Deduction of loan against exempt agricultural land allowed where borrowed funds were used to acquire taxable assets under wealth-tax law

A loan raised against exempt agricultural land remained deductible in computing net wealth because section 2(m)(ii) excludes only debts secured on, or incurred in relation to, property not chargeable to wealth-tax. Where the borrowed funds were actually used to acquire taxable assets, the exclusion did not apply, as the debt was not tied in substance or purpose to exempt property. The loan was therefore allowable as a deduction, and the disallowance was incorrect.

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Issues: Whether a loan raised against exempt agricultural land, but used for acquiring taxable assets, is deductible as a debt in computing net wealth under section 2(m)(ii) of the Wealth-tax Act, 1957.

Analysis: Section 2(m)(ii) excludes from deduction only those debts which are secured on, or incurred in relation to, property in respect of which wealth-tax is not chargeable. On the facts found, the agricultural land was exempt, but the loan was not used to acquire another exempt asset. The amount was invested in taxable assets, and denying deduction would produce a double benefit only where the debt is tied to an exempt asset in substance and purpose. The rule corresponding to the provision also indicated that a debt specially utilised for acquiring an asset not liable to wealth-tax is outside the mischief of the exclusion.

Conclusion: The loan was allowable as a deduction in computing taxable wealth, and the disallowance was incorrect.

Final Conclusion: The assessee was entitled to deduction of the loan amount because the statutory exclusion did not apply to a debt used to acquire taxable assets from borrowed funds raised against exempt agricultural land.

Ratio Decidendi: A debt secured on exempt property is not excluded from deduction under section 2(m)(ii) where the borrowed funds are in fact used to acquire taxable assets and the allowance does not result in double benefit.

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