Sec.14A No disallowance if there is no tax-free income

There is not adequate discussion about facts in the judgment. From the question we find that position claimed is that assessee used borrowed funds to invest in capital of partnership firm and that profit derived from firm were exempt? (It seems that it shoudl be profit derived would be exempt as and when earned)
However, on reading of the judgment of the High Court we find that the High Court has observed that there was no profit from the firm.
The High Court observed and ordered as follows:
In so far as Question (A) is concerned, on facts we find that there is no profit for the relevant assessment year. Hence the question as framed would not arise.
3.Consequently Appeal (sic is or stand)dismissed.
Therefore, it seems that the High Court has, from facts found that there is no profit for the relevant previous year.Accordingly the High Court has held that the question as framed would not arise.
Authors point of view:
In some circles it has been written that the High court has held that if there is no exempt income, S.14A will not apply.With due respect to learned authors of such views, the author feel that the High Court has not at all considered question as to whether in such circumstances S.14A would apply or not.
It appears that the question raised was contrary to facts found by the Tribunal therefore , the question did not arise from the order of the Tribunal since facts found were not challenged. Facts found were that there was no tax free profit from firm, whereas question gave impression that the profit were exempt. For this reason the appeal seems to have been dismissed by the High Court.
Therefore, we cannot draw conclusion that the High Court has held that, S.14A is not applicable when tehre is no tax free income derived from firm.
Authors point of view on applicability of S.14A:
Author is of firm view that since share in profit of the firm is tax free in hands of partner only because firm has paid tax on its tax free profit, therefore S.14A is not applicable. Furthermore, the partner may earn taxable income from the firm by way of interest on capital , salary and remuneration or commission, etc. Those taxable income will be of much more certainty than probability of share in profit. When from same investment taxable income is derived, how any part of cost of investment so made can be disallowed merely because share in post tax profit of firm is exempted in hands of partner- under a scheme of taxation of income by which tax is collected before distribution of profit.
On reading of S.14A also it is clear that the dis-allowance is attracted only when an income is altogether exempt in overall context of the Act and not merely when an exemption is granted in computation of income of recipient. The two expressions used in all related provision of s. 14A and Rule 8D suggest that S. 14A sould apply when income is not chargeable income or total income under the Act and not merely when it does not form part of total income of assessee.