Unit 3:-

3.1 Income from House Property.
3.2 Income from Profits and Gains from Business or Profession.
3.3 Income from Capital Gain.

3.1 Income from House Property

Sections 22 to 27

Introduction & Definition

Income from House Property is the tax levied on the Annual Value of a property (buildings or land appurtenant thereto) owned by the assessee. The basis of charge is not the rent received, but the inherent capacity of the property to earn income.

Statutory Provisions

• Section 22: The Charging Section.
• Section 23: Determination of Annual Value.
• Section 24: Deductions from Income from House Property (Standard Deduction of 30% and Interest on Borrowed Capital).

Essential Ingredients

To charge income under this head, three conditions must be satisfied:

• The property must consist of any buildings or lands appurtenant thereto.
• The assessee must be the owner of the property.
• The property must not be used by the owner for the purpose of any business or profession carried on by him.

Landmark Case Laws

1. CIT vs. Bhagwan Das Huja:
   • Facts: The assessee owned a building used for his business.
   • Issue: Can the rental value be taxed under House Property?
   • Judgment: No. If the property is used for the owner’s own business, it is excluded from Section 22 and handled under Business Income.
2. Sultan Bros Pvt. Ltd. vs. CIT:
   • Facts: A composite letting of a building with furniture and machinery.
   • Issue: Should this be taxed as House Property or Other Sources?
   • Judgment: If the letting of the building is inseparable from the letting of the machinery, it is taxed under ‘Business’ or ‘Other Sources,’ not ‘House Property.’

Legal Exceptions/Provisos

• Self-Occupied Property (SOP): The Annual Value of up to two self-occupied houses is taken as Nil.
• Charitable Trusts: Property held for charitable or religious purposes is exempt under Section 11.

Exam-Style Conclusion

Income from House Property is unique because it taxes the “notional” earning capacity of an asset. To succeed in an exam answer, always emphasize that ownership is the primary criterion for liability under Section 22.

3.2 Profits and Gains from Business or Profession (PGBP)

Sections 28 to 44D

Introduction & Definition

PGBP covers the income earned from any trade, commerce, manufacture, or the exercise of a vocation/profession. It is calculated by deducting allowable expenses from the gross revenue.

Statutory Provisions

• Section 28: Charging Section (Lists what constitutes business income).
• Section 29: States that income shall be computed in accordance with Sections 30 to 43D.
• Section 32: Depreciation allowance.
• Section 37: General Deduction (for expenses not covered elsewhere but incurred for business).

Essential Ingredients

• There must be a Business or Profession carried on by the assessee.
• It must be carried on for some time during the Previous Year.
• The charge is on the aggregate profits of all businesses carried on by the assessee.

Landmark Case Laws

1. CIT vs. Malayalam Plantations Ltd.:
   • Facts: The company sought to deduct certain statutory payments as business expenses.
   • Issue: What constitutes an expense “for the purpose of business”?
   • Judgment: The expression “for the purpose of business” is wider than “for the purpose of earning profits.” It includes expenses for the preservation of assets and protection of business reputation.
2. P. Krishna Menon vs. CIT:
   • Facts: A person teaching Vedanta for free received “gifts” from followers.
   • Issue: Are these gifts taxable as professional income?
   • Judgment: Yes. Since the payments were linked to his “vocation” of teaching, they were taxable even if they were voluntary payments.

Comparison Table: Business vs. Profession

Feature	Business	Profession
Definition	Includes trade, commerce, or manufacture.	Requires specialized knowledge and intellectual skill.
Motivator	Profit motive is primary.	Service motive is often present alongside profit.
Examples	Retailer, Manufacturer, Wholesaler.	Lawyer, Doctor, Chartered Accountant.

Exam-Style Conclusion

PGBP is the most complex head of income due to the extensive list of allowable deductions. For exam purposes, focus on Section 37(1), which serves as the “residuary” gatekeeper for all business expenditures.

3.3 Income from Capital Gains

Sections 45 to 55

Introduction & Definition

Any profit or gain arising from the transfer of a capital asset effected in the previous year is chargeable to tax under the head ‘Capital Gains.’

Statutory Provisions

• Section 45: Charging Section.
• Section 2(14): Definition of “Capital Asset.”
• Section 2(47): Definition of “Transfer.”
• Section 48: Mode of computation.
• Section 54/54F: Exemptions on reinvestment.

Essential Ingredients

• There must be a Capital Asset.
• The asset must be transferred by the assessee.
• The transfer must result in a Profit or Gain.
• Such gain must not be exempt under Sections 54, 54B, 54D, 54EC, or 54F.

Landmark Case Laws

1. CIT vs. B.C. Srinivasa Setty:
   • Facts: The department tried to tax the sale of “Goodwill.”
   • Issue: Can capital gains be charged if the cost of acquisition cannot be determined?
   • Judgment: No. If the “Cost of Acquisition” is nil or cannot be ascertained (as was the case with self-generated goodwill then), the computation machinery fails, and no tax can be levied.
2. V.V.S. Sugars vs. CIT:
   • Issue: Does a compulsory acquisition of land by the Government count as a “Transfer”?
   • Judgment: Yes. The definition of transfer under Section 2(47) is inclusive and covers compulsory acquisition under law.

Comparison Table: Short-Term vs. Long-Term Capital Assets

Feature	Short-Term Capital Asset (STCA)	Long-Term Capital Asset (LTCA)
Holding Period	Generally held for 36 months or less (12/24 for specific assets).	Held for more than 36 months (12/24 for specific assets).
Tax Rate	Taxed at normal slab rates (usually).	Taxed at a flat rate (e.g., 20% with indexation).
Indexation	Benefit of indexation is not available.	Benefit of indexation is available.

Exam-Style Conclusion

The taxability of Capital Gains hinges entirely on the definitions of “Asset” and “Transfer.” Always verify if the asset is “Personal Effects” (like clothes or furniture), as these are specifically excluded from the definition of Capital Assets and thus not taxable.