The term 'House property' consists of buildings or land appurtenant to such buildings. Income from letting out of vacant plots of land when there is no adjoining building will not be taxed under this head (but will be taxed as income from other sources). The existence of a building is, therefore, an essential prerequisite for taxation of income from house property. 'Building' will include residential house (whether let out or self-occupied), office building, factory building, godowns, flats etc. But, the purpose for which the building is used by the tenant is also immaterial. It does not make any difference at all if the property is owned by a limited company or a firm. However, if the building or part thereof is used by the owner himself for the purpose of his own business then there will be no income from such portion of the house property.
Under the Income-tax Act, the basis of calculating income from House property is the 'Annual Value'. This is the inherent capacity of the property to earn income and it has been defined as the sum for which the property might reasonably be expected to let from year to year. Where the actual rent received is more than the reasonable return, it has been specifically provided that the actual rent will be the annual value. Where, however, the actual rent is less than the reasonable rent , the latter will be the annual value.
The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner shall be subjected to Income Tax under the head 'Income from property' after claiming deductions (under section 24) provided such property, or any portion of such property is not used by the assessee for the purposes of any business or profession, carried on by him, the profits of which are chargeable to income tax.
