COMMISSIONER OF WEALTH TAX Vs. RAKESH KUMAR AGARWAL

JUDGEMENT

(1.) RAKESH Kumar Agarwal is an assessee under the Wealth-tax Act, 1957, and the matter relates to the assessment year 1977-78. The assessee has a fixed deposit of Rs. 1 lakh in Dena Bank. He raised a loan against this fixed deposit and, at the relevant time, was indebted to that bank in a sum of Rs. 77,425 under this transaction of loan. He, therefore, claimed deduction of this amount of Rs. 77,425 from his wealth in terms of Section 2(m)(ii) of the Wealth-tax Act, 1957. The contention was that the loan was raised on the security of an exempted asset. This claim for deduction was rejected and the appeal before the Appellate Assistant Commissioner also failed. The assessee preferred a further appeal before the Appellate Tribunal. The Tribunal held that since the fixed deposit receipt was not fully exempt from tax, the loan cannot be said to have been raised on the security of the exempted asset. The Tribunal, therefore, found that the debt to the extent of Rs. 77,425 qualified for deduction as a liability in computing the assessee's net wealth. The appeal succeeded and the deduction claimed was allowed. The Department applied for a reference to the High Court under Section 27(1) of the Wealth-tax Act. That application was allowed and the Tribunal has submitted the statement of case to the High Court for its opinion on the following question of law :

(2.) SECTION 2(m) of the Wealth-tax Act, 1957, defines " net wealth " to mean the amount by which the aggregate value computed in accordance with the provisions of the Act, of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under the Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than debts which are secured on, or which have been incurred in relation to, any property in respect of which wealth-tax is not chargeable under the Act. Thus, in computing the net wealth of the assessee for the purpose of the Act in terms of Sub-clause (ii) of Clause (m) of SECTION 2 of the Act, such debts have to be excluded which are secured on property not chargeable to tax under the Act or debts which have been incurred in relation to such property. Thus, in the instant case, the loss of Rs. 77,425 may be kept aside in computing the net wealth of the assessee if it is held that it was incurred on the security of the fixed deposit of Rs. 1 lakh in the Dena Bank and further that this security is not chargeable under the Act.

(3.) A Full Bench of the Madras High Court, by a majority, held in CIT v. K. S. Vaidyanathan [1985] 153 ITR 11 (Mad) [FB] (Balasubrahmanyan J., dissenting), that Section 2(m) of the Wealth-tax Act is not a charging section and, therefore, the principle of positive construction must apply as it is such construction which will promote the general purpose underlying the provisions. Applying such rule, it was held (Balasubrahmanyan J., contra) that where an asset is only partially exempted from chargeability to wealth-tax, then it has necessarily to follow that the portion of the debts secured on such portion of the asset or incurred in acquiring such portion of the asset has to be excluded from reckoning. The Full Bench also negatived the argument that, inasmuch as Section 2(m)(ii) does not expressly provide for an apportionment of the debt as between a portion of the debt which is partially exempt and which is partially not exempt, or as between an asset which is totally exempt and which is not exempt at all, apportionment of the debt cannot be done. The Full Bench also did not accept the contrary ratio laid down by that court in two earlier Division Bench decisions in CIT v. M. N. Rajam [1982] 133 ITR 75 (Mad) and CWT v. Ch. Satish [1982] 133 ITR 834 (Mad). We are in respectful agreement with the view taken by the Full Bench of the Madras High Court in Vaidyanathan's case [1985] 153 ITR 11.