AJIT K. SENGUPTA, J

(1) IN this reference under Section 256 (2) of the Income-tax Act, 1961, for the assessment year 1970-71, the following questions of law have been referred to this court :

" (1) Whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself in law in holding that the transaction of sale of shares in the name of Messrs. Laxminiwas and Co. (P.) Ltd. on May 20, 1969, although not valid earlier became valid on the date of ratification by Messrs. Laxminiwas and Co. (P.) Ltd. on June 7, 1969, after its incorporation

(2) Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the transaction of sale of shares by the assessee is not sham or unreal is vitiated in law being contrary to evidence or based on no evidence or the same is otherwise unreasonable and/or perverse

(3) Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the Income-tax Officer did not bring any material on record to show that the market price of the shares at the time of sale was more than Rs. 25 is vitiated in law being contrary to evidence or based on no evidence or the same is otherwise unreasonable and/or perverse

(4) Whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself in law in holding that the assessee is entitled to capitalisation of interest of Rs. 1,46,501 and the said interest should be allowed in computation of short-term capital loss on the sale of shares and whether such conclusion is based on no evidence or contradictory of evidence or based on misconstruction of statutory language or the same is otherwise unreasonable and/or perverse

(5) Whether, on the facts and in the circumstances of the case, the finding or conclusion of the Tribunal that the short-term capital loss of Rs. 3,00,811 on the sale of shares of Messrs. Punalur Paper Mills Ltd. was rightly allowed by the Appellate Assistant Commissioner is vitiated in law being contrary to evidence or based on no evidence or the same is otherwise unreasonable and/or perverse "

(2) THE relevant facts are that Messrs. Punalur Paper Mills Ltd. (in short, "ppm") has a paper mill situated in the State of Kerala. Punalur Paper Mills Ltd. was under the control and management of a firm called A and F Harvey Ltd. , and its other associate concerns which held the majority shares of Punalur Paper Mills Ltd. Continuous loss was suffered by Punalur Paper Mills Ltd. since a number of years and no dividend was declared by it from the years 1964 to 1968. The issued, subscribed and paid-up capital of Punalur Paper Mills Ltd. was Rs. 25,09,000 divided into 1,00,360 shares of Rs. 25 each. Out of the said shares, Messrs. A and F Harvey Ltd. and its two other associate companies, namely, Pandyan Insurance Co. Ltd. and Madurai Mills Ltd. , held 51,656, 10,651 and 16,511 shares, respectively, all totalling to 78,818 shares. In October, 1967, the assessee entered into an agreement with the said Messrs. A and F Harvey Ltd. and its associates to purchase the said shares at Rs. 32 per share. The assessee on November 7, 1967, his nephew, Madav Goenka, on September 9, 1968, and his wife along with others on March 31, 1969, were appointed directors of Punalur Paper Mills Ltd. The assessee thus obtained complete control of Punalur Paper Mills Ltd. by the end of March, 1969. The break-up value of the said shares was Rs. 56. 45 at the time when the assessee had purchased the said controlling interest in shares of Punalur Paper Mills Ltd. at Rs. 32 per share. The assessee had also entered into an arrangement with one Hari Prasad Lohia for sale of 40,000 shares at Rs. 50 per share out of the lot purchased by him and for sharing the control and management of Punalur Paper Mills Ltd. The agreement with the said Hari Prasad Lohia was entered into by the assessee purportedly for paucity of funds. The said agreement for sale of the shares at Rs. 50 did not, however, materialise as the said party backed out of the transaction in view of the proposed abolition of the managing agency system by the Government. The assessee did not have sufficient funds of his own and had borrowed monies for acquiring the said shares. In respect of such borrowing during the relevant previous year, the assessee had paid interest of Rs. 1,46,501.

(3) THE assessee decided to float a private limited company called Laxminiwas and Co. (Export) Pvt. Ltd. (in short, "lne"). The assessee and his nephew were the subscribers to the memorandum and articles of association of Laxminiwas and Co. (Export) Pvt. Ltd. The printed memorandum and articles duly signed by them were deposited on March 12, 1969, with the Registrar of Companies along with the other requisite statutory documents and fees. The certificate of incorporation of Laxminiwas and Co. (Export) Pvt. Ltd. was issued by the Registrar of Companies on June 6, 1969. The assessee sold 27,162 shares of Punalur Paper Mills Ltd. to Laxminiwas and Co. (Export) Pvt. Ltd. (a company till then not incorporated) at Rs. 25 per share in May, 1969. Laxminiwas and Co. (Export) Pvt. Ltd. , on June 7, 1969, after its incorporation, duly ratified the purchase of the said shares. Thereafter, a further lot of 12,000 shares of Punalur Paper Mills Ltd. was sold by the assessee to Laxminiwas and Co. (Export) Pvt. Ltd. at Rs. 25 per share. The assessee suffered a loss at Rs. 7 per share on the sale of the said 39,162 shares to the Laxminiwas and Co. (Export) Pvt. Ltd.

(4) THE loss claimed on the sale of the said shares was disallowed by the Income-tax Officer, who held that Laxminiwas and Co. (Export) Pvt. Ltd. was a dummy of the assessee and the transactions of the sale initially of 27,162 shares to Laxminiwas and Co. (Export) Pvt. Ltd. was unreal and sham. He also found that the further sale of 12,000 shares to Laxminiwas and Co. (Export) Pvt. Ltd. was equally a sham transaction. The Income-tax Officer moreover found that the sale of 39,000 shares to Kashi Cold P. Ltd. was also a sham transaction as the company consisted of two shareholders-cum-directors who were the assessee himself and his wife ; thus the total loss of Rs. 3,00,812 computed from the alleged transfer of 78,162 shares was a make-believe loss and he declined to accept the same as an admissible loss. The Income-tax Officer noted that while the breakup value of the shares was at the relevant time much more than Rs. 50 per share, sale at half of the break-up value at Rs. 25 per share is also a pointer to the fact that the transaction was not real.

(5) ON appeal, the Appellate Assistant Commissioner allowed the loss claimed by the assessee. Before the Income-tax Officer, the assessee had claimed that the loss suffered on the sale of the said shares was a business loss and further claimed deduction of the interest paid on the borrowing made to acquire the said shares. The Income-tax Officer disallowed the interest paid on the ground that no income during the relevant previous year was derived out of the said shares for which the borrowings had been made. In his appellate order, the Appellate Assistant Commissioner, after examining all the facts, came to the conclusion that the said loss could not be allowed as a business loss and that the acquisition of the said shares by the assessee was on capital account and as such the loss suffered by it could only be allowed as short-term capital loss. As regards the interest paid, the Appellate Assistant Commissioner held that the said interest could not be allowed as a deduction under the head "other sources" since no income from the said shares had accrued although the assessee was having income from directors fee, etc. , under the head "other sources". The Appellate Assistant Commissioner, however, held that the interest paid by the assessee could be added to the cost of the said shares and the short-term capital loss is to be computed accordingly.

(6) THE Tribunal upheld the finding of the Appellate Assistant Commissioner and held that the loss suffered on the sale of the said shares was to be allowed as short-term capital loss and that interest should be added to the cost of the capital assets. The Tribunal further found that the market price of the said shares of Punalur Paper Mills Ltd. was Rs. 25 only as apparent from the evidence of transactions made in the shares of the said company during the relevant period as recorded in the order of the Appellate Assistant Commissioner and that no other material had been adduced on behalf of the Department to show that the market rate was higher. On these facts, the questions as stated earlier have been referred to this court.

(7) THERE are three aspects involved in the five questions referred to this court on the allowability of the loss suffered in the sale of the said shares and the interest paid on the borrowing made for their acquisition. They are : (i) whether the transaction of sale of the shares with Laxminiwas and Co. (Export) Pvt. Ltd. was void having been made prior to its incorporation on June 7, 1969 (ii) whether the transfer of the shares by the assessee to Laxminiwas and Co. (Export) Pvt. Ltd. at the prevailing market price was sham and (iii) whether the interest paid on the borrowing for acquisition of the said shares could be added to its cost of acquisition for computing the capital loss

(8) ON the first issue as to whether the transaction of sale of shares to Laxminiwas and Co. (Export) Pvt. Ltd. was void having been made prior to its incorporation, the Tribunal viewed that it was a valid transaction. It has been ratified by the company after its incorporation. The company was incorporated on June 7, 1969, while the shares were purchased on May 20, 1969. Pre-incorporation contracts, as a general rule, cannot bind the company. It is wholly devoid of legal effect even if all the persons who negotiated the contract are aware that the company has not yet been incorporated. Such a contract takes effect as a personal contract with the persons who purport to contract on the companys behalf and they are liable for the performance of the contract made in the companys name. This is so despite the fact that the contract expressly provides that only the companys paid-up capital shall be answerable for performance. In the present case, we do not find the full facts regarding the nature of the contract and the terms contained therein. We do not actually know whether the articles of association authorise the promoters to make such contracts. To bind the company for pre-incorporation contracts with third parties, the promoters must assume personal responsibility on the face of the agreement itself. The promoters may also obtain an option on the terms that the rights contained in the agreement may be assigned to the future company and option shall lapse on the specified date if not exercised or even the promoter may contract as trustees for the proposed company subject to such a condition that, on the company entering into a new contract on similar terms, the promoter would be released from their liability. As stated, these particulars are wanting in the present case and, in the absence of full particulars, we are unable to express our views as to the validity of the transaction and we also decline to uphold the decision of the Tribunal that such transaction having been subsequently ratified by the company after its incorporation attains validity because of the fact that, if the agreements are void ab initio, subsequent ratification even by all shareholders cannot render them valid.

(9) THE next issue is whether the transfer of shares by the assessee to Laxminiwas and Co. (Export) Pvt. Ltd. was at the prevailing market price or was a sham. The Tribunal answered this question in favour of the transferor being the respondent-assessee. The Tribunal is of the view that the transaction took place between individuals being the holders of the shares and a company having a separate legal entity. The fact of the transferor happening to be a shareholder-cum-director of the transferee-company cannot lead to an adverse inference and the price at which the transaction took place was the proper price uninfluenced by any other extraneous factor. On the face of it, the transaction does not appear to be influenced by doubtful factors and the transaction took place as if a normal transaction was taking place between persons, viz. , the seller and the buyer, who are individually otherwise quite competent. The assessee was holding 78,885 shares of Messrs. Punalur Paper Mills Ltd. and he has been stated to be receiving no dividend since he purchased shares. The shares were purchased at Rs. 32 per share and before the sales, the value of the share had fallen to Rs. 25 per share and the sale was made at Rs. 25 per share. Thus, by the sale, a loss of Rs. 7 per share was incurred by the assessee. The shares were held by him as his investment portfolio and when the price has come down, his decision to transfer the same could not be doubted particularly when the shares yielded nothing in return to him. Assuming that the transaction entered into for the purchase of shares by Laxminiwas and Co. (Export) Pvt. Ltd. before its incorporation is quite valid, the tests of pre-incorporation conditions having been fulfilled and subsequently ratified by the company after its incorporation, there is nothing to doubt the validity of the transfer. From this stand point, the decision of the Tribunal upholding the views expressed by the Appellate Assistant Commissioner can hardly be questioned. But the facts and surrounding circumstances obtaining in the present case deserve a close look into the case. The assessee has acquired a controlling interest in Messrs. Punalur Paper Mills Ltd. (PPM) along with his wife, nephew and other family members and daughters. Out of the total number of shares of 1,00,360, the Kerala Government has been holding 12,000 shares and the rest were held by the assessee along with his relations and family members. Two companies were formed by the assessee ; one is Laxminiwas and Co. (Export) Pvt. Ltd. where he and his nephew, Madhav Goenka, are the shareholders and directors. The other company is Kashi Cold Storage P. Ltd. where the shareholders and directors are the assessee and his wife, Smt. Sabitri Devi Dalmia. The assessee, his wife, Smt. Sabitri Devi Dalmia, and his nephew, Sri Madhav Goenka, are also directors of Punalur Paper Mills Ltd. The transfer of the shares by L. N. Dalmia to Laxminiwas and Co. (Export) Pvt. Ltd. and Kashi Cold Storage (P.) Ltd. is significant. By the transfer, the transferor does not lose his control either over the transferred shares or the controlled company, viz. , Punalur Paper Mills Ltd. Needless to mention that L. N. Dalmia has got the major shares in these two companies where the other shareholders are, respectively, his nephew and wife. The transfer of the shares does not appear to be a sale in distress. It was not made either to meet any other financial exigencies faced by the transferor. The sale was not put in the market as a competitive one lest that would have invited third party or parties to come in the picture and dilute his controlling interest in Punalur Paper Mills Ltd. It was made to such a company where he prevails and his controlling interest in Punalur Paper Mills Ltd. need not undergo sacrifice, rather he maintains the interest over the companies at both the ends. The transaction took place without any ready cash and the entire sale was made on credit. He was shown as a creditor in the books of the purchasing companies and there was apparently no indication as to how the consideration was to be met. Particulars regarding the paid-up capital of the newly formed companies and the resources available to acquire a huge lot of shares by such companies are wanting. At least, there is no positive proof that the purchasing company had sufficient funds to acquire 39,162 shares for a total consideration of Rs. 9,79,000. There is no indication as to how the consideration would be met by the purchasing company, i. e. , Laxminiwas and Co. (Export) Pvt. Ltd. The appellate authorities below considered this to be a normal transaction without going through this vital aspect of the issue. The vendor, L. N. Dalmia, was incurring huge interest on borrowed money allegedly utilised for the acquisition of the very shares and this year such interest amounted to Rs. 1,46,501. Redemption of such borrowings was not a concern to him. It does not seem to be a normal business-like behaviour. While, for borrowed money, he was paying huge interest without any earning therefrom and the asset itself would be disposed of without getting any payment for the alleged sale of the shares from the purchasing company does not appear to be a normal business proposition. The only conclusion is that, by the sale, the transferor does not lose any rights or interest in the shares or in the controlled company, Punalur Paper Mills Ltd. It was possible because the transfer was a mere paper transfer having no impact on the real ownership of the asset being the shares and on the power of exercising control over Messrs. Punalur Paper Mills Ltd. In the background of these facts, one prominent factor is that a paper loss is created by a make-believe sale at Rs. 7 per share, the total loss being Rs. 3,00,311 in the deals. The Tribunal was carried away by the apparent loss has got no tax effect whatsoever and so, the question of avoidance of tax does not apparently emerge to cast the cloud of any ulterior motive behind the facade. The timing of the transaction is also significant, the assessment year is 1970-71 and the accounts of the assessee ended in July, 1969. The papers for the formation of the company, Laxminiwas and Co. (Export) Pvt. Ltd. , were submitted sometime in March, 1969, and there could be no certainty as to when the certificate of registration would be granted by the Registrar of Companies. To complete the transaction before the close of the financial year, it was necessary to have the contemplated paper loss of Rs. 3,00,311 and the shares were, therefore, purchased in the name of the company on May 20, so that it could not be too close to the year of closing. The certificate of registration has, however, been issued on June 6, 1969. Admittedly, L. N. Dalmia was holding the shares as his investment portfolio, more particularly for controlling interest, and the loss from the transfer of such shares could not but be a capital loss but he claimed the same as a business loss. The shares were shown as stock-in-trade, though he was not a share dealer. The loss was not allowed by the Assessing Officer as he considered that it was not a revenue loss and that no income has been earned from the investment itself. The appellate authorities considered this as a capital loss and this decision the assessee seems to have accepted. This loss has formed a cushion against the future gain capable of being carried forward and set off against the future capital gain. From the surrounding circumstances, the leading factor is the creation of a sink for future gain be it revenue or capital and this particular factor is the deciding matter which has been attained by resorting to this device as adopted by the assessee.

(10) THOUGH a paper loss, it has got a far-reaching effect on the tax liability in future years of the transferor. The Tribunal upheld the decision of the Appellate Assistant Commissioner and the Appellate Assistant Commissioner in his turn cited the Supreme Court decision in the case of CIT v. Dalmia Jain and Co. Ltd. [1972] 83 ITR 438 [LQ/SC/1971/329] , where the Tribunal held: "that the object or motive with which these shares were acquired were neither relevant nor sufficient to take the dealing in shares outside the ordinary course of the business, and, hence, the loss was to be allowed as a revenue loss". This view was upheld by the High Court and the Supreme Court. But the ratio decidendi of that case does not advance the instant case under reference before us. The assessee, having acquired control of Messrs. Punalur Paper Mills Ltd. , sold the shares at a lower rate for a loss to a company within his group. The mere fact that the appellant paid a price of Rs. 32 as against the fair market price of Rs. 25 per share of Messrs. Punalur Paper Mills Ltd. to A and F Harvey Ltd. , cannot necessarily justify the conclusion that the shares were purchased and/or sold by him with an ulterior motive or that the transaction of sale was not real. This Supreme Court decision has been followed by the appellate authorities concluding that the loss was allowable. It should be pointed out that the Supreme Court, in the case cited, held :

"that the question whether a particular loss is a trading loss or a capital loss is primarily a question of fact. It is not the case of the Department that, in arriving at its decision, the Tribunal has taken into consideration any irrelevant consideration or failed to take into consideration any relevant consideration. Hence, there is no room for interference by this court".

Thus, the court upheld the decision of the lower authorities when it found that the Department did not question the perversity in that decision. In the present case before us, the very question of perversity of the Tribunals finding has been raised and the facts obtaining in the present circumstances do not appear to have been rightly appraised and the proper inferences drawn.

(11) THIS brings us to the doctrine of the lifting of the veil of corporate personality. The appellate authorities, relying upon the decision of the Supreme Court in the case of Tata Engg. and Locomotive Co. Ltd. v. State of Bihar, concluded that the judicial approach in cracking open the corporate shell is somewhat cautious and circumspect. The veil has been lifted only where fraud is intended to be prevented and the Appellate Assistant Commissioner observed that none of the conditions connected with the lifting of the corporate veil are present in the case before us. In this regard, the decision of the Supreme Court in the case of Union of India v. Gosalia Shipping P. Ltd. [1978] 113 ITR 307 [LQ/SC/1978/169] is worth mentioning, where the court held that, in the context of determining whether the transaction is a sham or illusory transaction or a device or a ruse, the income-tax authorities are entitled to penetrate the veil covering it and ascertaining the truth. In the still earlier decision of the Supreme Court in the case of CIT v. Durga Prasad More [1971] 82 ITR 540 [LQ/SC/1971/430] , the court observed that the taxing authorities are not required to put on blinkers while looking at the documents produced before them. They are entitled to look into the surrounding circumstances to find out the reality of the recitals made in the documents. The most important decision of the Supreme Court in this regard is the case of Workmen of Associated Rubber Industry Ltd. v. Associated Rubber Industry Ltd. , where the court held thus (headnote) :

"it is the duty of the court, in every case where ingenuity is expended to avoid taxing and welfare legislations, to get behind the smokescreen and discover the true state of affairs. The court is not to be satisfied with form and leave well alone the substance of a transaction. Avoidance of welfare legislation is as common as avoidance of taxation and the approach in considering problems arising out of such avoidance has necessarily to be the same. "

(12) IN that case, the Associated Rubber Industry Ltd. were holding shares of INARCO Ltd. by investing a sum of Rs. 4. 50 lakhs. They were getting annual dividends and the same was taken into account for the purpose of calculating the bonus payable to the workmen of the company. Subsequently, the company transferred the shares of INARCO Ltd. held by it to Aril Bhavnagar Ltd. (subsequently changed to Aril Holdings Ltd.), a subsidiary company wholly owned by the Associated Rubber Industry Ltd. The dividend received in respect of the shares transferred to Aril Holdings, this did not form the income of Associated Rubber Industry Ltd. and as a result the workmen were getting lesser amount of bonus being four per cent. , while they would otherwise have been getting bonus of 16 per cent. The workmen started a case against the company in the Industrial Tribunal and, through the High Court, the case went up to the Supreme Court, where it was held that the two companies were distinct legal entities having separate existence but in our view that was not an end of the matter. It is the duty of the court, in every case, where ingenuity is expended to avoid taxing and welfare legislations, to get behind the smokescreen and discover the true state of affairs. The court is not to be satisfied with the form and leave alone the substance of the transactions. The court also referred to its earlier decision in the case of Mcdowell and Co. Ltd. v. CTO and relied upon it and a passage quoted from that decision is considered relevant which runs as under (at page 81 of 157 ITR) :

"it is up to the court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices could be related to the existing legislation with the aid of emerging techniques of interpretation as was done in Ramsays case [1981] 2 WLR 449 ; [1982] AC 300 (HL), Burmah Oils case [1982] Simons Tax Cases 30 and Damsons case [1984] 1 All ER 530 ; [1984] 2 WLR 226 (HL), to expose the devices for what they really are and to refuse to give judicial benediction. "

(13) THE following passage from Furniss v. Dawson [1984] 1 All ER 530, 540 (HL) which the Supreme Court has referred to reads as follows (at page 81 of 157 ITR) :

"the fact that the court accepted that each step in a transaction was a genuine step producing its intended legal result did not confine the court to considering each step in isolation for the purpose of assessing the fiscal results. "

(14) AS discussed, the assessee effected a transaction of sale of shares held by him to companies formed by himself holding the major part of shares of such companies along with his nephew and wife, who held only the smaller part therein and are shown to have suffered a loss by the sale which would be a cushion against future tax liability for gain either under the revenue head or under the capital head. We have observed that as for the exercise of control over the shares, more particularly over the control of the company (Punalur Paper Mills Ltd.), there has been no change whatsoever. He continued to exercise the same control over Punalur Paper Mills Ltd. as before. This special aspect cannot be overlooked by any appellate authority dealing with tax matters. When there was no real change whatsoever, the apparent change being the transfer on the surface of shares from the individual to the company, a handmaid of the transferring individual, cannot be overlooked and we are in complete agreement with the view of the taxing authority that there was no real change or transfer and the transfer claimed was a sham transfer. Relying upon the decision of the Supreme Court in the case of Workmen of Associated Rubber Industry Ltd. [1986] 157 ITR 77 [LQ/SC/1985/263] , we hold that it was the duty of the Tribunal to get behind the smoke-screen and discover the true state of affairs in a case like the one before us. This duty the Tribunal pre-eminently failed to do. Accordingly, the issue set out earlier at No. (ii) involving question No. 2 is answered in the affirmative and in favour of the Revenue.

(15) REGARDING question No. 3, we have already indicated that the Income-tax Officer ascertained the break-up value and rightly so the shares being unquoted. Therefore, it is not correct to say that he had brought no materials to hold that the value at Rs. 25 was less than the market value. Rather the Tribunal held Rs. 25 as the market value on vague reference to evidence of other transactions in the shares of Punalur Paper Mills Ltd. without mention of the details thereof.

(16) THE last issue that arose in the case is whether the interest paid on the borrowed money for acquisition of the said shares could be added to its cost of acquisition for computation of capital loss. On this issue, the appellate authorities answered it in the affirmative. The interest was paid allegedly on the moneys borrowed for the acquisition of the shareholding by the assessee. The interest was not claimed as capital investment and no claim was made for the capitalisation of the same. The Assessing Officer held that the assessee did not earn anything from the shares purchased out of the borrowed amount. As there was no income from the shares held by him, the interest could not be allowed. The appellate authorities held that this interest was incurred in respect of borrowed funds utilised for the purpose of acquisition of shares and such interest would be considered as a capital investment and directed accordingly to capitalise the same and after the sale, the capitalisation would increase the amount of loss to that extent. The Tribunal affirmed this decision. In coming to this decision, reliance has been placed in the case of CIT v. Mithlesh Kumari, holding that interest paid on borrowed capital is to be allowed as capital expenditure. In this case, the Delhi High Court considered the interest as part of the capital investment where the facts were that the interest was paid on money borrowed for purchase of an open plot of land which constituted part of the actual cost. The facts before us are different from the facts in the case cited. There the plot of land was for a building purpose and it was not intended for using as income-earning investment while the investment in shares in the case before us are investments made with a view to earning dividend. In the Delhi High Court case in CIT v. Mithlesh Kumari [1973] 92 ITR 9 [LQ/DelHC/1973/40] , the interest paid on borrowed amount for the acquisition of such plot of land, therefore, constituted part of the cost of acquisition. The investment in shares is quite different from that and we do not actually know how the interest paid for the borrowed amount has been claimed and treated in earlier years. Moreover, it has been submitted on behalf of the assessee that the assessee is entitled to submit before this court that the said deduction should be allowed under the head "other sources" though against the decision of the Tribunal that such interest was to be capitalised being part of cost of acquisition of shares has not been appealed against. It is well-settled that an allowance for deduction can be upheld on a ground other than that on which it was allowed by the Tribunal, We, accordingly, hold that the interest in question in the present case cannot be part of the cost of acquisition. It is allowable against the income from the investment in question and it can be considered to be set off against the income from other sources. In the circumstances, this issue is answered saying that the said sum on account of interest is allowable as deduction under the head "other sources".

(17) ACCORDINGLY, we refrain from answering question No. 1. Questions Nos. 2, 3 and 4 are answered in the affirmative and in favour of the Revenue. Question No. 5 is answered in the affirmative and against the assessee. There will be no order as to costs.