Wealth-tax deduction limits exclude debts secured on exempt assets, even when borrowed funds are later used to buy taxable assets.

Debts secured on property exempt from wealth-tax are not deductible under section 2(m)(ii) of the Wealth-tax Act, even if the borrowed funds were later used to acquire taxable assets. The exemption under section 5(1)(iv) applies to the house property as an exempt asset within the statutory ceiling, and the debt remains excluded because it is secured on, or incurred in relation to, property on which wealth-tax is not chargeable. The same construction applies to a loan secured on a life insurance policy. Rule 2E cannot expand the statutory deduction and does not override the exclusion created by sections 2(m), 5 and 7.

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Issues: Whether debts secured on assets exempt from wealth-tax under section 5 of the Wealth-tax Act, 1957 were deductible in computing net wealth under section 2(m)(ii), where the borrowed funds were later used to acquire taxable assets.

Analysis: The exemption under section 5(1)(iv) operates in respect of the house property as an exempt asset, subject to the statutory ceiling, and section 2(m)(ii) excludes debts secured on or incurred in relation to property in respect of which wealth-tax is not chargeable. The fact that the borrowed money was subsequently deployed in acquiring other taxable assets did not restore the excluded debt to deductibility. The same construction applied to the loan secured on the life insurance policy, following the reasoning accepted in the cited authority and reinforced by the scheme of sections 2(m), 5 and 7 of the Act. Rule 2E did not justify a contrary interpretation because a delegated rule cannot enlarge the deduction beyond the statutory exclusion.

Conclusion: The debts secured on the exempt house property and on the life insurance policy were not deductible under section 2(m)(ii); the reference was answered in favour of the Revenue.

Ratio Decidendi: A debt secured on property exempt from wealth-tax is excluded from deduction under section 2(m)(ii), and its later use for acquiring taxable assets does not alter that statutory exclusion.

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