COMMISSIONER OF WEALTH TAX Vs. SATISH CH

JUDGEMENT

(1.) THE question for our decision in this wealth-tax reference is whether the assessee would be entitled to the deduction of a debt in the computation of his taxable net wealth when the debt in question stands secured on two assets, one of which is, and the other is not, exempted from wealth-tax. THE answer to the question turns on the construction of s. 2(m)(ii) of the W.T. Act, 1957.

(2.) A few facts will better illustrate the intricacy of the problem. The assessee owns, among other assets, two houses. In one of these he lives. The other he has let out to tenants. The latter house was built with the aid of a house building advance from the LIC (the life Insurance Corporation of India). The advance was made on the security of two items. The very house under construction was mortgaged to the LIC. Besides, the assessee was required to take a life policy for the amount and assign that policy as additional security for the house building advance.

(3.) THIS is not the first time a situation of this kind comes up before this court in connection with the application of s. 2(m)(ii) of the W.T. Act. There is an earlier decision of a Bench of this court in which the facts were slightly different, but the problem was much the same. In that case, T.C. No. 538 of 1976 [CIT v. M. N. Rajam [1982] 133 ITR 75 (Mad)], a house property was partially exempt from tax because only half of that house was the assessee's residence the other half being let out to tenants. But the whole house was under the mortgage as security for a debt owed by the assessee. The question was whether the debt was deductible. The assessing officer in that case took a via media position and allowed one-half of the debt, disallowing the other half. The assessee appealed to the Tribunal, and got the balance of the deduction claimed for the entire debt. THIS court, on reference, held that the whole debt was deductible. It was observed that a debt of the kind which was secured on property which was assessable to wealth-tax as to one part and exempt from wealth-tax as to the other part, was a debt which would not fall within the terms of s. 2(m)(ii) which spoke of : "property in respect of which wealth-tax is not chargeable".