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TMI Blog1981 (9) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee owns, among other assets, two houses. In one of these he lives. The other he has let out to tenants. The latter house was built with the aid of a house building advance from the LIC (the Life Insurance Corporation of India). The advance was made on the security of two items. The very house under construction was mortgaged to the LIC. Besides, the assessee was required to take a life policy for the amount and assign that policy as additional security for the house building advance. Under the W.T. Act a life policy, not yet matured, is an asset on which tax is not payable. [See s. 5(1)(vi)]. Under s. 5(1)(iv) provision is made for exemption of one house for each assessee. But even under this provision, a house, per se, is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allow the debt. The Tribunal in appeal thought otherwise. Their mind moved differently. They laid stress on the fact that the debt was charged on an item of house property which was liable to wealth-tax as part of the assessee's taxable net wealth. They held to be of no consequence the exempt nature of the other security for the debt, namely, the life policy. This is not the first time a situation of this kind comes up before this court in connection with the application of s. 2(m)(ii) of the W.T. Act. There is an earlier decision of a Bench of this court in which the facts were slightly different, but the problem was much the same. In that case, T.C. No. 538 of 1976 [CIT v. M. N. Rajam [1982].133 ITR 75 (Mad)], house property was par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which wealth-tax is not payable. It is a well-known rule of statutory construction that the singular includes the plural: vide s. 13(2) of the General Clauses Act, 1897 (Central Act No. 10 of 1897). Thus, where an assessee owes a debt which is secured on one item of property, there must be an inquiry under s. 2(m)(ii) whether the property is an exempted or non-exempted asset and disallowance can be made of the debt if the property is exempt from tax, but not otherwise. Where, however, the debt is secured on two items (or three, or several), then the disallowance under s. 2(m)(ii) can apply only if all the items in question are found to be exempted assets. This is how the expression " property " must be construed. For a situation of the kin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 2(m)(ii) altogether. Elsewhere in their order, the Tribunal observed that the assessee had only an equity of redemption in the house property in question and that was the only asset he owned. In that sense, it was said that s. 2(m)(ii) was not in point at all, for, no question of allowance or disallowance of a debt could properly arise in the evaluation of an equity of redemption. We do not quarrel with the position that the assessee's interest in the property is the equity of redemption. We may even grant that the equity of redemption might be regarded as an asset in itself, since it is but an interest in property. But we hold that this view involves an over-simplification of the concept of a mortgage even under the general law. Whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning, on the assets side, the gross value of the mortgaged property, and, on the side of debts and liabilities, the value of the subsisting mortgage debt on the property. This way of reckoning a mortgaged property as made up of two elements, both of which are components of the assessee's net wealth under s. 2(m)(ii) is important, because the property mortgaged may or may not be an exempted asset, and different tax consequences would flow according as it is or is not an exempted asset. The Tribunal was not, therefore, justified in over-simplifying the problem and adopting a short-cut solution to the present case by saying that the assessee's only asset is the equity of redemption and the inquiry in the wealth-tax assessment is limited to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, the position as respects a debt can only be one of two things; either s. 2(m)(ii) applies, or it does not apply. There are no intermediate positions in between, according as one or some of the properties securing the debt are exempt, but not the others. One other point raised by the assessee at the appellate stage may be briefly considered. Before the Tribunal it was urged that although, as part of the terms of the house-building advance, the assessee had assigned this life policy to the LIC, the one and only real security for the debt was the regular mortgage executed by the assessee in respect of the house under construction. It was further urged that the security for the debt, in the proper sense of the expression, did not incl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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