Debts incurred in relation to any property shall not be deducted in computing the net wealth of assessee. - Income Tax - 1070/CBDT

INSTRUCTION NO. 1070/CBDT Dated : June 28, 1977 Section(s) Referred: 2(m)(ii) Statute: Wealth Tax Act, 1957 Section 2(m)(ii) of the W.T.Act provides that 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 shall not be deducted in computing the net wealth of the assessee. The Board have examined the question whether debts secured on or incurred in relation to assets in respect of which wealth-tax is not payable and which are not included in the net wealth of the assessee by virtue of provisions contained in section 5(1) of the W.T.Act can be regarded as debts secured on or incurred in relation to any property in respect of which wealth-tax is not "chargeable" within the meaning of section 2(m)(ii) of the Act. 2. The Board are of the view that having regard to the provisions of section 3 read with section 4,5,6 of the Act, the types of assets enumerated in section 5(1) of the Act can be regarded as property not chargeable to wealth-tax within the meaning of section 2(m)(ii) of the Act. In view of this position, such debts will not be deducted in computing the net wealth of the assessee. 3. The Board have also examined the question as to how the deduction in respect of debts which are secured on or have been incurred in relation to any property which is partly exempt u/s.5(1) of the Act is to be allowed. The Board are of the view that in the absence of any clear indication in the Act, the deduction for such debts will have to be allowed in the manner which is most beneficial to the assessee. Accordingly, if, for instance, a debt of Rs.1 lakh has been secured on a house property the value of which is Rs.1,50,000 and exemption of Rs.1 lakh is allowed u/s.5(1)(iv) of the Act, the debt will have to allowed to the extent of Rs.50,000 being the value of the house property which is otherwise includible in the net wealth.