TMI Blog1981 (1) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 ₹ 1,23,000 on the relevant valuation date. The mortgage debt, on that date, stood at ₹ 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, ₹ 61,500, under section 5(1)(iv ) of the Act. Then, turning to the mortgage debt, he bifurcated it into two, and disallowed one-half of it, namely, ₹ 20,202, under section 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 ₹ 40,403 was a wholly deductible debt under section 2(m)( ii) of the Act, and no part of it can be di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efinition in the Act of the expression net wealth . The definition begins by saying that, net wealth is an amount. It is an amount by which the aggregate value of the assessee s assets exceeds the aggregate value of his debts. Wealth-tax thus deals with figures of assets and with figures of debts, not as ends in themselves, but as the means to derive a final net figure of net wealth. The charge attaches only on the net wealth. It does not attach on the assets, either in the gross or otherwise. Since the taxis not on the assets neither can the exemption be of assets, as such. Mr. Jayaraman, however, dwelt on the opening words of section 5(1). He laid particular emphasis on that part of the section which laid down that wealth-tax shall not be payable in respect of the following assets . We must, however, ascribe this phraseology to a pardonable lapse on the part, of the draftsman whose idea of wealth-tax, to start with, was as hazy as that of the sponsors of the measure, not to speak of some of the judicial utterances of earlier days. Now, that we know what the tax is and on what the charge is laid, especially after Sudhir Chandra Nawn s case [1968] 69 ITR 897 (SC), this part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of every claim for exemption, just to see if the-amount exceeds ₹ 1,00,000 or not. This part of section 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 section 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 section 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 section 2(m)( ii) of the Act. This provision which defines net wealth as an amount by which the aggregate value of the assets exceeds the aggregate value of the debts, contains certain savings and exceptions set out in clause (i) to (iii). Clause ( ii) excludes from the computation of net wealth. 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 this Act. At one time, in the place of the words underlined*, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cured on house property whose value is chargeable to tax as to one-half, and exempted from tax as to the other half. What, then, is its position in terms of the dichotomy in section 2( m)(ii) ? The position is that it falls between two stools, as it were. It assumes an intermediate, of a third, position. This position section 2(m)( ii) does not clearly provide for at all, and apparently does not even envisage. It must be a case of causus omissus. We can arrive at the same result by adhering to the language of the statute. The general rule as to deduction of debts in section 2(m) is that all debts must come into the reckoning. Clause (ii) excludes from the computation only debts which are secured on property in respect of which wealth-tax is not chargeable. Accordingly, the one and only inquiry under section 2(m)( ii) is to see whether it can be said of any item of asset that it is property in respect of which wealth-tax is not chargeable. An item of house property can be brought within the charge either because it is not used as the assessee s residence or to the extent that its value exceeds ₹ 1,00,000. In either case, it would be property of a kind about which nobody can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e interpretation that we have to place on the section would have to be uniform so as to cover cases where the value of the property exceeds the sum of rupees one hundred thousand. Section 5(1)(iv) provides for a ceiling on the exemption up to a sum of rupees one hundred thousand, and what is exempted is the property but the exemption is taken away proportionately, where the value of the property exceeds rupees one lakh. If so understood, then even in a case where the debt is taken on the security of the house property which exceeds the sum of rupees one lakh, the assessee would not be eligible for the deduction of the debt, at any rate up to a limit of a lakh of rupees as it would be secured on a property which was exempt from assessment to that extent. It is plain to see that this passage does not represent the ratio decidendi in that case. The observation with which the passage begins makes this point quite clear. The learned judges had to consider the case of a debt secured on a wholly-exempted owner-occupied residential house of a value of less than ₹ 1,00,000, whereas the point about which they expressed themselves in the passage quoted concerned the proviso to secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erve that a debt which is secured on an asset must be fully allowed, even though the asset is entitled to partial exemption from tax. This line of reasoning, is, however, vulnerable. Mr. Jayaraman was not slow to exploit it to his advantage and to adopt for purposes of his argument the same slogan, that a debt, for purposes of deduction, is one and indivisible. His argument was that since a debt cannot be bifurcated, it must be disallowed in whole even if it is secured on a partially exempted asset. We would avoid the pitfall of this theory about the non-divisibility of a debt. The quality of non-divisibility of a debt cannot be derived as a matter of construction, from the terms of section 2(m)( ii). We would prefer to base our decision rather on the circumstance that a debt secured on property, which is neither wholly taxable nor wholly exempt, is not contemplated by the statute. In any case of such a debt, it cannot be asserted, in terms of section 2(m)(ii ), that it is secured on property on which wealth-tax is not chargeable at all. We may observe that the department s case, as put forward in this reference, for a wholesale disallowance of the debt in its entirety does not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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