RAMDOSS PURUSHOTHAMDOSS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee was the financing partner of the registered partnership firm. The other partner, Rangaswamy, 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 S. 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 his case only with the claim to deduct payments of interest on loans borrowed by a partner of a registered partnership firm to finance the business of that partnership firm. 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 emphasise we are confining ourselves to only interest payments.

(2.) THE general principle was laid down in Shantikumar Narottam Morarji vs. CIT (1955) 27 ITR 69. 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 Moolchand vs. CIT (1956) 29 ITR 449 the Hyderabad High Court dealt directly with the claim to deduct payments of interest and upheld that claim.

(3.) ANNEXURE "A" evidences the terms of the partnership between the assessee and the working partner, Rangaswamy. 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 had 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 for 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 cl. (5) of annexure "A".