COMMISSIONER OF INCOME TAX Vs. M N RAJAM

JUDGEMENT

(1.) THIS case stated by the Income-tax Appellate Tribunal poses a problem in the simultaneous application of two provisions in the W. T. Act, 1957, namely, ss. 5(1)(iv) and 2(m)(ii). The prob- lem has arisen in a wealth-tax assessment for the assessment year 1971-72. Section 5(1)(iv), as it stood at the material time, exempted from wealth-tax one house or part of a house owned and exclusively used by an assessee as his or her residence. THIS exemption, however, was subject to a monetary upper limit of Rs. 1, 00, 000. Section 2(m)(ii) deals with the computation of net wealth for purposes of levy of wealth-tax. THIS provision, inter alia, provides that while all debts owed by the assessee are deductible, debts secured on assets which are not chargeable to wealth-tax shall not be deducted. It is easy to visualize an illustrative case of an owner-occupied residential house worth less than Rs. 1, 00, 000 but subject to a subsisting mortgage. In such a case, the value of the house will be exempt from wealth-tax, but the mortgage debt will not be eligible for deduction in the computation of the taxable net wealth. In the present case, however, the facts were not as simple as all that.

(2.) THE assessee owned a house in Madras City. She lived in one-half of the house and let out the other half to tenants. THE house was under mortgage to the Egmore Benefit Fund. THE house was worth Rs. 1, 23, 000 on the relevant valuation date. THE mortgage debt, on that date, stood at Rs. 40, 403. In this situation, the Wto completed the assessment in the following fashion. He accepted the assessee's exclusive residence in one-half of her house and exempted the value of that half-portion, namely, Rs. 61, 500, under s. 5(1)(iv) of the Act. THEn, turning to the mortgage debt, he bifurcated it into two, and disallowed one-half of it, namely, Rs. 20, 202, under s. 2(m)(ii), allowing the balance as a deductible debt.THE assessee went up in appeal and got a decision from the Tribunal that the entire mortgage debt of Rs. 40, 403 was a wholly deductible debt under s. 2(m)(ii) of the Act, and no part of it can be disallowed merely for the reason that one-half of the house on which the debt was secured happened to enjoy exemption under s. 5(1)(iv).In this reference, brought at the instance of the department, no question is raised as to the exemption of one-half value of the house property under s. 5(1)(iv).

(3.) THE words of exemption refer to an amount which has to be arrived at by reckoning the value of the house. It is clear that this process of reducing the house in terms of money value has to be done in the case of every claim for exemption, just to see if the amount exceeds Rs. 1, 00, 000 or not. This part of s. 5(1)(iv) is yet another indication as to why we do not accept the department's thesis that the subject-matter of the exemption under s. 5(1)(iv) is the house itself. It stands to reason, therefore, that in a case where only a portion of its value gets exempted, it would not be correct to regard the house as such as being exempt from tax.It is easy to see why the department wants the court to hold that under s. 5(1)(iv) the house as such is an asset on which wealth-tax is not payable. A finding to this effect would have its repercussion on the applicability of s. 2(m)(ii) of the Act.