Wealth-tax valuation of mortgaged property requires deducting the mortgage encumbrance from open market value.

For wealth-tax valuation of mortgaged immovable property, the asset is valued as encumbered property, so its open market value must be reduced by the mortgage debt to reflect the diminished rights actually owned by the assessee. Rule 2(a) of Paragraph B of Part I of Schedule I governs deductions in computing net wealth and does not prevent the mortgage encumbrance from being considered at the valuation stage under section 7. The wealth-tax measure is therefore the market value of the mortgaged asset less the encumbrance, and the mortgage debt was correctly deducted in valuing the bungalow.

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Issues: Whether, while valuing a mortgaged urban immovable asset for wealth-tax purposes, the mortgage debt is deductible in arriving at the value of the encumbered asset, and whether such deduction is governed by rule 2(a) of Paragraph B of Part I of Schedule I.

Analysis: The value chargeable to wealth-tax under section 7 is the price the asset would fetch in the open market on the valuation date. Where the asset is mortgaged, what belongs to the assessee is not an unencumbered property but an encumbered asset, and the valuation must reflect the diminished bundle of rights after giving effect to the mortgage. The proper method is to ascertain the open market value of the property without encumbrance and deduct the value of the encumbrance to arrive at the value of the asset actually owned. Rule 2(a) of Paragraph B deals with a different stage, namely deductions permissible while computing net wealth, and does not prevent the mortgage debt from being taken into account at the stage of valuation of the encumbered asset itself. The levy of additional wealth-tax follows only after net wealth is determined on that basis.

Conclusion: The mortgage debt was correctly deducted by the Wealth-tax Officer while valuing the mortgaged bungalow, and the Commissioner's contrary view was erroneous.

Ratio Decidendi: For wealth-tax valuation of mortgaged immovable property, the assessee's asset is the encumbered property itself, and its value is the open market value less the mortgage encumbrance; the mortgage debt is taken into account at the stage of valuation and not barred by the deduction rule in Schedule I.

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