RAJAGOPALAN, J. - The assessee was the financing partner of the registered partnership firm. The other partner, Rangaswami, was styled the working partner. That the assessee had to borrow for financing the business of the partnership firm and that he had to pay interest on such loans were never in doubt. The figures were set out in paragraph 7 of the statement of the case. The first question referred to this court under section 66 (2) of the Act raised the issue, whether the assessee was entitled to deduct these payments in computing his taxable income, which included his share of income from the registered partnership firm. We should make it clear that we are concerned in this case only with the claim to deduct payments of interests on loans borrowed by a partner of a registered partnership firm to finance the business of the partnership him. We are not on any larger issue, and nothing we say in this judgment should be construed to take us beyond the limited scope which we have indicated. We must emphasis we are confirming ourselves to only interest payments.
The general principal was laid down in Shantikumar Narottam Morarji v. Commissioner of Income-tax. On the facts of that case, however, the learned judges of the Bombay High Court eventually came to the conclusion in that case that the loans had not been borrowed for the business. In Mool Chand v. Commissioner if Income-tax the Hyderabad High Court dealt directly with the claim to deduct payments of interest and upheld that claim.
The learned counsel for the Department conceded the position, that in such cases, interest payments are lawfully deductible in computing the income of a person like the assessee who was a partner in a registered partnership firm. In view of that concession the answer to the first question will be in the affirmative and in favour of the assessee.
Annexure 'A' evidences the terms of the partnership between the assessee and the working partner, Rangaswami. In the proceedings before the Department and the Tribunal the assessee claimed that he engaged himself in the conduct of the business even beyond what has been provided for in that partnership deed. But that claim was not supported by any evidence acceptable, and that claim was negatived. Based on the terms of the deed of partnership, annexure 'A', the finding of the Tribunal was that all that the assessee did was (1) to finance the partnership, (2) to sign the cheques the expenses of the firm, and (3) to keep in his custody, outside the usual working hours, the books, cash and the key of the firm. That was provided for in clause (5) of annexure 'A'.
The finding of the Tribunal was that there was no evidence on record that the assessee took any active part in the business except signing cheques.
It is on this basis that we have to answer the second question, whether the assess was entitled to earned income relief. Section 2 (6AA) requires proof that the person claiming the earned income. Singing the cheques by itself might amount to engaging oneself in the conduct of the business; but signing cheques without anything more could not be proof of actively engaging oneself in the conduct of the business. Keeping custody of the cash and the books of the firm, outside the office hours, when they were not be proof of actively engaging oneself in the conduct of the business. Both these items together did not finish proof that he satisfied the requirements of section 2 (6AA) that the assessee had actively engaged himself in the conduct of the business of the firm. Something more than signing cheques should be needed to prove an active engagement in the conduct of the business. That evidence was not forthcoming. The Tribunal was certainly justified on the material place before it in coming to the conclusion, that the assessee had not satisfied the requirements of section 2 (6AA) of the Act. The second question is answered in the negative and against the assessee.
Since neither side has succeeded wholly on this reference, there will be no order as to costs.