1980 (1) TMI 70 - HC - Wealth-tax

Summary

Issues Involved:
1. Whether the debt of Rs. 36,000 for the assessment year 1972-73 and Rs. 56,485 for the assessment year 1973-74, owed by the assessee to the Life Insurance Corporation of India, should be deducted from the aggregate value of the assets for computing the net taxable wealth.

Detailed Analysis:

Assessment Year 1972-73:

Background:
The assessee borrowed Rs. 40,000 from the Life Insurance Corporation of India (LIC) on the security of his house. He invested Rs. 30,000 in a fixed deposit and utilized the borrowed amounts for purchasing a plot, advancing loans to a firm and a company, and depositing with the Industries Department. The assessee deducted Rs. 36,000 owed to LIC from the valuation of his house, which was valued at Rs. 80,000.

Wealth Tax Officer (WTO):
The WTO valued the residential house at Rs. 80,000 and did not accept the deduction of Rs. 36,000, arguing that the debt should not be deducted in ascertaining the taxable net wealth.

Appellate Assistant Commissioner (AAC):
The AAC held that since the debt was secured by the mortgage of the residential house exempted under Section 5(1)(iv) of the W.T. Act, it could not be allowed as a deduction under Section 2(m)(ii) of the W.T. Act, 1957.

Tribunal:
The Tribunal, referring to Section 2(m)(ii), upheld that the debt secured by the mortgage of the residential house, which was exempt from tax under Section 5(1)(iv), could not be deducted.

High Court Judgment:
The High Court analyzed Sections 3, 4, 5, and 2(m)(ii) of the W.T. Act. Section 5(1)(iv) provides an exemption for one house or part of a house belonging to the assessee. Section 2(m)(ii) excludes debts secured on property exempt from wealth-tax. The Court concluded that the house property valued at Rs. 80,000 was not chargeable to wealth-tax, and thus, the debt secured on it could not be deducted. The Court rejected the counsel's argument that the exemption was of an amount and not an asset, emphasizing that the exemption applied to the property itself. The Court cited the Allahabad High Court's decision in Jiwan Lal Virmani v. CWT, supporting the exclusion of debts secured on exempt assets.

Conclusion:
The question for the assessment year 1972-73 was answered in the affirmative, favoring the revenue.

Assessment Year 1973-74:

Background:
The assessee claimed a deduction of Rs. 56,485 owed to LIC, with Rs. 32,000 secured by the house property and Rs. 24,485 secured against a life insurance policy.

Wealth Tax Officer (WTO) and Appellate Assistant Commissioner (AAC):
Both disallowed the deduction, and the Tribunal upheld this decision, relying on Section 2(m)(ii).

High Court Judgment:
The Court reiterated its earlier decision for the assessment year 1972-73 regarding the debt secured by the house property. For the debt secured against the life insurance policy, the Court referred to the Allahabad High Court's decision in Jiwan Lal Virmani v. CWT, which held that loans secured on exempt insurance policies were not deductible.

Conclusion:
The question for the assessment year 1973-74 was answered in the affirmative, favoring the revenue. The revenue was entitled to costs, with counsel's fee set at Rs. 500.

Summary:
The High Court concluded that debts secured on properties exempt from wealth-tax under Section 5(1)(iv) of the W.T. Act could not be deducted from the aggregate value of assets for computing net taxable wealth. This applied to both the residential house and life insurance policies. The decisions were consistent with the interpretation of Section 2(m)(ii) and supported by precedent from the Allahabad High Court.