Commissioner of Income Tax, Tamil Nadu-IV vs K.S. Vaidyanathan Commissioner of Wealth-tax, Tamil Nadu-III Vs T.G. Saraswathi Commissioner of Wealth-tax, Tamil Nadu-I Vs C.H. Satish, M. Ramesh, K.R. Purushotham, G. Vijaya Reddy and Krishnaji Devay Commissioner of Wealth-tax, Tamil Nadu-IV Vs K.S. Vaidyanathan Commissioner of Wealth-tax, Coimbatore Vs Anoor Santhi Vanavarayan Muthu Juleka Vs Commissioner of Wealth-tax Madras Nazeema Beevi Vs Commissioner of Wealth-tax, Madras

Padmanabhan, J.—The above tax cases arise under the W.T. Act, 1957 (called ""the Act""). The question of law that has to be answered by

the Full Bench may be stated as follows : ""Which debts have to be excluded and to what extent, if any, from the computation of the net wealth

under the Act by reason of the assets securing those debts or a portion of the value thereof being exempt under one or the other provisions of s. 5

of the Act. The reference to a Full Bench has been necessitated by reason of the conflicting views expressed in T.V. Srinivasan Vs. Commissioner

of Wealth-tax, and Commissioner of Income Tax Vs. M.N. Rajam, as well as Commissioner of Wealth-tax, Tamil Nadu-I Vs. Satish, .

The facts in the Tax Cases may be briefly stated as follows :

T.Cs. Nos. 369 to 371 of 1977 :

The assessee in these cases is one K. S. Vaidyanathan. The relevant assessment years are 1971-72, 1972-73 and 1973-74. The wealth with

which we are concerned in these cases consists of shares. The assessee returned a wealth of Rs. 2,71,596, Rs. 2,54,161 and Rs. 1,66,791,

respectively. He claimed liabilities of Rs. 2,12,767, Rs. 2,17,472 and Rs. 2,39,464 respectively which included overdrafts from various banks of

Rs. 1,84,642, Rs. 1,86,598 and Rs. 1,98,774, respectively. The WTO found that the overdrafts were taken for the purpose of purchasing shares

of new companies and since part of the shares to the extent of Rs. 1,50,000 would be exempt under s. 5(1)(xxiii) of the Act, only a proportionate

loan by way of overdraft should be disallowed in relation to the exempted asset. Accordingly, held that the assessee wo uld be entitled only to a

disallowance of a proportionate loan by way of overdraft in relation to the exempted asset. In that view, he added back certain amounts for the

various years and allowed exemption only to the extent stated above. The assessee went on appeal before the AAC. But the appeal was

dismissed. The assessee took the matter in second appeal before the Tribunal. The Tribunal set aside the order of the WTO as confirmed by the

AAC and allowed the assessee''s appeals holding that the assessee would be entitled to the full deduction of the liability as claimed by him. At the

instance of the Revenue, the Tribunal referred the following question of law for the opinion of this court :

Whether, on the facts and in the circumstances of the case and having regard to the provisions of section 2(m)(ii) of the Act, it has been rightly

held that the entire overdrafts from bank should be deducted though the loan was secured on the shares, a portion of which was exempted ?

T.Cs. Nos. 817 to 819 of 1977 :

The assessee, in these cases, returned a net wealth of Rs. 3,70,533, Rs. 2,99,011, and Rs. 5,55,427 for the assessment years 1971-72, 1972-

73 and 1973-74, respectively. He also claimed a deduction of Rs. 96,905 representing mortgage loan due to the Life Insurance Corporation

which was obtained for the purpose of constructing the house property and Rs. 35,000 loan due to the Bank of Baroda for the assessment year

1971-72, Rs. 84,902 towards mortgage loan and Rs. 40,827 towards bank loan for the assessment year 1972-73 and Rs. 71,577 towards the

mortgage loan and Rs. 39,150 towards the bank loan (for 1973-74). The WTO as well as the AAC did not allow full deduction of the amounts

claimed by the assessee. On appeal by the assessee, the Tribunal, however, allowed full deduction of the amounts claimed by the assessee. Hence,

at the instance of the Revenue, the Tribunal has referred the following question of law for the opinion of this court :

Whether, on the facts and in the circumstances of the case and having regard to the provisions of section 2(m)(ii) of the Act, the Appellate

Tribunal was right in holding that the entire debt, viz., the loan taken from Life Insurance Corporation, should be deducted in entirety from the total

wealth of the assessee though the debt is secured on the life insurance policy which is an exempted asset u/s 5(1)(vi) up to a sum of Rs. 1,00,000

?

T.Cs. Nos. 849 and 850 of 1977 :

The assessee, in these cases, claimed a deduction of Rs. 83,335 and Rs. 75,720 representing debts due to the Life Insurance Corporation of

India which was disallowed by the WTO as well as the AAC. But on appeal, the Tribunal allowed those deductions. Hence, at the instance of the

Revenue, the Tribunal has referred the following question of law for the opinion of this court :

Whether, on the facts and in the circumstances of the case and having regard to the provisions of section 2(m)(ii) of the Act, the debt representing

the loan taken from the Life Insurance Corporation was deductible in full from the total wealth of the assessee though the debt is secured on the life

insurance policy which is an exempted asset ?

T.Cs. Nos. 901, 902 and 903 of 1977 :

In these cases, a sum of Rs. 50,000 representing the mortgage loan on the house property for the assessment year 1966-67, Rs. 50,000 for the

assessment year 1967-68 and Rs. 50,000 for the assessment year 1968-69 were disallowed by the WTO and the AAC. But on appeal by the

assessee to the Tribunal, the Tribunal allowed a sum of Rs. 46,000 for the assessment year 1966-67, Rs. 50,000 for the assessment year 1967-68

and Rs. 50,000 for the assessment year 1968-69. Hence, at the instance of the Revenue, the Tribunal has referred the following question of law

for the opinion of this court :

Whether, on the facts and in the circumstances of the case, the sum of Rs. 46,000, Rs. 50,000 and Rs. 50,000 being loans from the Life

Insurance Corporation of India secured on the mortgage of house property at No. 65, Archbishop Mathias Avenue and life insurance policies are

liable to be deducted for the assessment years 1966-67, 1967-68 and 1968-69, respectively ?

T.Cs. Nos. 1027 to 1029 of 1977 :

The assessee, in these cases, claimed a deduction of Rs. 1,39,700, s. 1,26,300 and Rs. 1,12,900 for the assessment years 1971-72, 1972-73

and 1973-74 respectively. The WTO, however, disallowed a sum of Rs. 34,070, Rs. 29,860 and Rs. 26,630 for the above three assessment

years. On appeal by the assessee, the AAC allowed the appeals and deleted the disallowances made by the WTO. The Revenue took up the

matter to the Tribunal which also allowed the deductions as claimed by the assessee. Hence, at the instance of the Revenue, the Tribunal has

referred the following question of law for the opinion of this court.

Whether, on the facts and in the circumstances of the case and having regard to the provisions of section 2(m)(ii) of the Wealth-tax Act, the

Appellate Tribunal was right in holding that the entire debt, viz., the loan taken from the Life Insurance Corporation, should be deducted in entirety

from the total wealth of the assessee though the debt is secured on the house property whose value is exempt u/s 5(1)(iv) up to a sum of Rs. 1

lakh.

T.C. Nos. 1242 to 1244 of 1977 :

The assessee in these cases claimed a deduction of Rs. 69,716 for the assessment year 1972-73, Rs. 63,501 for the assessment year 1973-74

and Rs. 56,842 for the assessment year 1974-75 representing loan from the Life Insurance Corporation of India secured on the policy as well as

on the house property. The WTO rejected the claim. But, on appeal by the assessee, the AAC allowed the deductions as claimed by the assessee.

On further appeal by the Revenue to the Tribunal, the Tribunal confirmed the order of the AAC. Hence, at the instance of the Revenue, the

Tribunal has referred the following question of law for the opinion of this court :

Whether, on the facts and in the circumstances of the case, Rs. 69,716, Rs. 63,501 and Rs. 56,842 being the amounts due by the assessee to the

Life Insurance Corporation of India are to be deducted from the aggregate value of the assets in computing his net taxable wealth for the

assessment years 1972-73, 1973-74 and 1974-75 ?

T.C. No. 478 of 1978, T.C. No. 1603 of 1977 and T.C. Nos. 209 to 212 of 1978.

The facts and the question of law referred by the Tribunal for the opinion of this court are similar to the one or the other of the cases referred to

above and, therefore, they are not stated again here.

T.C. No. 1409 of 1977 :

The assessee in this case owned a house property which was partly let out and partly occupied as his dwelling house. The property was valued

at Rs. 1,75,300. On this property, there was a mortgage loan to the extent of Rs. 19,000 for the assessment year 1972-73. The assessee claimed

deduction of this amount. The WTO allowed a proportionate deduction. The assessee appealed. The AAC confirmed the order of the WTO.

However, on further appeal to the Tribunal, the Tribunal allowed full deduction. Hence, at the instance of the Revenue, the Tribunal has referred

the following question of law for the opinion of this court :

Whether, on the facts and in the circumstances of the case and having regard to the provisions of section 2(m)(ii) of the Wealth-tax Act, the entire

mortgage loan on the property should be deducted though the loan was secured on the property half of which was exempted ?

T.C. No. 423 of 1978 :

The assessee in this case claimed a deduction of Rs. 1,92,666, loan due to Canara Bank and which was secured by the pledge of National

Defence Gold Bonds. The WTO did not allow this deduction. The appeals filed by the assessee before the AAC as well as the Tribunal were

dismissed. Hence, at the instance of the assessee, the Tribunal has referred the following question of law for the opinion of this court :

whether, on the facts and in the circumstances of the case, the sum of Rs. 1,92,666 was a proper deduction in computing the net wealth of the

assessee for the assessment year 1971-72 ?

T.C. No. 410 of 1978 :

The facts and the question of law referred for the opinion of this court are similar to the facts and the question of law referred in T.C. No. 423

of 1978 and hence they are not repeated.

The arguments of Mr. A. N. Rangaswami and Mr. Jayaraman, the learned standing counsel for the Revenue, may be summarised as follows :

The W.T. Act levies tax on the net wealth of an assessee. The net wealth of an assessee has to be computed under s. 5(1) of the Act. Under s.

5(1A) of the Act, the value of assets referred to in cls. (iva), (xv), (xvi), (xxii), (xxiii), (xxiv), (xxv), (xxvi), (xxvii), (xxviii), (xxix), (xxxi) and (xxxii)

shall be excluded from the net wealth of the assessee to the extent of Rs. 1,50,000. The learned standing counsel relied upon s. 2(m) of the Act

which defines net wealth. The learned counsel laid emphasis upon s. 2(m)(ii) under which debts which are secured on or which have been incurred

in relation to any property in respect of which wealth-tax is not chargeable under the Act, should not be included in the aggregate value of the

debts which have to be deducted from the aggregate value of the assets for the purpose of arriving at the net wealth. The learned counsel argued

that only debts which are secured or which have been incurred in relation to any property in respect of which wealth-tax is not chargeable under

the Act alone have to be excluded in making the necessary computation of net wealth under s. 2(m) of the Act. In other words, according to the

learned counsel, s. 2(m)(ii) has to be worked out in the following manner : (1) If the debt is secured or is incurred in relation to any item of

property which is wholly exempt from wealth-tax, then the entirety of the debt has to be excluded. (2) If the debt is secured on several items of

properties on of which or some of which alone are exempted from wealth-tax, then the portion of the debt which is attributable to the particular

item or items of properties exempted from wealth-tax could not be deducted in making the computation of the net wealth. As an illustration, the

learned standing counsel referred to the various items of assets mentioned in s. 5(1A) of the Act under which in respect of those items, only assets

to the a tune of Rs. 1,50,000 in all are excluded from being chargeable to wealth-tax. If the debt is secured on all or some of the items mentioned

in s. 5(1A), only the portion of the debt relatable to Rs. 1,50,000 can be left out of reckoning and only the portion of the debt relatable to the value

of the assets in excess of Rs. 1,50,000 can be deducted from the aggregate wealth of the assessee in computing the net wealth of the assessee.

Thirdly, when a debt is secured on or incurred in relation to assets which are partially exempt from wealth-tax partially not, the assessee would be

entitled to a deduction only to a proportionate part of the debt which is relatable to that portion of the asset which is subject to wealth-tax. As for

example, when an assessee is entitled to exemption in respect of one house or part of a house under s. 5(1)(iv) to the extent of Rs. 1,00,000, he

would be entitled to deduction by way of liability only to a proportionate part of the debt which is relatable to the value of the house in excess of

Rs. 1,00,000.

Mr. A. N. Rangaswami urged that it will not be possible for the court to follow the doctrine of literal construction of interpreting s. 2(m)(ii) of

the Act. According to Mr. Rangaswami, the theme and object of the W.T. Act is to bring under the mischief of the wealth-tax, the total value of

the assets minus the total value of the debts of an individual. And, if a particular item or a part of an item of an asset is to be left out of reckoning, it

should naturally follow that that portion of the debt which is relatable to the asset or portion of the asset excluded from wealth-tax has to be left out

of the reckoning for arriving at the net wealth of the individual. In this context, the learned counsel relied upon various decisions which dealt with

the interpretation of statutes according to the intention of the Legislature. Mr. Jayaraman in addition to adopting the argument of Mr. Rangaswami

urged that inasmuch as this court has stated in Commissioner of Income Tax Vs. M.N. Rajam, that the incidence of the levy of tax is on the net

wealth of an assessee and that the net wealth is explained in terms of an amount and inasmuch as s. 5(1) excluded various amounts by way of

straight exclusion from being taken into account in the computation of wealth-tax, s. 2(m)(ii) should be so construed as to allow an apportionment

of the debt as to items which are chargeable to wealth-tax and items which are exempt from wealth-tax. Mr. Jayaraman brought out an anomalous

situation if s. 2(m)(ii) were interpreted in any other manner. He cited an illustration of a house the value of which is less than Rs. 1,00,000. Under s.

5(1)(iv), the value of the house to the extent of Rs. 1,00,000 is exempt from wealth-tax. Supposing there is a debt to the extent of Rs. 50,000

charged on that asset, the assessee will not be entitled to take into reckoning the sum of Rs. 50,000 in arriving at his net wealth for the purpose of

liability to wealth-tax inasmuch as it is secured on an item of property which is totally exempt from wealth-tax. If, on the other hand, the value of

the house is above Rs. 1,00,000 and if the rule of apportionment is not followed, the assessee would be entitled to deduct the entire sum of Rs.

50,000 from the aggregate value of his assets for arriving at his net wealth. In other words, the question of a particular debt being taken into

account for arriving at the net wealth of an individual will depend upon the mere chance of the value of an asset.

On the other hand, the submission of Mr. S. V. Subramaniam and Mr. Srinivasamoorthy appearing for different assessee in some of the tax

cases is that the Act contemplates four types of cases. Firstly property on which no wealth-tax is chargeable. Secondly, property included in the

assets and not included in the net wealth, in which case no wealth-tax is payable under s. 5(1) of the Act. Thirdly, property included in the

computation of net wealth but are not subject to payment of wealth-tax under s. 5(1) of the Act. Fourthly, property on which wealth-tax is

chargeable as well as payable. According to the learned counsel, ""asset"" is defined under s. 2(e) of the Act and the section excludes certain types

of properties from being considered as asset for the purpose of the Act.""Net wealth"" is defined under s. 2(m) of the Act, and net wealth is the

amount by which the aggregate value computed in accordance with the provisions of the Act of all the assets on the valuation date, is in excess of

the aggregate value of all the debts owed by the assessee on the valuation date. So, for finding out the net wealth of an assessee, the totality of the

debts have to be deducted from the aggregate value of the assets. But the debts which are secured on or which have been incurred in relation to

any property in respect of which wealth-tax is not chargeable, cannot be deducted from the net wealth of the assessee, according to s. 2(m)(ii) of

the Act. The words used in s. 2(m)(ii) are ""any property in respect of which wealth-tax is not chargeable"" and they can only refer to properties

which are completely excluded from the definition of assets under s. 2(e) of the Act. Section 5(1) of the Act states that wealth-tax shall not be

payable"" by an assessee in respect of certain assets, and such assets shall not be included in the net wealth of the assessee. The word used in s.

5(1) is ""payable"". There is a clear distinction between the word ""chargeable"" used in s. 2(m)(ii) of the Act and the word ""payable"" used in s. 5(1) of

the Act. Therefore, any debt secured on or incurred in relation to any property mentioned in s. 5(1) of the Act, is not covered by s. 2(m)(ii) of the

Act. If that is so, the debts secured on or incurred in relation to any property mentioned in s. 5(1) of the Act will have to be deducted from the

aggregate value of the assets for finding out the net wealth of the assessee. According to the learned counsel, the amendment brought about by the

Finance Act No. 12 of 1964, substituting the word ""chargeable"" to the word ""payable"" in s. 2(m)(ii) of the Act has entirely changed the manner of

arriving at the net wealth of an assessee.

The next contention of the learned counsel for the assessee is that when a debt is secured on a property which is only partially exempt as in the

case of s. 5(1)(iv) property and s. 5(1A) properties, since the value of the property over the exemption limit is included in the net wealth of the

assessee, s. 2(m)(ii) is not applicable to such cases and the debts secured on those properties should be deducted in arriving at the net wealth of

the assessee by the application of s. 2(m) of the Act. According to the learned counsel for the assessee, the working out of s. 2(m)(ii), as

suggested by the learned standing counsel, cannot be done in the case of taxing statutes, as taxing statutes are to be construed strictly and in favour

of the assessee. Further, the principles of casus omissus applies to s. 2(m)(ii) and the court is not obliged to supply what is not there in the statute

and to do so will amount to legislation and not construction.

Before dealing with the contentions urged on both sides, it is necessary to set out some of the provisions of the Act which are relevant for our

purpose.

Section 2(e) defines ""assets"" as under :

assets includes property of every description, movable or immovable, but does not includes, -

(1) in relation to the assessment year commencing on the 1st day of April 1969, or any earlier assessment year -

(i) agricultural land and growing crops, grass or standing trees on such land;

(ii) any building owned or occupied by a cultivator of, or receiver of rent or revenue out of agricultural land : .....

(iii) animals;

(iv) a right to any annuity in any case where the terms an conditions relating thereto preclude the commutation of any portion thereof into a lump

sum grant;

(v) any interest in property where the interest is available to an assessee for a period not exceeding six years from the date the interest vests in the

assessee;

(2) in relation to the assessment year commencing on the 1st day of April 1970, or any subsequent assessment year -

(i) animals;

(ii) a right to any annuity (not being annuity purchased by the assessee or purchased by any other person in pursuance of a contract with the

assessee) in any case where the terms and conditions relating thereto preclude the commutation of any portion thereof into a lump sum grant;

(iii) any interest in property where the interest is available to an assessee for a period not exceeding six years from the date the interest vests in the

assessee.

Section 2(m) defines ""net wealth"" thus :

2(m) ''net wealth'' means the amount by which the aggregate value computed in accordance with the provision of this Act of all the assets,

wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under

this Act, is in the excess of the aggregate value of all the debts owed by the assessee on the valuation date other than -

(i) debts which u/s 6 are not to be taken into account;

(ii) debts which are secured on or which have been incurred in relation to any property in respect of which wealth-tax is not chargeable under this

Act; and

(iii) the amount of the tax, penalty......

In this context, it may be noted that s. 2(m)(ii), as it originally stood prior to its amendment in 1964 by the Wealth-tax (Amendment) Act,

1964, reads thus :

debts which are secured on, or which have been incurred in relation to, any asset in respect of which wealth-tax is not payable under this Act.

The only difference that has been made by the amendment is that the word ""payable"" has been replaced by the word ""chargeable"".

Section 3, which is the charging section, states :

Subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the first day of

April, 1957, a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu

undivided family and company at the rate or rates specified in Schedule I.

Section 4(1) states that in computing the net wealth of an individual, there shall be included certain assets as belonging to the individual. It is

unnecessary to reproduce s. 4 for the purpose of this case.

Section 5(1) reads thus :

5(1) Subject to the provisions of sub-section (1A), wealth-tax shall not be payable by an assessee in respect of the following assets, and such

assets shall not be included in the net wealth of the assessee - .....

(iv) one house or part of a house belonging to the assessee :

Provided that, where the value of such house or part exceeds one hundred thousands rupees, the amount that shall not be included in the net

wealth of the assessee under this clause shall be one hundred thousand rupees.......

(vi) the right or interest of the assessee in any policy of insurance before the moneys covered by the policies become due and payable to the

assessee :

(xvia) 6 1/2 per cent, Gold Bonds, 1977, 7 per cent Gold Bonds, 1980, and National Defence Gold Bonds, 1980.......

(xx) the value of any equity shares in any company of the type referred to in clause (d) of s. 45, where such shares form part of the initial issue of

equity share capital made by the company after the 31st day of March, 1964, but before the 1st day of June, 1971, for a period of five successive

assessment years commencing with the assessment year next following the date on which such company commences the operations for which it has

been established.

(xxa) the value of any equity shares in any company of the type referred to in clause (d) of section 45 which is established with the main object of

carrying on the business of manufacture or production of any more or more of the articles or things specified in the list in the Ninth Schedule to the

Income Tax Act, where such shares......

(xxiii) any share not being shares referred to in clause (xx) or clause (xxa) in any Indian company where the assessee is an individual or a Hindu

undivided family......

(xxvi) any deposits with a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking

institution referred to in section 51 of that Act) or with a co-operative society engaged in carrying on the business of banking (including a co-

operative land mortgage bank or a co-operative land development bank).......

(xxviii) any shares in any co-operative society.

Section 5(1A) read thus :

Nothing contained in sub-section (1) shall operate to exclude from the net wealth of the assessee any assets referred to in clauses (iva), (xv), (xvi),

(xxii), (xxiii), (xxiv), (xxv), (xxvi), (xxvii), (xxviii), (xxix), (xxxi) and (xxxii) (not being deposits under the Post Office Savings Bank (Cumulative

Time Deposits) Rules, 1959) to the extent the value thereof exceeds in the aggregate, a sum of one hundred and fifty thousand rupees : ...

From the above, it is clear that assets for the purpose of this Act shall include property of every description, movable or immovable, but does

not include agricultural land, animal etc. The net wealth of an individual is the amount, by which the aggregate value, computed in accordance with

the provisions of the Act, of all the assets belonging to the assessee on the valuation date, including assets required to be included in his net wealth

as on the valuation date, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than the debts which

are secured on or which have been incurred in relation to any property in respect of which wealth-tax is not chargeable under the Act. The

assessee is not liable to pay wealth-tax on certain assets mentioned in s. 5(1) of the Act and such assets shall not be included in the computation of

net wealth. But the exclusion of the asset is in terms of the value of the assets as mentioned in the clauses themselves. For instance, in the case of

one house or part of a house belonging to the assessee the amount that shall not be included in the net wealth of the assessee is Rs. 1,00,000 only.

The exclusion from the net wealth of the assessee in respect of the following properties, viz., (1) agricultural land comprised in any tea, coffee,

rubber or cardamom plantation belonging to the assessee, (2) deposits under any scheme framed by the Central Government, (3) ten years

treasury saving deposits certificates, etc., (4) any security of the Central Government or State Government, (5) shares, debentures, units, deposits

in banking companies, in finance corporations, in co-operative societies, and (6) the value of forming part of an industrial undertaking belonging to

the assessee or belonging to a firm of which the assessee is a partner, is only to the extent of Rs. 1,50,000 in the aggregate. The value of exceeding

Rs. 1,50,000 in the aggregate will have to be included in the net wealth of the assessee.

Let us first take up for consideration the argument of Mr. S. V. Subramaniam and Mr. Srinivasamoorthy appearing for the assessee that the

1964 amendment to s. 2(m)(ii) of the Act substituting the word ""payable"" by the word ""chargeable"" has really introduced a vital change in the

matter of assessment. Section 2(1) of the Wealth-tax (Amendment) Bill, 1964, merely stated that the words ""any property in respect of which

wealth-tax is not payable under this Act"" shall be substituted by the words ""any property in respect of which wealth-tax is not chargeable under this

Act"". Our attention has not been drawn by reference to the objects relating to the amendment Bill as to why the word ""payable"" was substituted by

the word ""chargeable"" by the 1964 amendment. We are not persuaded to accept the argument advancement by the learned counsel for the

assessee that the substition of the word ""chargeable"" for the word ""payable"" was made with the deliberate object of representing any assets

excluded out of the purview of the definition of ""asset"" in s. 2(e) of the Act. We are of the opinion that Parliament did not attach any difference in

meaning to the words ""payable"" and ""chargeable"" Chargeable, according to the dictionary meaning, only means liable to be charged and payable

means that which may or should be paid or which is due. In COMMISSIONER OF Income Tax, WEST BENGAL Vs. STATE BANK OF

INDIA., , a Bench of the Calcutta High Court was called upon to decide upon the meaning to be attached to the word ""charge"" as used in s. 9(1)

(iv) of the Indian I.T. Act, 1922, the relevant words being ""where the property is subject to an annual charge............ the amount of such charge"".

The calcutta High Court observed that the word ""charge"" as used in s. 9(1)(iv) would mean payment and not security.

Hawkins J. in Direct Spanish Telegraph Co. v. Shepherd [1884] 13 QBD 202, held that the word ""chargeable"" has, as regards rates and

taxes, substantially the same meaning as payable (vide Stroud''s Judicial Dictionary, fourth edition, vol. I, page 427).

In AV. R. A. Veerappa Chettiar Vs. Commissioner of Income Tax, Madras, , Rajagopalan J. observed as follows (p. 338) : ""We are clearly

of opinion that the word ''charge'' in the statutory expression ''annual charge'' in section 9(1)(iv) of the 1922 Act connotes something more than a

mere liability to pay, something more than the annual payment...... To sum up, the annual charge in the context of section 9(1)(iv) means an annual

payment charged upon the house property, just as capital charge means payment of a capital nature charged upon the house property.

In Commissioner of Income Tax, Bombay City Vs. M.K. Kirtikar, , S. R. Das C.J., speaking for the Supreme Court, observed as follows (p.

364) : ""What is to be ascertained is the meaning of the word ''charge'' as used in the notification under consideration. It is clear that the primary

object and purpose if the notification is to prevent double taxation on the same amount, namely, once in the assessment of the income of the

business and again in the hands of the assessee who receives it from the business as commission, etc. The word ''charged'' must be construed

having regard to the subject and to the context in which to has been used. It is true that section 3 of the said Act is the charging section and lays

down that tax at the rate specified by any Central Act (which is the annual Finance Act) shall be charged, subject to the provisions of the Act, in

respect of the total income of the previous year. This section does declare that income is, subject to the provisions of the Act, chargeable to tax.

But there is a good deal of difference between being liable to tax and tax being assessed and charged on income. The notification talks of Income

Tax having been assessed and charged under the head ''Business''. Having regard to the purpose of the notification and the context and the

sequence in which the words ''assessed'' and ''charged'' have been used, it is clear that the word ''charged'' does not, in the notification, mean the

mere statutory liability to pay tax but goes further and includes the actual charge or levy.

In T.V. Srinivasan Vs. Commissioner of Wealth-tax, , Sethuraman J., referring to the substitution of the word ''chargeable'' for the word

''payable'' by the Amendment Act, 1964, observed as follows (p. 469) :

Even under the present law, the opening words of s. 5(1) contain the expression ''payable'' as would be clear from the following :

''Subject to the provisions of sub-section (1A), wealth-tax shall not be payable by an assessee in respect of the following assets.''

Section 2(m), even as amended, uses the word ''chargeable''. The Legislature obviously considered that the words ''chargeable'' and ''payable'' are

inter-changeable words.

We bestowed some thought during the course of argument on why the Legislature after having used the word ''payable'' in s. 5(1) thought it

necessary to change the same word used in s. 2(m)(ii) and substitute it by ''chargeable''. The reason is not quite clear. We find that in the scheme of

the Act, there is absolutely no significant difference between ''chargeable'' and ''payable''. The word ''chargeable'' is used in relation to an asset and

the word ''payable'' in connection with the assessee. Any asset with reference to which wealth-tax is not payable stands outside the net wealth so

that no wealth-tax can be charged on it and no tax is ''payable'' by an assessee on it. Section 5(1) brings within its fold two ways of granting

exemptions. One is where wealth-tax is not payable by an assessee, and the other where the asset is to be excluded in the computation of ''net

wealth''. In our opinion, the decision of the Allahabad High Court in JIWAN LAL VIRMANI Vs. COMMISSIONER OF WEALTH-TAX, U.

P., is not based on any peculiar significance attached to the word ''payable'' and would apply even to the provision as amended. The fact that the

decision had to interpret clause (vi) of s. 5(1) is not also material, because both sub-clause (iv) as well as clause (vi) are designed for the same

purpose.

We are in agreement with the above observations of Sethuraman J. We do not, therefore, attach any importance to the argument of the learned

counsel for the assessee based on the substitution of the word ""chargeable"" for the word ""payable"" by the Amendment Act, 1964.

There is no substance in the contention of the learned counsel for the assessee that the debts referred to in s. 2(m)(ii) only refer to debts

secured on or acquired in relation to any asset which is outside the purview of the definition of the word ""assets"" in s. 2(e) of the Act. The reason is

the definition of ""assets"" does not take in assets specified in s. 2(e)(1) and (2) and s. 2(m) speaks that new wealth means the amount by which the

aggregate value of all the assets is in excess of the aggregate value of all the debts. The charging section s. 3, levies a tax in respect of the net

wealth of the assessee. Section 2(m)(ii) refers to debts which are secured on or which have been incurred in relation to any property in respect of

which wealth-tax is not chargeable. Section 5(1) deals with assets in respect of which wealth-tax is not payable by an assessee. Further, s. 2(m)

makes it clear that the aggregate value of the assets belonging to the assessee has to be ""computed in accordance with the provisions of the Act"".

The above being the scheme of the Act, there is no scope at all for accepting the argument advanced on behalf of the counsel for the assessees that

the debts referred to in s. 2(m)(ii) are only debts secured on or acquired in relation to properties which are not to be included in the definition of

assets"" within the meaning of s. 2(e).

Let us now take up for consideration the argument of the learned counsel for the assessee that taxing statutes are to be construed strictly and in

favour of the assessee. No exception can be taken to the proposition that fiscal statutes should be interpreted strictly and in cases of doubt, the

benefit of construction must be given in favour of the assessee. However, this rule applies only to charging sections and not to machinery sections

or to provisions which give relief to the taxpayer. In M. Ct. Muthiah and Another Vs. Deputy Controller of Estate Duty, Southern Zone, , it has

been held that the rule of strict construction applies primarily to charging provision in a taxing statute and has no application to a provision not

creating a charge for the tax but laying down the machinery for its calculation or procedure for its collection and such machinery provisions have to

be construed by the ordinary rules of construction. One important consideration in construing a machinery section is that it should be so construed

as to effectuate the liability imposed by the charging section and to make the machinery workable (vide N.B. Sanjana, Assistant Collector of

Central Excise, Bombay and Others Vs. The Elphinstone Spinning and Weaving Mills Company Ltd., . In this case, s. 2(m) is not a charging

section, but it is only a machinery section for the calculation of the net wealth of an assessee. In other words, it is a machinery section as opposed

to s. 3 which is the charging section. In the circumstances, the rule of strict construction relied upon by the learned counsel for the assessee cannot

be applied. Section 2(m)(ii) can only be interpreted in such a way as to make the machinery workable.

The next question for consideration is whether the principle of causus omissus applies in interpreting s. 2(m)(ii) or an interpretation as suggested

by the learned counsel for the Revenue can be given to s. 2(m)(ii). The basic principle of interpretation is that if the statute is plain and free from

any ambiguity, a bare reading of the statute would be sufficient and no interpretation would be called for. On the other hand, if the statute is

ambiguous or its meaning uncertain, it would be the duty of the court to ascertain what the Legislature meant. There may be instances where the

words do not clearly bring out the legislative intent. This may be due to the fact that the language used in a particular enactment either exceeds or

falls short of expressing the meaning intended. In such circumstances, the court is obliged to interpret the statute by discovering the true intention of

the Legislature.

Maxwell on the Interpretation of Statutes, 12th edition, page 228, states the rule thus :

Where the language of a statute, in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of

the enactment, or to some inconvenience or absurdity which can hardly have been intended, a construction may be put upon it which modifies the

meaning of the words and even the structure of the sentence. This may be done by departing from the rules of grammar, by giving an unusual

meaning to particular words, or by rejecting them altogether, on the ground that the Legislature could not possibly have intended what its words

signify, and that the modifications made are mere corrections of careless language and really give the true meaning. Where the main object and

intention of a statute are clear it must not be reduced to a nullity by the draftsman''s unskilfulness or ignorance of the law, except in a case of

necessity, or the absolute intractability of the language used. Lord Reid has said that he prefers to see a mistake on the part of the draftsman in

doing his revision rather than a deliberate attempt to introduce an irrational rule : ''the canons of constructions are not so rigid as to prevent a

realistic solution''.

Crawford in his Statutory Construction, page 256, has stated the principle thus :

Since the Legislature must express its intention by a written statute, that intention, in any instance, must primarily be ascertained from the language

used in the statute itself, and not from conjectures alinude. In other words, before the court can resort to any other source for assistance, it must

first seek to find the legislative intention from the words, phrases and sentences which make up the statute subject to construction. If the meaning of

the language of the statute is plain, then, according to the rule announced in innumerable cases, there is really no need for construction as the

legislative intention is revealed by the apparent meaning, that is, the meaning clearly expressed by the language of the statute. In this case, the

statute is given a literal interpretation. It is interpreted to mean exactly what it says. Only where the statute is of doubtful meaning can the court

endeavor to determine the legislative intention from elements beyond the language of the statute. It may also make use of the various pertinent rules

of construction in its efforts to ascertain the legislative intent in an ambiguous statute. The legislative intention is not found in these rules of

construction but is revealed by them. They perform the function of a microscope. The same is true with reference to the subject-matter of the

statute, the purpose or object of its enactment, its effect and consequence, its occasion and necessity, and its logic-all of which are not sources of

the legislative intent but aids to its discovery. In other words, the court resorts to these aids not for the legislative intent but simply to identify it. The

language is the reservoir of the legislative intention. It must in some feeble manner, at least, reveal some intention; otherwise, as we will hereafter

see, the statute will completely fall. For if the statute is without meaning, the court cannot supply one, as that would involve an encroachment upon

the legislative power.

The learned author has observed as follows at page 269 :

Omissions in a statute cannot, as a general rule, be supplied by construction. Thus, if a particular case is omitted from the terms of a statute even

though such a case is within the obvious purpose of the statute and the omissions appears to have been due to accident or inadvertence, the court

cannot include the omitted case by supplying the omissions. This is equally true where the omission was due to the failure of the Legislature to

foresee the missing case. As is obvious, to permit the court to supply the omissions in statutes would generally constitutes an encroachment upon

the filed of the Legislature.

But, inasmuch as it is the intention of the Legislature which constitutes the law of any statute, and since the primary purpose of construction is to

ascertain that intention, such intention should be given effect, even if it necessitates the supplying of omissions, provided, of course, that this

effectuates the legislative intention. Some decisions seem to indicate a trend in this direction and allow words omitted by oversight to be supplied, if

the statute is otherwise meaningless or if an amendment without interpolation is ineffective. Similarly, a plain misnomer may be corrected, or a

statute made intelligible by the addition of a word suggested by the statute. It is proper for the court to supply such omissions because they are in

fact a part of the statute, having been intended to be included in the statute when drafted and enacted.

To quote Craies on Statute Law, 7th edition, p. 94 :

If the language of an Act of Parliament is clear and explicit, it must as already stated, receive full effect, whatever may be the consequence. Of

many Acts, however, it can fairly be said, as was said by Lord Herschell in Western Suburban, etc., Building Society v. Martin [1886] 17 QBD

609 of the Building Societies Act, 1884, that no construction ''is free from difficulty, and no construction carries out a clear, defined and well-

indicated policy on the part of the Legislature''. If (as is often the case) the meaning of an enactment, whether from the phraseology used or

otherwise, is obscure, or if the enactment is, as Brett L.J. said in The R. L. Alston [1883] 8 PD 5 ''unfortunately expressed in such language that it

leaves it quite as much open with regard to its form of expression, to the one interpretation as to the other'', the question arises, ''what is to be done

? We must try and get at the meaning of what was intended by considering the consequence of either construction.'' And if it appears that one of

these constructions will do injustice, and the other will avoid that injustice, ''it is the bounden duty of the court to adopt the second, and not to

adopt the first, of those constructions. However ''difficult, not to say impossible'', it may be to put a perfectly logical construction upon a statute, a

court of justice ''is bound to construe it, and as far as it can, to make it available for carrying out the objects of the Legislative, and for doing justice

between parties.

In R.M.D. Chamarbaugwalla Vs. The Union of India (UOI), , Venkatarama Ayyar J. stated the rule of interpretation of a statute thus (p. 631)

:

Now, when a question arises as to the interpretation to be put on an enactment, what the court has to do is to ascertain '' the intent of them that

make it'', and that must of course be gathered from the words actually used in the statute. That, however, does not mean that the decision should

rest on a literal interpretation of the words used in disregard of all other materials. ''The literal construction then'', says Maxwell on the

Interpretation of Statutes, 10th edn., p. 19, ''has, in general, but prima facie preference. To arrive at the real meaning, it is always necessary to get

an exact conception of the aim, scope and object of the whole Act; to consider, according to Lord Coke : (1) What was the law before the Act

was passed; (2) What was the mischief or defect for which the law had not provided; (3) What remedy Parliament has appointed; and (4) The

reason of the remedy''. The reference here is to Heydon''s case [1584] 3 Co Rep 7; 76 ER 637 . These are principles well settled, and were

applied by this court in The Bengal Immunity Company Limited Vs. The State of Bihar and Others, . To decide the true scope of the present Act,

therefore, we must have regard to all such factors as can legitimately be taken into account in ascertaining the intention of the Legislature, such as

the history of the legislation and the purpose thereof, the mischief which it intended to suppress and the other provisions of the statute, and construe

the language of s. 2(d) of the Prize Competitions Act, 1955, in the light of the indications furnished by them.

In Commissioner of Income Tax, Madras Vs. Indian Bank Ltd., Sikri J. stated the ratio thus (p. 79) :

In our opinion, in construing the Act, we must adhere closely to the language of the Act. If there is ambiguity in the terms of a provision, recourse

must naturally be had to well-established principles of construction but it is not permissible first to create an artificial ambiguity and then try to

resolve the ambiguity by resort to some general principle.

In Seaford Court Estates Ltd. v. Asher [1949] 2 All ER 155; 2 KB 481), Denning L.J. spelt out the principles of interpretation of statutes in

the following terms :

Whenever a statute comes up for consideration it must be remembered that it is not within human powers to foresee the manifold sets of facts

which may arise, and, even, if it were, it is not possible to provide for them in terms free from all ambiguity. The English language is not an

instrument of mathematical precision. Our literature would be much the poorer if it were. This is where the draftsmen of Acts of Parliament have

often been unfairly criticised. A judge, believing himself to be fettered by the supposed rule that he must look to the language and nothing else,

laments that the draftsmen have not provided for this or that, or have been guilty of some or other ambiguity. It would certainly save the judges

trouble if Acts of Parliament were drafted with divine prescience and perfect clarity. In the absence of it, when a defect appears, a judge cannot

simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament, and he must do

this not only from the language of the statute, but also from a consideration of the social conditions which gave rise to it, and of the mischief which it

was passed to remedy, and they he must supplement the written word so as to given force and life to the intention of the Legislature. That was

clearly laid down by the resolution of the judges in Heydon''s case [1584] 3 Co. Rep. 7a, and it is the safest guide today. Good practical advice on

the subject was given about the same time by Plowden in his note Eyston v. Studd [1574] 2 Plowden, 463. Put into homely metaphor it is this : A

judge should ask himself the question : If the makers of the Act had themselves come across this ruck in the texture of it, how would they have

straightened it out ? He must then do as they would have done. A judge must not alter the material of which it is woven, but he can and should iron

out the creases.

Denning L.J. reiterated the same view in Magor and St. Mellons R.D.C. v. Newport Corporation [1950] 2 All ER 1226) thus : ""I have no

patience with an ultra-legalistic interpretation which would deprive them of their rights altogether. I would repeat what I said in Seaford Court

Estates Ltd. v. Asher [1949] 2 All ER 155. We do not sit here to pull the language of Parliament and of Ministers to pieces and make nonsense of

it. That is an easy thing to do, and it is a thing to which lawyers are too often prone. We sit here to find out the intention of Parliament and of

Ministers and carry it out, and we do this better by filling in the gaps and making sense of the enactment than by opening it up to destructive

analysis"". No doubt, this observation of Denning L.J. received severe criticism at the hands of Lord Simonds when the matter was taken up to the

House of Lords. In Magor and St. Mellons Rural District Council v. Newport Corporation [1951] 2 All ER 839; [1952] AC 189, Lord Simonds

observed thus :

The duty of the court is to interpret the words that the Legislature has used. Those words may be ambiguous, but, even if they are, the power and

duty of the court to travel outside them on a voyage of discovery are strictly limited... The second part of the passage that I have cited from the

judgment of the learned Lord justice is, no doubt, the logical sequel of the first. The court, having discovered the intention of Parliament and of

Ministers too, must proceed to fill in the gaps. What the Legislature has not written, the court must write. This proposition, which restates in a new

from the view expressed by the Lord justice in the earlier case of Seaford Court Estates Ltd. v. Asher [1949] 2 All ER 155; [1949] 2 KB 481)

(to which the Lord justice himself refers) cannot be supported. It appears to me to be naked usurpation of the legislative function under the thin

disguise of interpretation, and it is the less justifiable when it is guesswork with what material the Legislature would, if it had discovered the gap,

have filled it in. If a gap is disclosed, the remedy lies in an amending Act.

However, Denning L.J. was not shaken by this criticism of Lord Simonds for reapplied the same principle in Eddis v. Chichester Constable

[1969] 2 Ch 345.

In M. Pentiah and Others Vs. Muddala Veeramallappa and Others, , Sarkar J. of the Supreme Court has quoted with approval the

observation of Denning L.J. in Seaford Court Estates Ltd. v. Asher [1949] 2 All ER 155. The views expressed by Denning L.J. and accepted by

Sarkar J. in the above case has received great support by the new approach adopted by Lord Diplock in Kammins Ballrooms Co. Ltd. v. Zenith

Investments (Torquay) Ltd. [1971] AC 850. In this case, Lord Diplock has dealt with what is called ""a purposive approach to statutory

interpretation"". According to Lord Diplock, the purposive approach would enjoin a judge to impute to Parliament an intention not to impose a

prohibition inconsistent with the objects which the statute was designed to achieve, though the draftsman has omitted to incorporate in express

words any reference to that intention. The essence of the purposive approach, according to Lord Diplock, is for the judge to answer a series of

questions; ""What is the subject-matter of the Act (or part of the Act) being interpreted ? What object in relation to that subject-matter Parliament

intended to achieve by the Act. And lastly, what part in the achievement of that object the section under construction was intended to play ?"" The

particular section will then be interpreted according to the object which the court deems the legislation is intended is to serve. This operates even if

Parliament has failed to incorporate the intention which the judge believes that the section possesses. The learned Law Lord has re-emphasised the

importance of making a purposive approach in Reg. v. Nat. Ins. Commr. : Ex Parte Hudson [1972] AC 944 at page 1005; [1972] 2 WLR 210

thus :

Meticulous linguistic analysis of words and phrases used in different contexts in particular sections of the Act should be subordinate to this

purposive approach. IT should not distract your Lordships from it.

No doubt, the above observation was made in the matter of interpretation of a social legislation, viz., National Insurance (Industrial Injuries)

Act, 1946.

In Carter v. Bradbeer [1975] 3 All ER 158; [1975] 1 WLR 1204, Lord Diplock has observed thus :

If one looks back to the actual decisions of this House on questions of statutory construction over the past thirty years, one cannot fail to be stuck

by the evidence of a trend away from the purely literal towards the purposive construction of statutory provisions.

In Northman v. Barnet London Borough Council [1978] 1 WLR 220, Lord Denning M. R. observed thus :

The literal method is now completely out of date. It has been replaced by the approach which Lord Diplock described as the ''purposive

approach''... In all cases now in the interpretation of statutes we adopt such a construction as will ''promote the general legislative purpose''

underlying the provision. It is no longer necessary for the judges to wring their hands and say : ''There is nothing we can do about it.'' Whenever the

strict interpretation of a statute gives rise to an absurd and unjust situation, the judges can and should use their good sense to remedy it-by reading

words in, if necessary-so as to do what Parliament would have done, had they had the situation in mind.

The true and proper interpretation to be placed on s. 2(m)(ii) has to be made on the guidelines given above. It cannot be gainsaid that there is

real difficulty in interpreting s. 2(m)(ii). However, the fact that there is a difficulty in interpreting s. 2(m)(ii) cannot make us sit with folded hands, to

borrow the language of Denning L.J. and feel helpless in the matter of resolving the question that has cropped up for our adjudication.

Notwithstanding the fact that the section is vague, it is out duty without altering the material of which the section is woven, to follow the purposive

approach outlined by Lord Diplock in interpreting the section and in that process, if necessary, we could and should iron out the cries.

Wealth-tax is a tax on the net wealth of an individual. It is not a tax on any particular asset of an individual. That is to say, the tax is not

imposed on the components of the assets of the assessee, but it is imposed on the total assets which the assessee owns. This has been so held in

SUDHIR CHANDRA NAWN Vs. WEALTH-TAX OFFICER, CALCUTTA, AND OTHERS. INTERVENERS : (1) STATE OF ASSAM;

(2) STATE OF KERALA; AND (3) STATE OF UTTAR PRADESH., . The same view has been taken by a Bench of this court in T.C. No.

538 of 1976 Commissioner of Income Tax Vs. M.N. Rajam, , which has taken a view different from that taken in T.V. Srinivasan Vs.

Commissioner of Wealth-tax, . To quote one of us (Balasubrahmanyan J.) (p. 78) :

Wealth-tax is not a tax on assets. It is not even a tax on gross assets less certain deductions. The true view of the impost is that it is a periodical

tax on the taxpayer''s net worth reduced in terms of money. That this is so has been made clear beyond doubt by the Supreme Court in SUDHIR

CHANDRA NAWN Vs. WEALTH-TAX OFFICER, CALCUTTA, AND OTHERS. INTERVENERS : (1) STATE OF ASSAM; (2) STATE

OF KERALA; AND (3) STATE OF UTTAR PRADESH., . Indeed, on any other idea of the nature of the tax, many of the provisions in the

enactment would have had to be struck down as unconstitutional. That the tax is based on the conception of net worth, and not on any idea of the

imposition being based on assets alone is manifest from the vital definition is the Act of the expression ''net wealth''.

Section 2(m) prescribes the manner in which the net wealth of an assessee can be arrived at. It states that the net wealth is aid to mean the

amount by which the aggregate value of all the assets required to be included in the assessee''s net wealth exceeds the aggregate value of all the

debts owed by the assessee. The words ""including assets required to be included in his net wealth"" found in s. 2(m) is not without significance. This

is so because s. 4 specifies certain assets which shall be included in computing the net wealth of an individual. Similarly, s. 5(1) states that the

assets specified therein shall not be included in the net wealth of the assessee. Therefore, the first step to be taken in arriving at the net wealth of an

assessee is to take the aggregate value of all his assets including those which are required to be included in his net wealth as per the provisions of

the Act. Since the net wealth has to be computed in accordance with the provisions of the Act, the assets which are specified in s. 5(1) have

necessarily to be excluded in arriving at the aggregate value of all his assets for the purpose of ss. 2(m). The second step will be to deduct from the

aggregate valet of all the assets so arrived at, the aggregate value of all his debts. In computing the aggregate value of all the debts owed by the

assessee, we have to exclude dents covered by s. 2(m)(i), (ii) and (iii). Section 2(m)(ii) speaks of debts which are secured on, or which have been

incurred in relation to, any property in respect of which wealth-tax is not chargeable under the Act. Taking the entire scheme of the chargeability of

sets to wealth-tax, the true meaning that can be given to s. 2(m)(ii) can only be that the debts referred to therein shall only be debts which are

secured on, or which have been incurred in relation to, any property which have not been taken into reckoning for the purpose of arriving at the net

wealth. From this, it must necessarily follow that debts which are secured on or, which have been incurred in relation to, any property which had

not been taken into reckoning for the purpose of arriving at the net wealth have to be excluded and debts which are secured on or, which have

been incurred in relation to, any property which have been taken into account have to be deducted from the aggregate value of the assets. No

doubt, s. 5(1) contemplates cases of assets which are entirely excluded from being included in the net wealth of an assessee. There in no difficulty

at all in excluding debts which are solely secured on or which have been solely incurred in relation to any such assets which has been excluded in

entirely under s. 5(1). This proposition i fully supported by the decision in T.V. Srinivasan Vs. Commissioner of Wealth-tax, ; Commissioner of

Income Tax Vs. M.N. Rajam, , where Balasubrahmanyan J., has observed as follows (p. 81 of 133 ITR) :

Mr. Jayaraman, however, called our attention to a judgment of a Division Bench of this court in T.V. Srinivasan Vs. Commissioner of Wealth-tax,

, which, according to him, laid down a view different from the two provisions. The ratio of the decision, however, does not bear out this

contention. An owner-occupied house valued at Rs. 80,000 had a subsisting mortgage on it, which stood at Rs. 36,000 on the valuation date. On

these plain fact, the Bench had no hesitation in rejecting the assessee''s claim for deduction of the debt. The Bench observed, smiply, that the

assessee''s contention ran ''counter to the specific provision of s. 2(m)(ii) read with s. 5(1)(iv) of the W.T. Act''. With respect, this was the only

correct conclusion on the facts.

The difficulty arises only in the case of assets which are excluded from being taken into account for the purpose of computation of the net

wealth to a partial extent; as for instance, a residential house of the value of Rs. 1,00,000 or certain cumulative assets referred to in s. 5(1A) to the

tuns of R. 1,50,000. Even thought the section by itself does not expressly contemplate apportionment of the debt as between the portion of the

asset taken into account for the purpose of arriving at the net wealth and the portion of the asset excluded from the net wealth, the purposive

approach as enunciated by Lord Diplock would demand that the court would be within its limits in so interpreting s. 2(m)(ii) as to permit such as

apportionment. In fact, a literal interpretation of s. 2(m)(ii) as it stands would permit two plausible situations. One would be, as the Revenue

contended before this court on an earlier occasion, that when a debt is secured on a property, a portion of which is not included in the net wealth,

while the other portion is included in the net wealth, then the entirety of the debt should not be deducted in arriving at the net wealth of the

assessee. This theory was rejected by this court and rightly so in T.C. No. 538 of 1976 Commissioner of Income Tax Vs. M.N. Rajam, . In this

case, an argument was advanced on behalf of the Revenue that the debt contemplated under s. 2(m)(ii) is indivisible, cannot be bifurcated and,

therefore, it must be disallowed in whole even if it is secured on a partially exempted asset. This was not accepted by the Bench. The Bench

observed as follows (p. 83) :

We would avoid the pitfall of this theory about the non-divisibility of a debt. The quality of non-divisibility of a debt cannot be derived as a matter

of construction from the terms of s. 2(m)(ii). We would prefer to base our decision rather on the circumstance that a debt secured on property,

which is neither wholly taxable nor wholly exempt, is not contemplated by the statute. In any case of such a debt, it cannot be asserted, in terms of

s. 2(m)(ii), that it is secured on property on which wealth-tax is not chargeable at all.

For the same reason, the other extreme contention advanced on behalf of the assessee that when a debt is secured on an asset or assets, some

of which are excluded and some included or an asset which is partially excluded in the computation of the net wealth, the entirety of the debt

should be deducted from the aggregate value of the assets in arriving at the net wealth for the purpose of s. 2(m)(ii) cannot be accepted. On the

other hand, the reasonable and the purposive approach would warrant that in such a situation s. 2(m)(ii) has to be given a harmonious

interpretation which would be consistent with the other sections of the Act. Viewed in this light, no violence would be done to the language of s.

2(m)(ii) by holding that the debts referred to in that section can only refer to that portion of the debt which is secured on or which have been

incurred in relation to that portion of the property in respect of which wealth-tax is not chargeable or payable under the Act. This conclusion will be

in accord and in harmony with the scheme of the Act. The general rule as to a deduction of debts in s. 2(m) is that all debts must come into the

reckoning. Clause (ii) excludes from the computation only debts which are secured on property in respect of which wealth-tax is not chargeable.

Consequently, we have necessarily to see whether it can be said that it is property in respect of which wealth-tax is not chargeable. If in respect of

an asset in entirety wealth-tax is not chargeable, then the debt secured on such assets, as we have already seen, has to be excluded from

reckoning. In cases where an asset is only partially exempt from chargeability to wealth-tax, then it must necessarily follow that the portion of the

debt secured on such portion of the asset or incurred in acquiring such portion of the asset has to be excluded from reckoning. This construction

will be in harmony with the scheme and purpose of the W.T. Act as contended for by both Mr. Rangaswami as well as Mr. Jayaraman. In this

context, it will be appropriate to quote the following passage from the Bench decision in Commissioner of Income Tax Vs. M.N. Rajam, :

The general rule as to deduction of debts in s. 2(m) is that all debts must come into the reckoning. Clause (ii) excludes from the computation only

debts which are secured on property in respect of which wealth-tax is not chargeable. Accordingly, the one and only inquiry under s. 2(m)(ii) is to

see whether it can be said of any item of asset that it is property in respect of which wealth-tax is not chargeable.

The same view has been taken by a Bench of the Gauhati High Court in Commissioner of Wealth Tax Vs. Smt. Lachmi Devi Chowkhani and

Banwarilal Chowkhani, , though the facts are not ad idem. The learned judges observed as follows (headnote) :

Under section 3 of the Wealth-tax Act, 1957, wealth-tax is charged in respect of the net wealth of the assessee. According to the definition of

''net wealth'' in section 2(m), it is the aggregate value of all assets required to be included in the assessee''s net wealth minus the aggregate value of

all the debts. But clause (ii) of section 2(m) provides that debts which have been incurred in relation to any asset in respect of which wealth-tax is

not payable cannot be deducted. Similarly, debts which are secured on assets in respect of which wealth-tax is not payable cannot also be

deducted.

We are conscious of the fact that in this case, the Gauhati High Court laid down that debts which are secured on agricultural land which are

excluded from the definition of assets under s. 2(e) cannot be taken into account in the matter of computation.

The argument of the learned counsel for the assessees that inasmuch as s. 2(m)(ii) does not expressly provide for an apportionment of the debt

as between a portion of the debt which is partially exempt and which is partially not exempt, or as between an asset which is totally exempt and

which is not exempt at all, apportionment of the debt cannot be done, cannot be accepted. As we have already pointed out earlier, the section

does not speak the other way about. It is for this precise reason we apply the reasonable rule of interpretation and say that where in a particular

case a debt is charged on an asset which is partially chargeable to wealth-tax and partially exempt, there should and there ought to be necessarily

an apportionment. The rule of apportionment though not expressly authorised by the statute has been applied by the Supreme Court in dealing with

the provisions of the I.T. Act.

In Commissioner of Income Tax, Madras Vs. Best and Co., , the respondent company before the Supreme Court, Best and Co. Private

Limited, were selling agents of Imperial Chemical Industries (Exports) Ltd., Glasgow. Later, in 1947, the Imperial Chemical Industries decided to

terminate the agency of Best and Company Private Limited to be taken over by Imperial Chemical Industries India Limited. For the transfer of the

agency, Best and Company was paid compensation during the three succeeding years following the termination of agency calculated on the basis

of the commission on sales made by the Imperial Chemical Industries India Limited on certain conditions. The question that arose for consideration

was whether the compensation received by Best and Co. was a capital receipt or a revenue receipt. One of the conditions for payment of

compensation was that Best and Co. should refrain from selling or accepting any agency for explosives competitive with those covered by the

terminated agency agreements for a period of five years. The Supreme Court held that a part of the compensation attributable to the restrictive

covenant was a capital receipt and hence not assessable to tax, while the other portion was a revenue receipt. In the light of this finding, the very

question arose whether the compensation paid to Best and Co. Private Limited was severable. The Supreme Court held that it was severable. In

that context, the Supreme Court observed as follows (p. 23) :

If the compensation paid was in respect of two distinct matters, one taking the character of a capital receipt and the other of revenue receipt, we

do not see any principle which prevents the apportionment of the income between the two matters. The difficulty in apportionment cannot be a

ground for rejecting the claim either of the Revenue or of the assessee. Such an apportionment was sanctioned by courts in Wales v. Tilley [1942]

25 TC 136, Carter v. Wadman [1946] 28 TC 41 and T. Sadasivam Vs. Commissioner of Income Tax, Madras, . In the present case

apportionment of the compensations has to be made on a reasonable basis between the loss of the agency in the usual course of business and the

restrictive covenant. The manner of such apportionment has perforce to be left to the assessing authorities.

A contrary view has been taken by the Bench of this court in Commissioner of Income Tax Vs. M.N. Rajam, . There the assessee lived in

one-half of a house which was owned by her and let out the other half. The house had been mortgaged and a loan obtained. As on the valuation

date, the house was worth Rs. 1,23,000 whereas the mortgage debt stood at Rs. 40,403. The wealth-tax assessment for the year 1971-72 was

completed on the basis that the assessee was entitled to exemption under s. 5(1)(iv) of the W.T. Act, 1957, in respect of the one-half used

exclusively for her residence, namely, in a sum of Rs. 61,500. Consequently, only one-half of the mortgage debt was allowed as a deduction and

the other half of the debt was not allowed under. 2(m)(ii) of the Act. The Tribunal, however, held that the entire mortgage debt was wholly

excluded from"" net wealth"" under s. 2(m)(ii) and no part of it could be included merely for the reason that one-half of the house on which the debt

was secured happened to enjoy exemption under s. 5(1)(iv). This court did not, as we have already pointed out, accept the reasoning of the

Tribunal that s. 2(m)(ii) does contemplate the divisibility of a debt in part and it is liable as to rest. We have also extracted the relevant passages

from the judgment of the Bench dealing with the scope of the W.T. Act. The Bench, however, came to the conclusion that when a loan was

secured on a property half of which was exempt from chargeability to wealth-tax and the other half not, then the entire debt should be deducted

from the computation of net wealth. This conclusion was arrived at by the Bench on the application of the doctrine of cases omissus. The Bench

categorically accepted the ratio laid down in T.V. Srinivasan Vs. Commissioner of Wealth-tax, , to the extent that where a debt is secured on an

asset which is wholly exempt from chargeability to wealth-tax, then the debt must not be taken into reckoning for the computation of the net

wealth. The Bench observed thus (p. 80) :

For an answer to the question, the basis on which s. 2(m)(ii) excludes the debts from deduction must be ascertained. The real basis is not far to

seek. The Legislature does not wish to grant an assessee a double advantage as it were, in his assessment - once by exempting the value of the

asset and a second time by permitting the debt secured on that asset to be deducted. The logic behind the legislative policy is clear enough. If you

include the value of an asset, then exclude the debt secured on it; but where you must exclude the value of the asset, that is quite a relief in itself,

and you cannot have another relief by way of deduction of the debt secured on the asset. Section 2(m)(ii) thus sees debts in a dichotomous

classification : (i) debts secured on assets (which may be described colloquially as taxable assets); and (ii) debts secured on assets (which may be

described, again colloquially, as exempted assets).

Having observed as above, the Bench proceeded to make the following observations with reference to the facts of that case (p. 80) :

As we have earlier indicated, the present case is not neatly drawn on simple, uncomplicated, facts. It is not the case of a debt about which we can

say that it is secured on an exempted asset. At the same time, we cannot say that it is secured on a taxed asset. The truth is that the debt in

question is secured on house property whose value is chargeable to tax as to one-half, and exempted from tax as to the other half. What, then, is

its position in terms of the dichotomy in s. 2(m)(ii) ? The position is that it falls between two stools, as it were. It assumes an intermediate, or a

third, position. This position s. 2(m)(ii) does not clearly provide for at all, and apparently does not even envisage. It must be a case of casus

omissus.

After rejecting the theory of divisibility, the Bench has observed thus (p. 83) :

We would prefer to base our decision rather on the circumstance that a debt secured on property, which is neither wholly taxable not wholly

exempt, is not contemplated by the statute. In any case of such a debt, it cannot be asserted, in terms of s. 2(m)(ii), that it is secured on property

on which wealth-tax is not chargeable at all.

We are afraid that the final ratio arrived at by the Bench on the basis of the application of the doctrine of casus omissus cannot be justified

particularly so in the light of the observations made by the Bench as to the basis of the exclusion of debts in s. 2(m)(ii). When the Bench has in

categorical terms pointed out that the basis of the exclusion of a debt secured on a property or incurred in relation to acquisition of a property, is to

avoid a double advantage to an assessee, it must necessarily follow that when a portion of the value of the property is exempt from chargeability to

wealth-tax, then the portion of the debt attributable to that portion of the asset should equally be excluded from being deducted in the matter of

computation of wealth.

No doubt, it is one of the fundamental canons of interpretation that omissions in a statute cannot, as a general rule, be supplied by construction.

If a particular case is omitted from the terms of a statute, even though such a case is within the obvious purpose of the statute and the omission

appears to have been due to accident or inadvertence, the court cannot include the omitted case by supplying the omission. But, as observed by

Crawford in his Statutory Construction at page 269 : ""But, inasmuch as it is the intention of the Legislature which constitutes the law of any statute,

and since the primary purpose of construction is to ascertain that intention, such intention should be given effect to, even if it necessitates the

supplying of omissions, provided, of course, that this effectuates the legislative intention..... It is proper for the court to supply such omissions

because they are in fact a part of the statute, having been intended to be included in the statute when drafted and enacted."" The learned author at

page 271 has observed : ""It would seem that the only time the omitted case might be included within the statute''s operation, would be when the

legislature intended to include it but actually failed to use the language which would, on its face, cover the omitted case. The inclusion would then

be justified, if from the various intrinsic and extrinsic aids, the intent of the Legislature of incorporate the omitted case, could be ascertained with a

reasonable degree of certainty.

Salmond in hi book (Salmond on Jurisprudence), 12th edition, at page 131, deals with cases where the letter of the law need not be taken as

conclusive in the matter of interpretation of enacted law. The learned author at page 137 has observed as follows :

If the text contains omissions which make it logically imperfect, the reason is more often that the case in question has not occurred to the mind of

the Legislature, than that there exists with respect to it a real intention which by inadvertence has not been expressed.

What, then, is the rule of interpretation in such cases ? May the courts correct and supplement the defective sententia legis, as well as the defective

litera legis ? The answer is that they may and must. If the letter of the law is logically defective, it must be made logically perfect, and it makes no

difference in this respect whether the defect does or does not correspond to one in the sententia legis itself.

Where there is a genuine and perfect intention lying behind the defective text, the courts must ascertain and give effect to it; where there is none,

they must ascertain and give effect to the intention which the legislature presumably would have had, if the ambiguity, inconsistency or omission had

been called to mind. This may be regarded as the dormant or latent intention of the legislature, and it is this which must be sought for as a substitute

in the absence of any real and conscious intention.

In Commissioner of Income Tax, Central, Calcutta Vs. National Taj Traders, , the Supreme Court stated the rule of casus omissus thus

(headnote) :

A casus omissus cannot be supplied by the court except in the case of clear necessity and when reason for it is found in the four corners of the

statute itself but at the same time a casus omissus should not be readily inferred and for that purpose all the parts of a statute or section must be

construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that the

construction to be put on a particular provision makes a consistent enactment of the whole statute. This would be more so if literal construction of a

particular clause leads to manifestly absurd or anomalous results which could not have been intended by the legislature.

The above being the true principle of casus omissus, a case of casus omissus cannot be readily confined. It is the duty of the court to address

itself to the question what exactly was the true intention of the Legislature. Would the Legislature have omitted to provide for the case if the

omission had been called to its mind. If the answer is in the negative, then it is the duty of the court to supplement what the Legislature omitted to

expressly say and should not decline to do so by taking refuge on the doctrine of casus omissus. We have already seen that s. 2(m)(ii) specifically

provides for exclusion of debts secured or incurred in relation to a property on which wealth-tax is not payable. The principle of this rule is, as

already stated, to prevent the assessee having a double advantage. That being the case, it is not unreasonable to assume that if the Legislature had

applied its mind to an instance where a debt is secured on a property which was partially exempt from chargeability to wealth-tax and partially not,

the Legislature would have provided that that portion of the debt which was secured on that portion of the property exempt from chargeability to

tax would be outside the purview of the definition of net wealth under s. 2(m). We are, therefore, of the opinion that the doctrine of casus omissus

cannot be attracted to an interpretation of s. 2(m)(ii) to hold that when a debt is charged on a property which is only partially exempt from wealth-

tax, then the entirety of the debt should be deducted in the computation of net wealth.

Commissioner of Income Tax Vs. M.N. Rajam, , has been followed by another Bench of this court in Commissioner of Wealth-tax, Tamil

Nadu-I Vs. Satish, . That was a case where a debt was secured on several items of property one of which alone was exempt from wealth-tax. The

Bench held (headnote) :

Where, however, the debt is secured on two or more items, then the disallowance under s. 2(m)(ii) can apply only if all the terms in question are

found to be exempted assets. Where a debt is secured on several items of property, one of which alone is exempted from wealth-tax, then it

cannot be said that all the properties on which the debt is secured are exempted from wealth-tax, and to such a situation s. 2(m)(ii) will not be

applicable.

Section 2(m)(ii) does not also provide for the apportionment of the debt as in part deductible and in part not deductible. For s. 2(m)(ii) to apply,

the debt must be secured on properties with reference to all of which it could be said that wealth-tax is not payable and if such a finding cannot be

rendered in respect of all the properties securing the debt, the provision will not apply. Accordingly, in respect of any debt, either s. 2(m)(ii) applies

or does not apply and there is no via media or intermediate position in between.

With very great respect, we are unable to subscribe to the view expressed on the basis of the language of s. 2(m)(ii) that there cannot be any

apportionment of a debt as in part chargeable and in part not chargeable. In fact, this very theory was not accepted by the Bench in Commissioner

of Income Tax Vs. M.N. Rajam, . That decision proceeded on the basis of the applicability of the doctrine of casus omissus. No doubt, s. 2(m)(ii)

does not specifically provide that the apportionment of the debt is secured only when one of the properties is exempted from wealth-tax or as

between a portion of the asset which is partially exempt and which is not partially exempt. We have already stated that in such case it is the duty of

the court to make a purposive and reasonable approach to the construction of the particular provision in the statute. Such a construction would

warrant our reading into s. 2(m)(ii) the principle of apportionment of the debt. In the circumstances, we are unable to accept the ratio laid down in

Commissioner of Income Tax Vs. M.N. Rajam, and Commissioner of Wealth-tax, Tamil Nadu-I Vs. Satish, .

We, therefore, hold that when a debt is secured on several items of properties one of which alone is exempted from wealth-tax, that portion of

the debt which is attributable to the value of the property exempted from wealth-tax cannot be deducted in the computation of the net wealth of the

assessee. Similarly, when a debt is secured or acquired in relation to a property which is only partially exempt from wealth-tax, that portion of the

debt which is attributable to the portion of the property exempted form wealth-tax cannot be deducted in the computation of the net wealth of the

assessee. We are, therefore, of the opinion that T.V. Srinivasan Vs. Commissioner of Wealth-tax, has been correctly decided and that the

decisions in Commissioner of Income Tax Vs. M.N. Rajam, and Commissioner of Wealth-tax, Tamil Nadu-I Vs. Satish, are not correct. We,

accordingly, overrule those decisions.

The result is we answer the questions referred to us in the negative and against the assessee. No costs.

Balasubrahmanyan, J.

This Full Bench has been constituted to reconsider two Division Bench rulings of this court on the interpretation of s. 2(m)(ii) of the Wealth-tax

Act, 1957. The decisions are Commissioner of Income Tax Vs. M.N. Rajam, and Commissioner of Wealth-tax, Tamil Nadu-I Vs. Satish, . My

learned brothers have expressed the view that the two cases are wrongly decided. I hold otherwise. I think they are correct decisions. I happened

to write the Bench judgments in both the cases. I regard my being a member of this Full Bench as a welcome opportunity. I propose to utilize the

opportunity to re-examine and not just to justify my earlier reasoning and postulates.

The crux of the decisions in Rajam and Satish [1982] 133 ITR and Commissioner of Wealth-tax, Tamil Nadu-I Vs. Satish, turned on the

crucial words of section 2(m)(ii) :

any property in respect of which wealth-tax is not chargeable under this Act.

Some time previously, prior to April 1, 1965, to be exact, the language of this part s. 2(m)(ii) was slightly different, as under :

any asset in respect of which wealth-tax is not payable under this Act.

The language, under either version, might seem to be inappropriate, in one or two respects, to the central theme of the W.T. Act. Some of us

may wonder whether the parliamentary draftsman had not quite forgotten the basis of wealth-tax, while composing the words of s. 2(m)(ii) of the

Act in that fashion. Wealth-tax is avowedly a tax on net wealth, and net wealth is, by definition, the amount by which the aggregate value of a

taxpayer''s assets exceeds the aggregate value of his debts at any given moment of time. In the face of these charging provisions, to speak in terms

of an individual item of property or asset being per se taxable or per se not taxable might almost seem to be a howler. An asset as such is not either

in, or out of, net wealth. Only its value can be. For, net wealth is a monetary conception. Everything in the assessment is to be reduced to its

money value. Again, assets are to be considered in the plural and in the aggregate, en masse. Individual identity of assets gets lost in the admass.

And yet s. 2(m)(ii) speaks of an asset or property not chargeable to wealth-tax as if any property or asset, as such, can be made chargeable to

wealth-tax even in the absence of this provision. Are there not self-contradictions in such a statutory treatment ? The answer is ""No"". I do not

regard the wording of s. 2(m)(ii) as an offence against the Holy Ghost of wealth-tax. The tax is no doubt on net wealth. Even so, we do not go

about ignoring the individual assets of their individuality. On the contrary, we have got to take particular note of them, for two important purposes,

at least both of which are relevant to make out the charge. One is in connection with valuation. Although net wealth takes note of the ""aggregate

value of all the assets"", the focus is not to obtain a bird''s eye-view of aggregate assets as a mass and evaluate that admass. On the contrary, each

asset has to be taken up separately and its value estimated on the market value basis : See s. 7(1). The ""aggregate value of all assets"" only means

the sum-total of the individual value of each and every one of the assets. Even where a taxpayer is given the option of adopting a global balance-

sheet value of his business, what is involved is the valuation of an individual asset, to wit, the business undertaking as a unit.

Nor is this all. There is yet another important context in which each asset has to be treated as a unit in itself. It relates to tax exemption. Section

5(1) deals with this subject. Its marginal note sums up the provision as ""exemption in respect of certain assets"". The section begins by saying that

wealth-tax shall not be payable in respect of the following assets"" and proceeds to make mention of what those assets are in several clauses that

follow. As if this needed further elucidation, the section proceeds to declare that ""such assets shall not be included in the net wealth of the

assessee"". Speaking in terms of assets being included in or excluded from the net wealth might be jarring to those to whom net wealth is everything

and the rest nowhere. But once it is recognized that each and every asset of a taxpayer must be sized up separately for its market value and once it

is also recognised that this process is a vital step in arriving at the aggregate value of all assets, then it becomes clear that an exemption provision

has perforce to be enacted only in term of each individual asset and its given value. Section 5(1), therefore, very rightly contains a detailed

description of assets which are to be treated as exempted assets. The relevant clauses also indicate the quantum of exemption either by express

provision or by necessary intendment. As respects certain exempted assets, for instance, no qualification, in express terms, is imposed on the

precise quantum of exemption. This means that in the absence of qualifying words, the entire value, or rather, the entire market value, of the

exempted asset will stand excluded form the computation of the aggregate value of the assets. As respects certain other classes of exempted

assets, however, Parliament has clamped down ceilings or monetary upper limits on the quantum of exemption. Section 5(1A), for instance,

imposes what may be called a groupal ceiling. Certain classes of exempted assets are, for this purpose, considered together as a group and it is

provided that wherever their aggregate value exceeds, say, Rs. 1,50,000, the exemption will stand limited to that figure alone. The statute also

imposes individual ceilings of individual assets to limit the exemption up to a particular amount. The most familiar illustration of a limiting factor of

the latter kind is to be found in the exemption of house property. Clause (iv) of s. 5(1) lays down the exemption in the following terms :

One house or part of a house belonging to the assessee and exclusively used by him for residential purposes :

Provided that, where the value of such house or part exceeds one hundred thousand rupees, the amount that shall not be included in the net wealth

of the assessee under this clause shall be one hundred thousand rupees.

This provision best illustrates the meeting place of more than one idea about wealth-tax. The clause starts by naming one house, as such, as an

exempted asset. Since owner-occupation for residence is laid down as a further qualification for exemption, the clause speaks of a part of a house,

to cover cases of mixed residences of more that one owner in different portions of the same house. Such cases involve the exercise of

apportionment in value. Even where the entire house is dwelt in by the assessee, the clause speaks of the subject of exemption as ""the amount that

shall not be included in the net wealth of the assessee"". This phrase shows that although a house must be singled out for exemption from other

components of the net wealth, what goes out of the computation is ""the amount"". The same idea is doubly underlined in the provision which puts a

lid on Rs. 1,00,000 as the limit of ""the amount that shall not be included in the net wealth of the assessee"" under this clause.

We can pause at this stage to take stock of the crucial provisions which make wealth-tax what it is under the scheme of the Act. First comes

the idea of net wealth, a unique fiscal idea which the Supreme Court was inclined to place in the residuary topic of taxation under entry 97 of the

Union List in the Seventh Schedule to the Constitution. Then we have the provision for the individualization of assets and the separate evaluation of

each item in terms of market value. Lastly, come the exemption provisions which again point to individual assets falling within certain descriptions,

although the quantum of tax exemption is related to the amount representing the respective value, either wholly or subject to a groupal or to an

individual ceiling. It is in this statutory scheme that the words of s. 2(m)(ii) have got to be understood for what they mean. The provision, as it

stood, both before and after April 1, 1965, has already been reproduced. I would make a montage of the provision and do a little bit of textual

editing to make it read as under :

Any asset or property, in respect of which wealth-tax is not payable or chargeable, under this Act.

The meaning of the provision must by now be clear. The property or asset under discussion must be of a kind with respect to which we must

be in a position to say that wealth-tax is not payable or chargeable. What are those properties and assets ? The answer is not far to seek. In the

first place, the expression ""property"" occurs in the W.T. Act primarily in connection with the definition of ""assets"" in s. 2(e). Assets are defined very

broadly under this provision so as to include ""property of every description, both movable and immovable"". Thus, all assets are properties and all

properties are assets. Section 2(e), however, has two or three exceptions. These exceptions show that while assets must be properties of some

description or other, the exceptions in s. 2(e) are properties which are not to be regarded as assets. They are non-assets, if we can give them that

name. section 2(e) specifies three exceptions. One of them relates to agricultural lands. Till the assessment year 1969-70, agricultural lands were

expressly kept outside this comprehensive definition of assets. This exception was made by Parliament apparently under what may be regarded as

a conditioned reflex for excluding everything which smacked of being agricultural in nature from the province of Union taxation. This exclusion of

agricultural land was, however, withdrawn when it apparently dawned on the powers that be that ""net wealth"" as a fiscal subject was sui generis.

Another exception under s. 2(e) which came into force from the assessment year 1970-71 onwards, related to animals. Animals, pet,

domesticated or otherwise, are amongst the earliest forms of a man''s riches. In ancient times, a man was considered wealthy or not by the

statistics of the heads of cattle he owned in his herd. Nevertheless, Parliament has latterly regarded animals as not being fit subjects of charge to

wealth-tax. Agricultural land and animals are thus non-assets being properties kept out of the definition of ""assets"". In this manner, they go

altogether out of the very basis of the charge to wealth-tax. This must be the particular reason why s. 2(m)(ii) has since been refashioned to carry

the preferred phrase ""property not chargeable to wealth-tax"" so as to refer to the three categories of properties like agricultural land, animals, etc.,

which are excepted properties and, therefore, non-assets. The only practical significance, however, in excepting certain properties from the

definition of assets and making them non-assets, assets, is that it relieves the taxpayer as well as the taxing authorities concerned from the bother of

having to determine their market value. For, when an item of property is a non-asset, asset, the question of going into its valuation does not arise.

Practically, the same result flows even in cases where an item of property is indubitably an asset, but gains exemption under s. 5(1) without any

limitation of its value, and, therefore, by implication, up to its full value. Examples of this kind of assets are : property of a charitable trust,

commuted value of a pension, tools of an artisan or a professional, scientific research apparatus, works of art for art''s sake, 6-1/2% Gold Bonds,

1977, gallantry awards and the like. In these cases, it would be a sheer waste of time going into the market value of the assets, since whatever their

value, the whole of it is exempt under the relevant clauses section 5(1).

We are then left with cases of the kind which this Full Bench is grappling with, namely, an asset which falls within the exemption clause in

section 5(1), but which, at the same time, is subject to the ceiling on the amount of exemption actually exigible. What are we to make out of such

an asset ? The answer must be found from the words of s. 2(m)(ii). The words of the section are ""property in respect of which"". The word ""which

stands for property. So, the inquiry in every case must be : Is this an item of property of which it can be said, without fear of contradiction, that it is

property in respect of which wealth-tax is not chargeable ? To take the familiar illustration of a taxpayer''s only residential house valued at more

than Rs. 1,00,000, anything above Rs. 1,00,000 would have to be included in the aggregate value of the assets and, therefore, would enter into the

figure of ""net wealth""; what stands exempted would be limited to Rs. 1,00,000 of its value. Can you say ""in respect of"" this house that wealth-tax is

not payable ""in respect of"" this house ? The answer is ""No"". The negative answer is too obvious to require any fears of construction. This was the

answer which the Division Bench gave in Commissioner of Income Tax Vs. M.N. Rajam, .

The words ""exempted assets"", ""non-exempted assets"" and ""partially-exempted assets"", are all in common use. They started as part of the tax

practitioners'' colloquy. They are good enough in their own way, picturesque phrases which enliven the discussion. But they are undependable as

aids to construction. Courts need not avoid the jargon, but in the serious business of statutory construction, they have to stick fast to the words of

the legislature, from first to last.

It may be granted, for argument''s sake, that ""exempted assets"" is not an incorrect description of assets when used in connection with s. 5(1).

For the section speaks of ""the following assets"" as assets being excluded from net wealth and as assets in respect of which wealth-tax shall not be

payable. And we have, too, the language of the marginal not to s. 5 which speaks of ""exemption in respect of certain assets"". Therefore, there is

nothing wrong in the description ""exempted assets"" if employed in the discussion of s. 5(1). But we are concerned here with the construction and

application of a different provision in s. 2(m)(ii). This provision does not speak of exempted assets. It only refers to ""property in respect of which

wealth-tax is not chargeable"". We cannot discuss this phrase intelligibly by forgetting the words which make up that phrase and making do with the

forensic catch-phrase ""exempted asset."" The distinction between the two provisions must be patent. As respects a given asset, the question under

s. 5(1) may well be : ""Is this an exempted asset ?"". But a respects s. 2(m)(ii), we cannot properly direct the inquiry by asking the same question :

Is the asset an exempted asset ?"" or ""Is the property an excepted property ?"". To ask this kind of question would involve a misdirection. For,

where a part only of the value of an asset is exempt under s. 5(1), it may be an exempted asset properly socalled for purposes of s. 5(1), but it

cannot be brought under s. 2(m)(ii) within the phrase ""property in respect of which wealth-tax is not chargeable"". For, this phrase must be

understood as meaning"" ""property in respect of which wealth-tax is not at all chargeable"". ""Not at all"" is not a gloss. It is very much a part of the

meaning. Section 2(m)(ii) divides the whole universe of discourse into a dichotomous division : (1) property in respect of which wealth-tax is

chargeable; and (2) property in respect of which wealth-tax is not chargeable. Category (1) will certainly cover property the whole of the value of

which is chargeable to wealth-tax. But that is not all. It would also cover property a portion of the value of which is chargeable. Category (1) will

exclude only category (2) which represents property in respect of which no wealth-tax is chargeable at all, for if some wealth-tax is chargeable on

the property, then that property would move into category (1).

All this discussion about ""property in respect of which wealth-tax is not chargeable"" is only in the context of non-deductibility of debts in the

computation of net wealth. The general rule of deduction is all debts are deductible. The only three exceptions to the general rule are those set out

in s. 2(m)(ii), cls. (i), (ii) and (iii). Clauses (i) and (iii) do not give rise to problems of construction, for, by looking at the mere aspect of the debts in

question, without more, we can decide whether they are non-deductible debts falling under s. 2(m)(i) or (iii). Not so the debts falling under s. 2(m)

(ii). The non-deductibility of these debts will have to depend on the ascertainment of their nexus or inter-relation with property in respect of which

wealth-tax is not chargeable. If the properties are not chargeable to wealth-tax, the debts secured on these assets shall not be deductible. But if the

properties do not fall within the description in s. 2(m)(ii), there is nothing in s. 2(m) which would prevent the deduction of the entire debt. Here

again, the dichotomy works. There are two categories which exhaust all debts. Debts fall into a general class or they fall into a special class. The

general run of debts are all deductible debts. No questions would be asked about them in the assessment. They may be secured, they may be

unsecured. In either case, they will be deducted. But, then come the special or excepted class of debts, which are secured on or related to

property covered by s. 2(m)(ii). If the secured properties fit in with the meaning of s. 2(m)(ii), the connected debts go out of the reckoning. But if

the properties are not comprehended by s. 2(m)(ii), the general rule of deductibility operates, and this general rule as indicated above, knows no

restrictions. In other words, depending on its relation to an asset in question, a debt is either deductible or not deductible. There is no half-way

house. Section 2(m)(ii) does not contain any provision for partial abatement, or apportionment, of a debt under which part of it is deductible and

part of it is not.

It is said that wherever a taxing statute is silent, then the courts must step in and make an apportionment. This might be so, if there is a rule of

law to that effect. But there is no such thing as a ""principle"" of apportionment as far as I am aware. Nor is it a special fiscal principle so fundamental

in taxation that it demands application wherever the taxing Act is silent.

Reference has been made to apportionment of business expenditure between capital and revenue expenditure, personal and non-personal

expenditure, in the realm of Income Tax in the context of allowable deductions. It is pointed out that these principles of apportionment have had the

blessings of courts.

It is quite true that apportionments between capital and revenue, and personal and non-personal expenditure have the sanction both of Income

Tax usage and of court decisions. But that is no reason for assuming that the way for its introduction is wide open under s. 2(m)(ii) of the W.T.

Act. Apportionment into tax of deductible expenditure and disallowable expenditure under the I.T. Act is conditioned by the language of the

provision in s. 37 of that Act. The section lays down that expenditure must be wholly and exclusively for the purpose of the business and it should

be neither capital expenditure nor personal expenditure. Where, therefore, expenditure is of a mixed character, there is a statutory compulsion, as it

were, to separate the allowable from the disallowable expenditure. Moreover, even for an apportionment of this kind, one has only to consider the

nature of the expenditure, and not the nature of it relation to some other phenomenon and, what is more, the nature of that other phenomenon as

well.

I believe that any method of apportionment which has no statutory sanction, either express or implied, cannot be elevated to the status of a

binding principle even if it has a scientific backing. For, an apportionment by common consent is merely a convenient vehicle for making estimates

in assessment wherever accurate data is lacking. Besides, it can be employed only where the statute either allows or compels its application. In the

words of s. 2(m)(ii), once an asset which secures the debt is treated as an asset on which wealth-tax is chargeable, even though a part of the value

of the asset is exempt from tax, the whole of the secured debt must be deducted. There is no question of a part of that debt being non-deductible

by striking a proportion as exists between the exempted portion and the non-exempted portion of the value of the asset concerned. Section 2(m)

(ii) does not contain either an express or an implied rule of apportionment.

Then it is said that a harmonious understanding of the scheme of s. 2(m)(ii) requires the application of the principle of apportionment. It may be

conceded that nowhere else in the W.T. Act does Parliament not only recognizes but exploits, as it were, the inter-relationship between an asset

and a debt. As a general rule, the Act is content to keep separate the assets, on the one side, and the debts, on the other, for aggregation, for

valuation and for exclusion, all in the computation of net wealth. Section 2(m)(ii), by way of exception, draws them together. This, however, does

not warrant apportionment of the debt in question, when the provision is silent. Harmonious construction demands that we should avoid striking a

note discordant to the sound and sense of the enacted provisions as a whole. To change the musical metaphor, pursuit of a middle path does not

prove that it is flanked by extremes always. In any case, where the path is chalked out clearly by the statute, we should not avoid it on any a priori

theory of avoidance of extremes.

It is suggested that courts nowadays must strike out on their own wherever the language of the statute leaves scope for ""purposive

interpretation. It is claimed that a too literal adherence to the words of the parliamentary draftsman will tend to defeat the very intentions with which

statutes, even tax statutes, are brought into being. Apportionment of debts, in this sense, is advanced as a desirable end product of interpretation of

s. 2(m)(ii).

I have taught myself to regard statutory construction as an exercise in legal reasoning par excellence. Questions of construction are always

questions of law, and are seldom regarded as anything else. If we were to consider the aim of statutory interpretation to be the ferreting out of the

intention"" of the law-giver, would we not be converting the whole process into a factual one in the extreme ? Parliamentary intention, like the state

of the weather, must then be no different from any other question of fact. If so, sitting only with the statute book open and counsel on either side

arguing out the matter, courts would be hard put to it to go in search of proof of parliamentary intention, which most of the time any way would

only be another name for the draftsmen''s intention. It would, I think, accord with the fundamental separation of powers if the courts were to

adhere to the good old canons of construction. They often go in contradictory pairs, and their counsel is not uniform. But they are, on balance,

much safer guides than the purposive method of getting at the legislative intention. A legislative enactment like any other piece of writing is an

attempt at communication. Only it is addressed to nobody in particular, but to everybody in general who may be affected by if one way or the

other. Such mass communications are much better understood from the point of view of their meaning rather than from the point of view of their

intentions.

The two Bench decisions in Commissioner of Income Tax Vs. M.N. Rajam, and Commissioner of Wealth-tax, Tamil Nadu-I Vs. Satish, have,

in my considered opinion, arrived at a proper construction of s. 2(m)(ii) of the Act. The judgments are by no means word-perfect. There are some

loose ends in thinking. There is also a palpable mistake or two. To take one instance, an obvious reference to Union of India v. Harbhajan Singh

Dhillon, (1972) 83 ITR 582 (SC) was mistakenly mentioned as SUDHIR CHANDRA NAWN Vs. WEALTH-TAX OFFICER, CALCUTTA,

AND OTHERS. INTERVENERS : (1) STATE OF ASSAM; (2) STATE OF KERALA; AND (3) STATE OF UTTAR PRADESH., .

Again an opinion had been expressed that the W.T. Act does not at all contemplate and provide for a debt secured on an asset partly exempt

and partly non-exempt. This assumption about a causus omissus, I must say, is obviously wrong on the construction of s. 2(m) which had been

adopted in those very judgments. It is an error to think that a debt secured on a mixed asset must fall between two stools. The truth is that it lands

pat on the words of the main part of s. 2(m) for no other reason than that it cannot fall within the scope of clause (ii) of s. 2(m). This is the crux of

the decision of the Division Bench too, if we ignore the bit about causus omissus and the rest. Two excerpts from the Bench judgments will suffice.

It was said in one of them as follows (p. 81 of 133 ITR) :

Accordingly, the one and only inquiry under s. 2(m)(ii) is to see whether it can be said of any item of asset that it is property in respect of which

wealth-tax is not chargeable. An item of house property can be brought within the charge either because it is not used as the assessee''s residence

or to the extent that its value exceeds Rs. 1,00,000. In either case, it would be property of a kind about which nobody can confidently assert,

without fear of contradiction, that it is property ""in respect of which wealth-tax is not chargeable.

It was again said (at p. 837 of 133 ITR) :

As a general proposition it may be laid down that where a debt is secured and the security consists of several items of property, one of which

alone is exempted from wealth-tax, then it cannot be said that all the properties on which the debt is secured are exempted from wealth-tax.

These passages are consistent with the views I have elaborated upon in the foregoing paragraphs. I have said that there is a clear dichotomy,

or, rather, two dichotomies, discernible in s. 2(m)(ii) of the W.T. Act, 1957. There is, first, the dichotomy between property which falls within s.

2(m)(ii) in the sense that the whole of its value is not chargeable to wealth-tax and all other properties. There is, next, the dichotomy between debts

which are secured on or are related to property the whole of whose value is not chargeable to wealth-tax and the rest of the debts. There is no

intermediary class of properties and no intermediary class of debts. And, either a debt is deductible or is non-deductible. There is no such thing as

a debt which is deductible in part and non-deductible in part.

I, therefore, express my dissent, with respect, from the reasonings and conclusions of my two learned brothers who are the other members of

this Full Bench. My formal answers to the references on hand would, therefore, be against the Revenue and in favour of the assessee concerned.

No costs.

ORDER OF THE COURT

In view of the difference of opinion between members of the Full Bench in the above cases, the majority opinion prevails and the questions of

law must be answered accordingly. A look at the details of the tax cases show that they fall in three classes.

(i) Cases where the Wealth-tax Officer had disallowed a debt in whole even though the secured asset was exempt from wealth-tax only in part and

where the action of the Wealth-tax Officer was reversed by the Tribunal allowing the whole of the debt as a deduction.

(ii) Cases where the Wealth-tax Officer had disallowed part only of a debt in proportion to the tax exempted value of the secured asset, but where

in appeal the Tribunal allowed the deduction for the entire debt.

(iii) Cases where the Wealth-tax Officer had disallowed the debt in full and on appeal the Tribunal had upheld the assessment.

In the first category fall T.C. Nos. 817 to 819 of 1977, 844 to 847 of 1977, 849 and 850 of 1977, 901 to 903 of 1977, 1242 to 1244 of

1977 and 478 of 1978.

In the second category fall T.C. Nos. 369 to 371 of 1977, 1027 to 1029 of 1977, 1409 of 1977, 1603 of 1977 and 209 to 212 of 1978.

In the third category fall T.C. Nos. 410 of 1978 and 423 of 1978. In accordance with the decision rendered by the majority of this Full Bench,

the cases falling under groups I and II, namely, T. C. Nos. 817 to 819 of 1977, 849 and 850 of 1977, 901 to 903 of 1977, 1242 to 1244 of

1977 and 478 of 1978 and 369 to 371 of 1977, 1027 to 1029 of 1977, 1409 of 1977, 1603 of 1977 and 209 to 212 of 1978, respectively, will

be disposed of with the following answer :

The debts in question must be disallowed only in proportion to the exempted value of the asset or property securing the debts. The Tribunal will

have to work out the proportion in each case. The reference will be answered accordingly.

As for the third category, no question at all arises for applying the principle of apportionment so as to segregate the allowable part of the debt from

the disallowable part, since the properties on which the debts are secured are ""Gold Bonds"", the whole of the value of which is not chargeable to

wealth-tax under s. 5(1) of the Act. The disallowance of the entire debt by the WTO was, therefore, quite correct and it was rightly upheld by the

Tribunal. The questions of law raised in these assessees'' references are, therefore, answered against the assessees and in favour of the

Department.

The assessees in the last two tax cases, namely, T.C. Nos. 410 and 423 of 1978, were not present in person or represented by learned

counsel. Learned counsel for the assessees in the other cases as well as the learned standing counsel for the Department made oral application for

leave to appeal to the Supreme Court in the rest of the cases covered by group I and II above. This group of cases is concerned with the

interpretation and application of s. 2(m)(ii) of the W.T. Act, 1957, with particular reference to claims by taxpayers for deduction of debts which

are secured on properties or assets part of whose value is exempt from wealth-tax; claims of this kind are constantly recurring features in the

administration of the W.T. Act, 1957. In such cases, the Department has always taken the stand that the whole of the debt is disallowable even

though the secured asset is only partly exempt from wealth-tax. This Full Bench had to be constituted for resolving two earlier Bench decisions of

this court on this difficult question. The majority of the Full Bench have now taken the view that where debts are charged to partially exempted

assets, the debts have got to be disallowed only in proportion to the exempted value of the assets. This decision of the majority, it will be seen,

does not accept in toto either the assessees'' point of view or the Department''s point of view but strikes a middle ground. The minority opinion in

these cases has taken the view that even though a debt is secured on a partially exempted asset, the debt must yet be allowed in whole.

In view of the nature of the question, the difference of opinion between the learned judges, and the number of cases in which such questions

are likely to crop up in the future, we hold that these are cases raising substantial questions of law for decision by the Supreme Court. We

accordingly grant leave to appeal to the Supreme Court, both for the Revenue and for the assessees concerned.