Baharul Islam, J.
1. These three references arise out of common facts and circumstances and are between the same parties. We shall, therefore, dispose of them by this common order.
2. The assessee, Smt. Lachmi Devi Chowkhani, is a 50% partner in the firm, Messrs. Joharmal Muralidhar & Co. that owns, amongst other business, a tea estate, known as Mahadeobari Tea Estate. The firm did not maintain separate balance-sheet for the tea estate and other business, but maintained one consolidated balance-sheet for the years in question, namely, 1960-61 to 1967-68. It was claimed by the assessee that she had liability for agricultural income-tax and also had loans by hypothecation of tea crops, etc; that she was entitled to the deduction of her income-tax liabilities and loans on hypothecation from the assessment of net wealth. The WTO, however, rejected her claim holding that agricultural income was debt incurred in relation to the agricultural assets which were exempt from the wealth-tax and that the provision of Section 2(m)(ii) was applicable and no deduction could be made for this liability. He also observed that the agricultural income had not been paid within one year from the date of assessment and her demand also appeared to be disputed in appeal. The assessee appealed to the AAC of Wealth-tax, who held that agricultural income-tax was not a debt in relation to any agricultural asset and as such the provision of Section 2(m)(ii) was not applicable. He held that agricultural income-tax liability was a debt and as such an admissible deduction.
3. The department filed an appeal to the Tribunal against the order of the AAC. The Tribunal upheld the order of the AAC. It held that though agricultural income-tax was a charge on agricultural income, it was not secured or charged on agricultural assets only.
4. This controversy is the subject-matter of the question in Wealth-tax Reference No. 1 of 1974.
5. With regard to the loan, the assessee claimed that Rs. 2,89,154 was due to a bank (for 1966-68), and this sum should be deducted in making the assessment for wealth-tax. The WTO held that the loan is secured on the assets of the tea estate inclusive of land and growing crops. He, therefore, estimated that Rs. 1,00,000 referable to exempted assets, cannot be allowed as deduction.
6. The assessee preferred appeals before the AAC, who allowed the deduction of the entire loan liability of Rs. 2,89,154 including Rs. 1,00,000. He held that the assessee was entitled to the deduction of the agricultural loan liability of the assessee.
7. The department preferred appeals before the Tribunal which upheld the orders of the AAC of Wealth-tax. The Tribunal held :
'The agricultural income-tax is also a tax and it is a debt owed by the assessee. It is a charge on agricultural income but it is not specially secured or charged on agricultural assets only.'
8. This controversy is the subject-matter of the common question in Wealth-tax References Nos. 9 and 11 of 1975.
9. The department then made an application for reference of the two questions to the High Court. The Tribunal referred only the following question to this court for opinion :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that agricultural income-tax is allowable as a debt and the provisions of Section 2(m)(ii) of the Wealth-tax Act, 1957, are not applicable to the same ?'
10. Hereinafter we call this question as question No. 1. The Tribunal refused to refer the second question to the High Court. On an application by the department, the High Court directed the Tribunal to refer the following question to this court for opinion :
'(2) Whether, on the facts and in the circumstances of the case, and on a proper construction of Section 2(m)(ii) of the Wealth-tax Act, 1957, the loan of Rs. 1,00,000 secured on tea crop which is to be grown is allowable in computing net assets ?'
11. Hereinafter we call this question as question No. 2.
12. The answers to both the questions depend on a correct interpretation of Section 2(m)(ii) of the Act.
13. As earlier stated the assessment years in question are 1960-61 to 1967-68. In and after 1969, there have been several amendments to the definitions of net wealth. The definition of net wealth in Section 2(m) at the relevant time was as follows (material portions only):
'(m) 'Net wealth' means the amount by which the aggregate value computed in accordance with the provisions 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 excess of the aggregate value of all the debts owed by the assessee on the valuation date other than,--...
(ii) 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; and
(iii) the amount of the tax, penalty or interest payable in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, or the Estate Duty Act, 1953, the Expenditure-tax Act, 1957, or the Gift-tax Act, 1958,--
(a) which is outstanding on the valuation date and is claimed by the assessee in appeal, revision or other proceeding as not being payable by him ; or
(b) which, although not claimed by the assessee as not being payable by him, is nevertheless outstanding for a period of more than twelve months on the valuation date.'
'Assets' has been defined in Section 2(e) as follows : (material portions only):
'(e) 'Assets' includes property of every description, movable or immovable, but does not include--
(i) agricultural land and growing crops, grass or standing trees on such land;...'
14. Under section 3 of the Act, wealth-tax is charged in respect of 'net wealth' of the asseseee. Section 4 lays down what net wealth includes. Section 5 provides what assets are to be excluded in assessing the net wealth. According to the definition, 'net wealth' is the aggregate value of all assets required to be included in his 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 to 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 also cannot be deducted. Agricultural income-tax is, undoubtedly, a debt which is incurred in relation to assets, such as agricultural land and growing crops which are not included in the definition of assets as defined in Clause (e) of Section 2. As agricultural land and growing crops are not included in net wealth as defined' in the-W.T. Act, wealth-tax has not to be paid on them. As such, Section 2(m)(ii) is applicable so far as the agricultural income-tax is concerned and the assessee will not be entitled to the deduction of the agricultural income-tax incurred by the assessee in arriving at the net wealth of the assessee. This is the answer to our question No. 1.
15. The same reasons apply to the hypothecation of the crops in the instant case. The hypothecation deed (annexure 'B ') shows that 'the, entire tea crop of the said estate and the produce thereof manufactured or in process of manufacture (hereinafter referred to as 'the said tea crop') to be grown made and/or manufactured.....' were hypothecated. The finding of the WTO is also that 'the assets pledged include land and plantation' and that 'the hypothecation loan stands secured against all the assets of the tea estate, in proportion with agricultural and non-agricultural assets, and this loan cannot be referable against the non-agricultural assets only'. The debts secured relate to assets which have not been included in the definition of assets as defined in Section 2(e) and, as such, Section 2(m)(ii) will apply to the facts of the case.
16. The learned Tribunal has held that the non-agricultural assets only of the assessee were hypothecated and payment of the agricultural income-tax does not relate to the non-agricultural income. This finding of the Tribunal is contrary to the terms of the hypothecation deed (annexure 'B') referred to above. The loan secured by hypothecation related to, inter alia, growing tea crops which are not included in the definition of assets under Section 2(e). The hypothecation is also with respect to manufactured tea. Under rule 8 of the I.T. Rules, 1962, only 60% of the income is treated as agricultural income, and 40% as non-agricultural income. This is, in our opinion, due to the fact that income from tea is the income out of combined efforts of agricultural as well as non-agricultural assets. As such, Section 2(m)(ii) will apply to the facts of the case. This is the answer to our question No. 2.
17. As a result of the foregoing discussions, we answer the question in Wealth-tax Reference No. 1 of 1974, in the negative and answer the common question in Wealth-tax Reference No. 9 of 1975 and No. 11 of 1975, also in the negative.
18. Parties are left to bear their own costs.
Ibotombi Singh, J.
19. I agree.