Lease rent for land beneath let-out building excluded from house property income computation.

Lease rent paid or payable for land taken on lease and used for a let-out superstructure was excluded while computing income from house property, because the assessee was not the owner of the land and section 22 taxes only the annual value of the building and land appurtenant thereto of which the assessee is the owner. As the land leases were for periods of less than twelve years, the arrangement did not amount to a transfer under section 27(iiib) read with section 269UA(f), and the land component could not be treated as part of the rent attributable to the building. The Tribunal therefore held that the land lease rent was deductible in computing house property income.

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Issues: Whether, while computing income from house property under sections 22, 23 and 24 of the Income-tax Act, 1961, the lease rent paid or payable by the assessee for the land on which the superstructure stood could be reduced from the rent received or receivable from the let-out building.

Analysis: The assessee had taken the land on lease, constructed superstructures thereon, and let out the buildings. The lease deeds for the lands were for periods of less than twelve years, so the arrangement did not amount to a transfer within the meaning of section 27(iiib) read with section 269UA(f) of the Income-tax Act, 1961. The assessee was therefore not the owner of the land, though the superstructure belonged to the assessee. Since section 22 brings to tax the annual value of the building and land appurtenant thereto of which the assessee is the owner, the rent attributable to land belonging to a third party could not form part of the annual value of the property. On that footing, the lease rent paid or payable for the land was required to be excluded while computing the annual rental value and income from house property. The Tribunal also held that, in the absence of a contrary computation mechanism in the Act, the land component could not be treated as part of the rent received for the building.

Conclusion: The lease rent paid or payable for the land was deductible for the purpose of computing income from house property, and the assessee succeeded on the issue.

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