The taxpayer was an equal partner with two associated corporations in a partnership (Noort Developments) which was engaged in an active business. Noort Developments paid deductible interest to an associated corporation (Noort Bros. Construction Ltd.), which treated such interest as Canadian investment income, on the basis that "subsection 129(6) applies only to amounts paid or payable to a corporation by another corporation so that it cannot possibly apply to the interest payments received by Noort Bros. Construction Ltd. from the partnership, Noort Devlopments (p. 5216)."
In finding that s. 129(6) so applied (so that the taxpayer was not entitled to the small business deduction as the active business income of the group was correspondingly increased), McNair J stated (at pp. 5217-8):
...the partnership, Noort Developments, is not a legal entity. Section 96 of the Act provides rules for the computation of partnership income. The partnership is envisaged as a separate person solely for the purpose of measuring the flow of income to the individual partners, which is then taxed in their hands.. It is the partners and not the firm itself which are the alleged subject of taxation.