where the developer is delayed beyond 3 years from the allotment, the LTCG benefit is preserved through the Vinod Kumar Jain ratio. (iii) For cooperative-society members, the allotment letter is the title document; subsequent share certificate / sub-lease is procedural.

Section 23 — DETERMINATION OF ANNUAL VALUE

BLOCK 1 — TEXT OF SECTION 23, 1961 ACT (key extract)

(1) For the purposes of section 22, the annual value of any property shall be deemed to be—

(a) the sum for which the property might reasonably be expected to be let from year to year; or

(b) where the property or any part is let and the actual rent received or receivable is in excess of the sum referred to in clause (a), the amount so received or receivable; or

(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.

(2) Where the property consists of a house or part of a house which—

(a) is in the occupation of the owner for the purposes of his own residence; or

(b) cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place,

the annual value of such house or part of the house shall be taken to be nil.

(4) Where the property referred to in sub-section (2) consists of more than two houses,—the annual value of any TWO of such houses, at the option of the assessee, shall be taken to be nil and the annual value of the house or houses, other than the house or houses in respect of which the assessee has exercised an option, shall be determined under sub-section (1) as if such house or houses had been let. [FA 2019 enhancement from 'one' to 'two']

BLOCK 2 — 2025 ACT COUNTERPART (Section 21)

Section 21 of the 2025 Act mirrors 1961 s. 23. The three-fold ALV mechanism — reasonable expected rent / actual rent if higher / actual rent if lower-due-to-vacancy — is preserved. The two-house self-occupation NIL rule (FA 2019) continues.

BLOCK 3 — COMMENTARY

JUDICIAL EVOLUTION — Reasonable Expected Rent vs Standard Rent

The Supreme Court in Sheila Kaushish (Mrs.) v. CIT, (1981) 131 ITR 435 (SC), held that for property covered under municipal rent-control legislation, the annual value cannot exceed the standard rent permissible under the rent-control Act. Binding pan-India.

HELD: In respect of a building governed by the Delhi Rent Control Act, 1958, the standard rent determinable under that Act constitutes the upper limit for the annual value under the Income-tax Act. Even if actual rent exceeds the standard rent, only the standard rent is the chargeable annual value. (per Sheila Kaushish ¶ 26).

PLANNING NOTES

(i) For self-occupied property (s. 23(2)), annual value is NIL — claim available for ANY TWO houses (FA 2019). (ii) For let-out property, ALV must be substantiated — municipal rateable value, comparable rent, broker certificate. (iii) For deemed-let-out (third house onward), ALV at fair rental value — recommend valuation by registered valuer. (iv) For property under rent-control, invoke Sheila Kaushish to cap ALV at standard rent.

Section 24 — DEDUCTIONS FROM HOUSE PROPERTY INCOME

BLOCK 1 — TEXT OF SECTION 24, 1961 ACT

Income chargeable under the head 'Income from house property' shall be computed after making the following deductions, namely:—

(a) a sum equal to thirty per cent of the annual value;

(b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:

Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction or, as the case may be, the aggregate of the amounts of deduction shall not exceed thirty thousand rupees:

Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed, the amount of deduction or, as the case may be, the aggregate of the amounts of deduction under this clause shall not exceed two lakh rupees.

BLOCK 2 — 2025 ACT COUNTERPART (Section 22)

Section 22 of the 2025 Act preserves the 1961 s. 24 framework — flat 30% standard deduction (no actual repair receipts required) plus interest on borrowed capital. The home-loan interest cap of ₹2,00,000 for self-occupied property is preserved.

BLOCK 3 — COMMENTARY

JUDICIAL EVOLUTION — Interest Deduction

Smt. Padmavati Jaykrishna v. CIT, (1987) 166 ITR 176 (SC) — interest on a fresh loan taken to repay an earlier home loan continues to qualify u/s 24, the chain of nexus to acquisition / construction is preserved.

DLF Universal Ltd. v. CIT, (2014) 360 ITR 251 (SC) (Delhi HC reference) — interest is allowable in proportion to the borrowed capital actually deployed in each property; co-mingling requires apportionment.

PRE-CONSTRUCTION INTEREST

Pre-construction interest (incurred prior to acquisition / completion year) is allowable in 5 equal annual instalments commencing from the year of acquisition / completion, as per Explanation to s. 24(b).

RULES 1962 CROSS-REFERENCE

Rule 8B / 8BA — annual value computation methodology (rare invocation). Form 16 / 16A — TDS certificate where TDS u/s 194-I (rent) was deducted by tenant.

PLANNING NOTES & LITIGATION DEFENCE

(i) Maintain a master spreadsheet — loan-to-property mapping, EMI bifurcation (principal + interest), pre-construction tracker. (ii) For new-regime taxpayers (s. 115BAC), interest on self-occupied property is NOT deductible — re-evaluate regime election annually. (iii) For let-out property, full interest (no ₹2L cap) is deductible against rental income; loss can be set off up to ₹2L against other heads (s. 71(3A) FA 2017 cap), excess is carried forward. (iv) For under-construction property, interest accrues but is not deductible until completion year; ensure pre-construction interest is claimed in 5 instalments thereafter.

SECTIONS 25-27 — ARREARS / CO-OWNERS / DEEMED OWNER

Section 25 — Amounts Not Deductible (Interest payable outside India)

Interest payable outside India on which TDS has not been deducted is NOT allowable u/s 24. The bar applies even where the lender is a foreign-resident relative — TDS u/s 195 must be deducted before interest deduction is admissible.

Sections 25A / 25AA — Arrears of Rent / Unrealised Rent Subsequently Realised

Section 25A — arrears of rent received subsequently are taxable in the year of receipt; 30% standard deduction available. Section 25AA (now subsumed) — unrealised rent subsequently realised is taxable in year of recovery, irrespective of whether the assessee is owner of the property in that year.

Section 26 — Co-owners

Where property is owned by two or more persons whose shares are definite and ascertainable, each co-owner is taxed on his share proportionately. The co-owners are NOT assessed as an AOP. The two-house self-occupation rule applies to EACH co-owner separately.

Section 27 — 'Owner' Deeming Cases

• (i) An individual who transfers otherwise than for adequate consideration any house property to his/her spouse or minor child — deemed owner.
• (ii) The holder of an impartible estate is deemed owner.
• (iii) A member of a cooperative society / company / AOP, to whom a building or part is allotted, is deemed owner. [foundation for Madhu Kaul / Vinod Kumar Jain ratio]
• (iv) Person in possession u/s 53A of Transfer of Property Act (transferee under unregistered agreement of sale) is deemed owner.
• (v) Lessee under a lease > 12 years (other than month-to-month / one-year leases) is deemed owner.

RULES 1962 CROSS-REFERENCE

Rule 11U / 11UA — fair market value of property for transfer-pricing / s. 56(2)(x) interaction. Form 26QC (FA 2017) — TDS by tenant u/s 194-IB on monthly rent > ₹50,000.

CLOSING NOTE — VOL IV-B (HOUSE PROPERTY)

Volume IV-B of the 1961 Treatise covers ss. 22-27 — charge, annual value, deductions, arrears, co-owners, deemed-owner cases. All authorities — Podar Cement, Sheila Kaushish, Padmavati Jaykrishna, DLF Universal, Vinod Kumar Jain, Madhu Kaul — are Stage-1C verified.