Land appurtenant thereto

Income from property is taxed under the head house property only if the property consists of a building, or of land appurtenant thereto.

That second phrase does the work. Appurtenant land is land attached to a building and forming part of it. A compound, a driveway, a garden, the yard around a factory shed.

The word property has a wide meaning in ordinary use. For this head of income it does not. The workbook is firm: the property must consist of a building or land appurtenant to it.

So rent from a vacant plot is not income from house property. There is no building. That rent is taxed as business income or as income from other sources instead.

The same goes for a property still under construction. It is not yet a building, so its income cannot be taxed under this head either.

One small phrase therefore decides which head applies, and with it the whole computation.

The three conditions for this head. Section 7.6.2 says rental income from immovable property falls under income from house property only if all of the following hold:

1. The property consists of any building or lands appurtenant thereto.
2. The assessee is the owner of the property.
3. The property is not used by the owner to carry on his own business or profession.

What the first condition excludes. The workbook gives two express exclusions:

Why the classification is worth money. The definition itself carries no figure, and none should be attached to it. But the head it admits you to does. Once income is taxable under house property, the deductions from annual value in the same section become available: municipal taxes actually paid for let-out and deemed let-out property, a standard deduction of up to 30% of the net annual value under section 24(a), and interest on borrowed capital under section 24(b). Divert the same rent to income from other sources and none of that structure applies.

Ownership, and the deemed owner point. Income from a building and the land appurtenant to it is chargeable under this head only in the hands of an owner. To be an owner a person must hold legal title in his own name and be able to exercise an owner's rights in his own right, not on behalf of somebody else.

The workbook then gives the most common Indian exception. Where the building and the land appurtenant thereto is owned by a cooperative housing society, and the member has a right to reside in and enjoy a specific unit including the right to transfer that right of enjoyment, the member is treated as the deemed owner. That is how flat owners in a society are taxed under this head at all.

Use of the property. The annual value is chargeable under this head if the owner does not use the property for his own business or profession. And the workbook closes a loophole: even where the assessee is in the business of letting out residential property, the rent is still taxable as income from house property, not as business income.

Illustrative figures; the definition itself carries no numbers in the workbook.

Mr Nambiar owns three immovable assets in Coimbatore and lets all three out.

What the classification is worth on the godown. Assume municipal taxes of Rs 20,000 actually paid.

The 30% deduction is worth Rs 2,10,000 of exempt income without a single rupee of actual expenditure.

What it is worth on the vacant plot. Nothing. The Rs 2,40,000 of parking rent is taxed under other sources, where only actual revenue expenditure laid out wholly and exclusively to earn that income is deductible. If he spent Rs 15,000 on the watchman, that is his deduction — not Rs 72,000.

Same landlord, same city, same tenant type. The godown gets a Rs 2.10 lakh notional deduction and the plot gets Rs 15,000, entirely because one has a building with land appurtenant to it and the other does not.

And the society flat. His own flat in a cooperative housing society is owned by the society, yet because he has the right to reside in and transfer the enjoyment of a specific unit, he is the deemed owner and its income is taxed under this head in his hands.

Chapter 7 (Concepts of Taxation), section 7.6.2 (Income from House Property), opens with this requirement before dealing with ownership, use, annual value and the section 24 deductions. It is the gateway condition for the entire head, which is why it gets examined first.

Expect a which-head question: rent from a vacant plot, from an under-construction property, or from a building with its compound. Expect also the cooperative housing society deemed-owner point, because that is the example the workbook itself singles out, and the letting-out-as-a-business point, where the rent stays under house property regardless.

• Vacant land is not a building. Rent from bare land is business income or income from other sources, never income from house property, however large the rent.
• An under-construction property is not a building either. Only on completion does its income enter this head.
• Land appurtenant is land attached to and forming part of the building. A separate plot across the road, let independently, is not appurtenant to the building.
• The definition carries no figure. The 30% standard deduction and the section 24(b) interest limits belong to the computation of annual value, not to this condition.
• Only an owner is taxed under this head, and ownership means legal title exercised in one's own right. A person collecting rent without title is taxed under business or other sources.
• A cooperative housing society member is a deemed owner of his unit and of the land appurtenant to the building, even though the society holds the title.
• Letting out residential property as a business does not move the income to business head. The workbook states this expressly.
• Own business use takes the property out of this head. The annual value is chargeable here only if the owner is not using it for his own business or profession.