Section 22 of the Income Tax Act
Income-tax Act, 2025: s.20
Section 22 of the Income-tax Act, 1961 corresponds to section 20 (Income from house property) of the Income-tax Act, 2025.
Read section 20 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 22 is Chennai Properties & Investments Ltd. v. CIT (373 ITR 673), cited in 381 of the 644 judgments on BharatTax that turn on this section.
Leading authorities on Section 22
Income from immovable property, such as unsold flats or shops, held by an assessee as stock-in-trade in their business of acquiring and holding properties is taxable as 'business income' and not 'income from house property'. Consequently, notional annual letting value under Section 23 cannot be attributed to such stock-in-trade.
Annual Letting Value (ALV) of unsold stock-in-trade flats/shops held by a real estate developer can be assessed under Section 22 of the Income Tax Act, 1961, as income from house property. This approach was followed by the Assessing Officer (AO) based on this decision.
Income derived from letting out property along with incidental use of furniture, fixtures, and common facilities is assessable as 'income from house property' and not 'business income' when the prime object is merely to let out and not to exploit the property as a business asset.
The Revenue cannot take a conflicting stand from what it had earlier accepted in a previous assessment year without compelling justification. This principle of consistency applies to various issues, including the treatment of customs duty in closing inventory.
The Revenue is bound by the rule of consistency and cannot adopt a divergent position in a subsequent assessment year unless there is a change in facts or law.
For computing income from house property, the Annual Letting Value (ALV) cannot be arbitrarily estimated by the Assessing Officer, but must be determined based on the Municipal ratable value of the property.
Income derived from letting out property is classified as business income only if the letting activity constitutes a business from a businessman's perspective, rather than mere exploitation of property by an owner. The company's object clause is not the sole determinative factor in this assessment.
Rental income from immovable property owned by an assessee must be assessed under the head 'Income from House Property' (Section 22), even if the assessee is engaged in the business of real estate or property development and leasing. This emphasizes the mandatory classification of income under its specific statutory head.
Income from unsold flats held as stock-in-trade by a builder or developer is assessable as business income, not income from house property, for assessment years prior to the insertion of Section 23(5) of the Income-tax Act.
Interest expenditure on borrowed funds, especially when used for making advances, should generally be allowed under Section 36(1)(iii) if its nature and business expediency remain consistent with previous assessment years. The character of an outstanding amount at the start of an accounting year is considered the same as at the end of the prior year, reinforcing the rule of consistency.
