Balasubrahmanyan, J.
1. The question for our decision in this wealth-tax reference is whether the assessee would be entitled to the deduction of a debt in the computation of his taxable net wealth when the debt in question stands secured on two assets, one of which is, and the other is not, exempted from wealth-tax. The answer to the question turns on the construction of s. 2(m)(ii) of the W.T. Act, 1957.
2. A few facts will better illustrate the intricacy of the problem. The assessee owns, among other assets, two houses. In one of these he lives. The other he has let out to tenants. The latter house was built with the aid of a house building advance from the LIC (the life Insurance Corporation of India). The advance was made on the security of two items. The very house under construction was mortgaged to the LIC. Besides, the assessee was required to take a life policy for the amount and assign that policy as additional security for the house building advance.
3. Under the W.T. Act a life policy, not yet matured, is an asset on which tax is not payable. [See s. 5(1)(iv)]. Under s. 5(1)(iv) provision is made for exemption of one house for each assessee. But even under this provision a house per se, is not exempt. Apart from other conditions, the house must be lived in by the assessee as his exclusive residence. In this case, the assessee got an exemption for the other house under his own residence. But the house which stood mortgaged to the LIC was not in the assessee's occupation. It had been let out to some American organization. It thus came to pass that the assessee's outstanding debt to the LIC stood secured at one and the same time, both on an exempted asset (the life policy) and a non-exempted asset (the house left out). The question of deduction of the debt had to be considered in this situation.
4. The assessing officer concentrated on one aspect of the debt and its security namely, that it was secured on an exempted asset. He accordingly disallowed the debt. He relied on the following words of exclusion in s. 2(m)(ii) :
'Debts which are secured on.... any property in respect of which wealth-tax is not chargeable.'
5. As we have already seen, the life policy in this case is an item of property on which under s. 5(1)(vi), wealth-tax is not payable. The WTO stuck to this point. He did take cognizance of the other security for the debt namely, the tenanted house, which was by no means exempt from wealth-tax. But the thought this circumstance made no difference to the position that the debt was secured on the life policy and the life policy was property on which wealth-tax was not payable. He thought this was enough to bring s. 2(m)(ii) into operation and disallow the debt.
6. The Tribunal in appeal thought otherwise. Their mind moved differently. They laid stress on the fact that the debt was charged on an item of house property which was liable to wealth-tax as part of the assessee's taxable net wealth. They held to be of no consequences the exempt nature of the other security for the debt, namely, the life policy.
7. This is not the first time a situation of this kind comes up before this court in connection with the application of s. 2(m)(ii) of the W.T. Act. There is an earlier decision of a Bench of this court in which the facts were slightly different, but the problem was much the same. In that case, T.C. No. 538 of 1976 [CIT v. M. N. Rajam : [1982]133ITR75(Mad) ], a house property was partially exempt from tax because only half of that house was the assessee's residence the other half being let out to tenants. But the whole house was under the mortgage as security for a debt owed by the assessee. The question was whether the debt was deductible. The assessing officer in that case took a via media position and allowed one-half of the debt, disallowing the other half. The assessee appealed to the Tribunal, and got the balance of the deduction claimed for the entire debt. This court, on reference, held that the whole debt was deductible. It was observed that a debt of the kind which was secured on property which was assessable to wealth-tax as to one part and exempt from wealth-tax as to the other part, was a debt which would not fall within the terms of s. 2(m)(ii) which spoke of : 'property in respect of which wealth-tax is not chargeable'.
8. The problem in the present case is only slightly different. Instead of the single property which figured in that case, there is a plurality of securities in the present case, one of which is exempt and the other of which is not exempt from wealth-tax. The inquiry, however, seems to us to be the same-to see whether, of this debt, it could legitimately be said that it is secured on property in respect of which wealth-tax is not chargeable. The answer to the question seems to us to be in no way different from that rendered in the earlier case cited.
9. Section 2(m)(ii) use the singular and speaks of 'property'in respect of which wealth-tax is not payable. It is well-known rule of statutory construction that the singular includes the plural : vide s. 13(2) of the General Clauses Act, 1897 ( Central Act No. 10 of 1897). Thus, where an assessee owes a debt which is secured on one item of property, there must be an inquiry under s. 2(m)(ii) whether the property is an exempted or non-exempted asset and disallowance can be made of the debt if the property is exempt from tax, but not otherwise. Where, however, the debt is secured on two items (or three, or several), then the disallowance under s. 2(m)(ii) can apply only if all the items in question are found to be exempted assets. This is how the expression 'property' must be constructed. For a situation of the kind we have in the present case, s. 2(m)(ii) cannot be applied. 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. In such a case, it would follow that s. 2(m)(ii), with its reference to 'property', constructed in plural, cannot apply.
10. This conclusion of our accords with the Tribunal's decision. we must however point out that the Tribunal's determination is not based on any enunciation of the legal position. Their conclusion is summarised in the following passage :
'In this case, the loan is secured both on the house property and the policy, one is taxable and the other non-taxable wealth. The charge is on the whole of the two properties and therefore does not admit of any apportionment. In such a situation we hold that the debt though inadmissible under section 2(m)(ii) with reference to the life policy are admissible with reference to the house property. We would, therefore, allow the claim of the assessee to deduct these sums.'
11. This passage is not marked by clarity of discussion. Little or no attempt has been made by the Tribunal to face the problem posed by s. 2(m)(ii) on the facts of the present case. Far from tackling the problem, the Tribunal have even shown a preference to adopt a view of the facts which has the effect of bypassing s. 2(m)(ii) altogether. Elsewhere in their order, the Tribunal observed that the assessee had only an equity of redemption in the house property in question and that was the only asset he owned. In that sense, it was said that s. 2(m)(ii) was not in point at all for, no question of allowance or disallowance of a debt could properly arise in the evaluation of an equity of redemption.
12. We do not quarrel with the position that the assessee's interest in the property is the equity of redemption. We may even grant that the equity of redemption might be regarded as an asset in itself, since it is but an interest in property. But we hold that this view involves as over-simplification of the concept of a mortgage even under the general law. While a mortgage is the transfer of an interest in the mortgaged property from the mortgagor to the mortgagee, it is something more than that. It involves the charging of debt for its repayment, on the security of the property. Besides, even the interest transferred by the mortgagor to the mortgagee is not absolute. For, the mortgage is liable to be redeemed and there can be no clogs on redemption. In a mortgage of any kind, so inextricably mixed are the two elements, the element of debt or obligation, and the element of transfer of interest in the property. The law of mortgages emphasizes one element in one context, and the other element is another context, with the result that no clear-cut position emerges in all situations. This is the reason why Mainland characterised a mortgage as 'one long suppressio veri suggertio falsi' (Equity, page 182) and Lord Macnaghten declared that no one can by 'the light of nature' understand an English mortgage of real estate. [Samuel v. Jarrah Timber and Wood Paving Corporation Ltd. [1904] AC 323 (HL)]. At any rate, for the special purposes of computation of the net wealth of an assessee under s. 2(m)(ii) of the W. T. Act, we think it would be necessary to keep the two elements in a mortgage distinct. For, net wealth is the end-result of comparing the aggregate value of all assets, on the one side, and the aggregate value of all debts on the other side. In the case of a mortgaged property, therefore, it would be proper to bring into the reckoning, on the assets side, the gross value of the mortgaged property, and, on the side of debts and liabilities, the value of the subsisting mortgage debt on the property. This way of the reckoning a mortgaged property as made up of two elements, both of which are components of the assessee's net wealth under s. 2(m)(ii) is important, because the property mortgaged may or may not be an exempted asset, and different tax consequences would flow according as it is or is not an exempted asset. The Tribunal was not, therefore, justified in over-simplifying the problem and adopting a short-cut solution to the present case by saying that the assessee's only asset is the equity of redemption and the inquiry in the wealth-tax assessment is limited to the valuation of this interest and nothing else. We believe that even accepting, as we should, the nature of the assessee's interest as an equity of redemption, it would still be necessary to find out whether the debt owed by the assessee to the LIC is not deductible under s. 2(m)(ii). The question has still to be faced, because its relevance is in the context of its having been secured on the other item, namely, the life policy, which is exempt from tax. In that context, the idea of the assessee having only an equity of redemption in the house property is not the last word on the subject of computation.
13. Another argument which figured before the Tribunal was that the value of the debt in question may be apportioned as in part deductible and in part non-deductible, referring one part to the security of the house property and the other part to the security of the life policy. This argument was also thrown out by the Tribunal. We uphold the action of the Tribunal on the ground that s. 2(m)(ii) provides for no via media. For disallowance to be made under the provision, the debt must be secured on properties with reference to all of which it could be said that wealth-tax is not payable. If we cannot render such a finding as respects all the properties securing the debt, then the disallowance under the section will not apply. If, on the contrary, all the properties securing the debt are tax-exempt, then the WTO would be justified in applying s. 2(m)(ii) and disallowing the debt. Thus, the position as respects a debt can only be one of two things; either s. 2(m)(ii) applies, or it does not apply. There are no intermediate positions in between, according as one or some of the properties securing the debt are exempt, but not the others.
14. On the other point raised by the assessee at the appellate stage may be briefly considerd. Before the Tribunal it was urged that although,as part of the terms of the house-holding advance, the assessee had assigned this life policy to the LIC, the one and only real security for the debt was the regular mortgage executed by the assessee in respect of the house under construction. It was further urged that the security for the debt, in the proper sense of the expression, did not include the life policy. This argument was obviously advanced with a view to avoid going near s. 2(m)(ii). With that end in view, the assessee called the life policy a mere 'collateral security'. It was urged that the assignment of the life policy only enabled the LIC to set off against the assessee's debt the amount of the policy when it matured. In that sense, it was urged that the policy was not a security at all.The Tribunal did not deal with this point. We, on our part, however, have no doubt in our minds that even a so-called collateral security is security of a sort, and has to be dealt with as such for purposes of s. 2(m)(ii) of the W. T. Act.
15. The question of law which has been referred to us in this case is as follows :
'Whether on the facts and in the circumstances of the case, the sum of Rs. 94,250, Rs. 90,750 and Rs. 65,035 being loans from the Life Insurance Corporation of India secured on the mortgage of house property at No. 3, Archbishop Mathais Avenue and life insurance policies are liable to be deducted for assessment years 1967-68, 1968-69 and 1969-70, respectively ?'
16. The format of the question would seem to suggest that in respect of each of the three assessment years in question, there was a fresh debt by the assessee in favour of the LIC. That is not so. The assessee raised only a single loan on the security of the house and the life policy. Owing to part payment of the debt from time to time, the actual figure of the outstanding (amount) had become less and less at each of the three valuation dates relevant to the three assessment years in question. As to the material part of the question itself, having regard to the considerations we have earlier mentioned, the answer we render is in the affirmative and in favour of the assessee. There will, however be no order as to costs.