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TMI Blog1982 (12) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... house and the value thereof at Rs. 2,37,500 was taken into account in computing the net wealth, the assessee claimed that the sum of Rs. 50,000 being his share of the liability outstanding should be deducted therefrom. The WTO rejected the claim on the ground that the loan was secured on an exempted asset and, therefore, not deductible. On appeal, the AAC relied on the decision of the Madras High Court in the case of T.V. Srinivasan v. CWT [1980] 123 ITR 464 to confirm the order of the WTO. 5. In the appeal before us, it was contended on behalf of the assessee that the value of the asset exceeding the exempted limit of Rs. 1 lakh, the liability should be deducted from the taxable portion or at any rate, proportionately from the value incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity goes to reduce directly the value of the asset which is chargeable to tax and that liability cannot, therefore, be excluded from the computation of net wealth. Even otherwise the life insurance policy offered as a collateral security cannot come within the scope of expression ' secured ' in section 2(m)(ii). It is common ground that the policy has only been pledged to the LIC so that in case the assessee should make any default in the payment of the loan and the LIC is unable to recover the amount from the house property which is mortgaged, it can retain the policy as a collateral security. As explained by the Supreme Court in the case of Lallen Prasad v. Rahmat Ali 1967 AIR SC 1322, a contract to pawn a chattel even though money is ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty, the LIC is bound to sue the assessee for the return of the loan on the basis of the mortgage and once the LIC exercises the option to sue, it will not be in a position to sell the policy as the policy pledged has to be retained as collateral security in view of the decision of the Supreme Court. Therefore, not only is there no conveyance of any general interest in the property to the LIC but even the special property which may be conveyed, namely, the right to sell the thing pledged will be of no effect since the LIC is bound to sue on the mortgage. In the circumstances, the encumbrance created by the pledge of the policy is not only contingent but is of too remote a consequence to establish any inextricable nexus between the life i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is allowed under section 5(1)(iv) of the Act, the debt will have to be allowed to the extent of Rs. 50,000 being the value of the house property which is otherwise includible in the net wealth." It is argued by the department that this view may not be in conformity with the correct legal position as explained by the decisions of the High Courts. But it has been held by the Supreme Court in K.P. Varghese v. ITO [1981] 131 ITR 597, that Board's circulars are binding on the department even if they deviate from the true legal position. Having held out to the assessees that a liability secured on a partly exempted asset would be deducted from the taxable value of the asset, it is not possible for the department to resile from that view. The de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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