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Deemed Ownership section 27 – Income tax Act

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Section 27 of income tax act talks about deemed owner for the purpose of income from house property. Although you are not the owner of a building in real sense the rental income can be charged in your hand if its proved that you are the deemed owner of the building or land appurtenant there to. For income tax purpose a person in following cases will be treated as deemed owner and is liable to income tax for house rent in the same manner as a real owner. The following article clearly explains the Deemed Ownership in Income from House property. Deemed Ownership come under the section 27 of Income tax act.

Deemed Ownership section 27 - Income from House Property

Deemed Ownership section 27

Deemed Ownership As per section 27, the following persons though not the legal owners of a property are deemed to be the owners for the purposes of sections 22 to 26:

(i) Transfer to a spouse or minor child: 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;

(ii) Holder of an impartible estate: the holder of an impartible estate as the individual owner of all the properties comprised in the estate;

(iii) Member of a co-operative society: 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, of that building or part thereof;

(iv) Person in possession of a property: 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;

(v) Person having right in a property for a period not less than 12 years: with effect from assessment year 1988-89, 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, of that building or part thereof.

Note:

(1) If a firm transfers its house property to its partners, before dissolution, merely by book entries, annual value of the property is taxable in the hands of the firm – Inder Narain Har Narain v. C.I.T. (1980) 3 Taxman 365 (Delhi).

(2) Where a Muslim transfers a property of a value of more than ` 100 it must be by registered instrument and not orally. This is the position even with respect to a property purporting to have been orally given over by a Muslim husband to his wife in the discharge of his dower debt to her. Accordingly, the income from a property thus given will be included in the total income of the husband only – Syed Sadique Iman v. C.I.T. (1979) 117 ITR 62 (Patna).

(3) In the case of tenant co-partnership co-operative housing societies, the income from each building should be assessed in the hands of the individual members to whom it has been allotted. Conversely, for all purposes (including attachment and recovery of tax, etc.) the individual members should be regarded as the legal owners of the property in question.

(4) Also, for the purposes of Section 22, the custodian should be treated as owner of an evacuee’s property from the date of its vesting in him.

And, in respect of all properties of an evacuee vested in him, an assessment should be made upon the custodian, but in respect of properties vested in him, and belonging to different evacuees, separate assessments in respect of each evacuee should be made upon him.

The relevant status as to residence for the purposes of such assessments, is that of the assessee custodian and that is resident and ordinarily resident.

The rates of income-tax applicable in any such assessment are those appropriate to the total income of a “resident individual”.

Other points with regard to Deemed Ownership

Deemed Ownership section 27 - Income tax Act

(i) Official assignee or receiver : Where the owner of the property becomes insolvent,the official assignee or receiver under the law of insolvency shall be chargeable in respect of the income from such house property as the owner. However, the receiver appointed by the Court shall not be deemed to be the owner of the insolvent’s property, because the property does not vest in him.

(ii) Ownership in dispute : Where the title to the property is in dispute, the Assessing Officer is empowered to decide the ownership of the property for income-tax purposes. However, where the decision of the Court is contrary to the Assessing Officer’s decision, the decision of the court will prevail and he will reassess the assessee accordingly.

(iii) Co-owners of the property : Where the property is owned jointly by two or more persons and their respective shares are definite and ascertainable, they shall be assessed individually on their shares in the income from the property (Section 26).

(iv) Owner in the previous year : Since tax is levied only on the income of previous year, annual value of property owned by a person during the previous year, is taxable in the following assessment year, even if the assessee is not the owner of the property during the assessment year.

(v) Status of property in a foreign country : A resident assessee is taxable under Section 22 in respect of annual value of a property situated in a foreign country. But, a resident but not ordinarily resident or non-resident is chargeable under Section 22 in respect of income of a house property situated abroad, only if income is received in India during the previous year. In such cases where tax incidence is attracted, the annual value is computed as if the property is situated in India.

Deemed Ownership comes under the Income from House Property in the Income tax act. Section 27 deals the Deemed Ownership in the Income tax act.

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