Wealth-tax debt deduction fails where the loan is secured on exempt National Defence Gold Bonds, regardless of later fund use.

A loan secured on National Defence Gold Bonds was not deductible as a debt in computing net wealth because the bonds were wholly exempt from wealth-tax, so the debt was secured on property not chargeable to wealth-tax. The later use of the borrowed funds to acquire taxable assets was irrelevant to the operation of section 2(m)(ii). The court therefore answered the reference in the negative and against the assessee.

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Issues: Whether a loan obtained against the pledge of National Defence Gold Bonds is deductible in computing the assessee's net wealth under the Wealth-tax Act.

Analysis: The loan was secured on National Defence Gold Bonds, which were wholly exempt from wealth-tax under section 5(1)(xvia). The decisive inquiry was whether the debt was secured on property not chargeable to wealth-tax. The subsequent use of the borrowed amount for acquiring taxable assets was held to be irrelevant to the application of section 2(m)(ii).

Conclusion: The loan was not deductible as a debt for wealth-tax purposes and fell within section 2(m)(ii); the answer to the referred question was in the negative and against the assessee.

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