Debt deduction in wealth tax requires a clear nexus with taxable assets; incomplete records justified fresh verification.

Deduction of debts in net wealth computation under section 2(m) of the Wealth Tax Act, 1957 is available only where the borrowing is shown to relate to the taxable assets. A proportionate allocation of borrowings cannot replace proof of a direct factual nexus when the source and use of funds can be specifically examined. As the record lacked complete details on acquisition of the vehicles and utilisation of borrowed funds, the matter was restored to the Assessing Officer for fresh verification and decision in accordance with law after hearing the assessee.

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Issues: Whether the assessee was entitled to deduction of debts claimed against taxable assets in computing net wealth, and whether the claim based on proportionate allocation of borrowings required fresh verification.

Analysis: The assessee's claim was founded on the assertion that borrowings from banks were utilised for acquiring vehicles and other business assets forming part of the wealth computation. The authorities below had rejected the claim on the footing that the borrowings were for working capital and that no direct nexus with the taxable assets was proved. It was held that deduction under section 2(m) of the Wealth Tax Act, 1957 is permissible only for debts incurred in relation to the relevant assets, and that proportionate allocation cannot be accepted where the factual nexus can be specifically ascertained. At the same time, the record did not contain complete details regarding acquisition of the vehicles and utilisation of the borrowed funds.

Conclusion: The disallowance was not finally sustained or deleted, and the issue was restored to the Assessing Officer for fresh verification and decision in accordance with law after giving the assessee an opportunity of hearing.

Final Conclusion: The appeals were disposed of by directing a de novo examination of the debt deduction claim, leaving the assessee with partial relief and the substantive issue open for fresh adjudication.

Ratio Decidendi: Deduction of debts in wealth computation is allowable only when the debt is shown to have been incurred in relation to the taxable assets, and where the factual nexus is not adequately established, the matter may be remitted for verification rather than decided on a proportionate basis alone.

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