These are cross-appeals by assessee as well as Revenue which have been heard together and are being disposed of by common order for sake of convenience. only issue arising from these cross appeals relates to disallowance of Rs. 1,15,01,460 made by AO being amount of premium paid by assessee on redemption of debentures. Brief facts giving rise to these appeals are these. assessee company is engaged in business of leasing of plant and machinery and other assets. other activity of assessee to make investments in shares, debentures, securities, etc., which according to assessee is business activity of holding of long-term investment. In order to raise funds, assessee issued debentures (3rd and 4th series) in asst. yrs. 1997-98 and 1998-99. As per details on record, assessee issued 13,30,382 zero per cent interest debentures on 30th June, 1996, which were redeemed on 28th Feb., 1998 by paying redemption money of Rs. 40,01,460. assessee has also issued 10 lakh zero interest debentures on 1st April, 1997 out of which 5 lakh debentures were redeemed on 31st March, 1998 by paying redemption money of Rs. 75 lakhs. Thus, total amount of Rs. 1,15,01,460 paid by assessee on redemption of debentures was claimed as business expenditure. At this stage, it is mentioned that debentures which were redeemed had been issued by assessee to M/s Ashburn Investments and Finance Ltd., which is associated company of Essar Group. In course of assessment proceedings, it was found by AO that amount raised on issue of debentures was utilised to purchase 2,71,255 optionally convertible debentures of Rs. 100 each of Dwarka Holdings (P) Ltd. as well as 10 lakh fully convertible debentures of Rs. 100 each of Indsec Investments Ltd. claim of assessee for deduction as business expenditure was disallowed by AO on grounds (i) that investment in debentures is not business activity as was apparent from fact that income from sale of debentures was shown by assessee itself under head Capital gains . purpose of raising funds was not for purpose of business but was for purpose of investment in long-term investments, (ii) there was no actual payment at time of redemption since as per books of account only journal entries were passed, and (iii) that transactions were nothing but colourable devise to reduce tax liability as assessee company, companies to whom debentures were issued and company in whose debentures assessee invested money were all companies promoted by Essar Group. Accordingly, redemption amount of Rs. 1,15,01,460 was disallowed. matter was carried in appeal before CIT(A) who following his earlier order pertaining to asst. yr. 1997-98 held that assessee was in business of holding investments in shares as well as leasing of plant and machinery and other properties. According to him, all such activities were business activities. It was also found by him that amount of premium of Rs. 1,15,01,460 was either actually paid or through transfer of other securities. Consequently it was held that assessee was entitled to deduction under s. 37(1) of Act. However, he was of view that entire claim of assessee could not be allowed. Accordingly, he remitted matter to file of AO for re-computation of disallowance as per following directions: "2.9 . . . As redemption premium of Rs. 75 lakhs was paid on redemption of debentures prior to completion of one year, therefore appellant s claim of 15 per cent premium payable in this regard cannot be accepted. However it is submitted that as per amended terms, debenture holder was permitted to redeem debenture with premium at any time after period of 3 months at prescribed rate as per cl. 3 of amended scheme. appellant submitted copies of resolution dt. 31st March, 1997, 27th June, 1997 and 28th July, 1997. AO has not dealt with this issue in remand report and hence he is directed to verify appellant s claim in this regard and may allow pro rata premium on basis of amended terms of IVth series issue." Aggrieved by said order, assessee as well as Revenue are in appeal before Tribunal. Revenue has challenged allowability of deduction under s. 37 of Act while assessee has challenged direction given by CIT(A). learned counsel for assessee, Mr. Mehta, has submitted before us that issue is covered by decision of Tribunal dt. 4th June, 2007 in assessee s own case for asst. yr. 1997-98 wherein order of CIT(A) holding that assessee was engaged in business of holding long-term investment in shares, securities, etc., and consequently assessee was entitled to deduction in respect of redemption amount has been upheld. At this stage, learned counsel for assessee was informed by Bench that recently Tribunal has taken view that even assuming that assessee is engaged in business of holding of investment in shares and securities, deduction under s. 36(1)(iii) on account of interest on borrowed funds would not be allowed since income from such business activity is either required to be computed under head Capital gains or under head Income from other sources where dividend income is taxable. Since such income cannot be computed under head Profits and gains of business or profession , question of any deduction under this head does not arise. He was informed that this view has been taken in case of Kankhal Investments & Trading Co. (P) Ltd., copy of which could be taken from chamber of senior member. learned counsel for assessee sought time for reply after going through said decision. case was adjourned. copy of said decision was supplied to counsel for assessee. On next date, learned counsel for assessee has submitted before us that view taken by Bench in case of Kankhal Investments & Trading Co. (P) Ltd. is not correct in view of following submissions: (i) That in order to claim deduction under s. 36 or 37 of Act, there is no statutory provision or condition precedent that there must be corresponding receipt for computing income under head Profits and gains from business or profession . If there is any nexus between expenditure incurred and business activity carried on by assessee then deduction must be allowed under s. 36 or 37 of Act even though receipts arising from such business activity are required to be considered in computing income under other heads such as Capital gain or Income from other sources . substance of argument is that expenditure incurred in carrying on business activity can be claimed under one head of computation of income while receipt from such business activity may be considered under different head of computation of income. Reliance has been placed on judgments of apex Court in income. Reliance has been placed on judgments of apex Court in cases of CIT vs. Amalgamation (P) Ltd. (1997) 140 CTR (SC) 313: (1997) 226 ITR 188 (SC), CIT vs. Maharashtra Sugar Mills Ltd. 1973 CTR (SC) 489: (1971) 82 ITR 452 (SC) and CIT vs. Rajendra Prasad Moody 1978 CTR (SC) 141: (1978) 115 ITR 519 (SC) and decisions of Tribunal in case of Ashburn Investment & Finance Ltd. (ITA No. 2174/Mum/2000, dt. 28th Sept., 2001), Jade Investment & Leasing (P) Ltd. (ITA No. 6177/Mum/2002, dt. 5th April, 2006) and in assessee s own case for asst. yr. 1997-98. (ii) judgment of Hon ble Supreme Court in cases of United Commercial Bank Ltd. vs. CIT (1957) 32 ITR 688 (SC) and East India Housing & Land Development Trust Ltd. vs. CIT (1961) 42 ITR 49 (SC) relied upon by Tribunal in case of Kankhal Investment & Trading Co. (P) Ltd., are distinguishable since in those cases, Supreme Court was concerned with issue whether particular income was assessable under head Profits and gains from business or profession or under other heads and question whether expenditure is deductible under s. 36 or 37 was not before Court. (iii) That legislature has provided statutory deduction even where there is no receipt. For example, under s. 24 statutory deduction is allowable under head Income from house property even where house is self-occupied. Similarly deduction is allowable under s. 35AC in respect of expenditure incurred in carrying out any eligible project even though there is no receipt from such project. Finally, it was concluded by submitting that deduction under s. 37 be allowed for entire amount of redemption money paid by assessee and directions given by CIT(A) be vacated. On other hand, learned Departmental Representative has reiterated stand of AO by submitting that no business activity was carried on by assessee inasmuch as investments in long-term assets cannot be treated as business activity which is also apparent from conduct of assessee itself, since income from sale of investments has been offered under head Capital gain . Alternatively it has been submitted that deduction under s. 36 or 37 can be claimed only where income is to be computed under head Profits and gains from business or profession . profit or loss under s. 28 of Act cannot be computed unless there are receipts from business activity, income from which can be computed under head Profits and gains from business or profession . According to him, receipt and expenditure must go together under particular head. scheme of Act is that any income derived by assessee has to be computed under any one of heads specified under s. 14 and not otherwise. There is nothing in scheme of Act to suggest that receipt may be taken under one head and expenditure may be taken under other head. Hence, contention of assessee s counsel to that effect is misconceived. Heavy reliance has been placed on decision of Tribunal in case of Kankhal Investment & Trading Co. (P) Ltd. (supra). Hence, it was prayed that order of CIT(A) be reversed and consequently, disallowance made by AO be restored. Rival submissions of parties have been considered carefully. issue before us is whether assessee is entitled to deduction under s. 37 of Act in respect of payment of premium on redemption of debentures where amount borrowed on issue of debentures was utilised in purchasing debentures of associate companies of same group. AO had disallowed claim of t h e assessee by holding that no business activity was carried on by assessee as investment in purchase of debentures of its group companies could not be treated as business activity. Tribunal vide its order dt. 4th June, 2007 in assessee s own case for asst. yr. 1997-98 has held that assessee was engaged in business of holding of investments. Therefore, we proceed of footing that assessee was engaged in business of holding investments. However, it is undisputed fact that income from sale of such investments has been considered under head Capital gains by assessee itself. This fact has been noted by AO at p. 11 of his order. computation of income prepared by assessee has also been placed before us. Though assessee has stated head Income from business yet income from sale of debentures has been shown as capital gains . Therefore, question is whether deduction under s. 37 can be allowed even where income from business receipts is considered in computing income under head Capital gains or under head Income from other sources and not under head Profits and gains from business or profession . This very issue arose before Tribunal in case of Kankhal Investment & Trading Co. (P.) Ltd. (supra) wherein it has been held that if income from business receipt is to be computed under specific head and not under head Profits and gains from business or profession , then deduction under ss. 30 to 43D cannot be claimed. Instead thereof, only those deductions would be allowable as are prescribed under specific head under which receipts are to be considered. relevant portion of order of Tribunal in above case is extracted for benefit of this order. "16. ... in our humble opinion, assessee is not entitled to deductions under s. 36(1)(iii) of Act even presuming for sake of argument that assessee was engaged in business of holding investments in shares or securities for reasons given hereafter. In our humble opinion, for claiming any deduction under ss. 30 to 43D of Act in computing income of assessee, condition precedent is that income from connected receipts is computed under head Profits and gains from business or profession . According to scheme of Act, all incomes of assessee are to be classified under various heads described under s. 14 of Act and then income is to be computed under these very heads in accordance with provisions contained under these very heads. If receipt falls under particular head then, in our opinion, income from such receipt must be computed in accordance with provisions under that very head irrespective of nature of receipts. It would be incongruous to contend that income from receipt is computed under one head and connected expenditure is considered under some other head. In our view, receipts and expenditure having nexus with each other must be considered under one head only. If expenditure incurred by assessee is not allowable under that head then it cannot be allowed even if incurred by assessee. Normally, income from business receipt is computed under head Profits and gains from business/profession but where particular receipt, even though business receipt, falls under any of other heads described in s. 14 of Act then, in our humble opinion, receipts and connected expenditure must be taken out from purview of head Profits and gains from business or profession and compute income under relevant head. view expressed by us is fortified by decision of apex Court in case of United Commercial Bank Ltd. vs. CIT (1957) 32 ITR 688 (SC). relevant observations of their Lordships are being reproduced as under: Under Indian IT Act, 1922, income of assessee is one and ss. 7 to 12 of Act direct modes in which income-tax is to be levied. No one of those sections can be treated to be general or specific for purpose of any one particular source of income; they are all specific and deal with various heads in which item of income, profits and gains of assessee falls. These sections are mutually exclusive and where item of income falls specifically under one head it has to be charged under that head and no other. Income from interest on securities falls under s. 8 of Act and not under s. 10; it cannot be brought under different head of income, viz., Profits and gains of business under s. 10, even though securities are held by banker as part of his trading assets in course of his business." above view was reiterated by Hon ble Supreme Court is in case of East India Housing & Land Development Trust Ltd. (supra) by observing as under: "Income-tax is undoubtedly levied on total taxable income of taxpayer and tax levied is single tax on aggregate taxable receipts from all sources; it is not collection of taxes separately levied on distinct heads of income. But distinct heads specified in s. 6 of IT Act indicating sources are mutually exclusive and income derived from different sources falling under specific heads has to be computed for purpose of taxation in manner provided by appropriate section. If income from source falls within specific head set out in s. 6, fact that it may indirectly be covered by another head will not make income-taxable under latter head." In view of above legal position, we are of view that where specific head is provided in respect of particular income, then such income must be computed under that very head irrespective of nature of income. In case of company in business of holding shares, if investment in shares is disposed of then income therefrom has to be computed only under specific head Capital gains and this legal position is not even disputed by assessee s counsel and assessee itself has also declared income under head Capital gains . Further dividend income is also to be computed under specific head Income from other sources if such income is taxable. Since dividend income is exempt under s. 10(33) of Act, question of computing such income does not arise. There is no other receipt arising or accruing to assessee from business of holding investment in shares. Therefore, entire receipts from such business has to be excluded from head Profits and gains from business or profession since such receipts falls under specific heads. Income can be computed only after allowing deductions as provided under head under which income is to be computed. No other deduction is permissible except provided under that head. interest paid on borrowed funds, at most, could be allowed against dividend income if investment is made to earn dividend income. contention of assessee is that investment was not made to earn dividend income. Therefore, such deduction could not be allowed even against dividend income. Even otherwise, such income being exempt question of deduction against dividend income becomes academic. interest paid as per contention of learned counsel for assessee, could relate to profits arising from sale of investments since main object was to hold investments. Since income arising from sale of investment has to be computed under head Capital gains , deduction has to be allowed only in accordance with provisions specified under head Capital gains . legislature was aware of aspect of inflation of price and therefore, it made provisions to determine indexed cost of acquisition, which would take care of interest cost also. No separate deduction is allowable under this head in respect of interest paid on borrowed funds. Thus, in our opinion, no deduction is allowable to assessee in respect of interest paid on borrowed funds." In view of above decision, issue has to be decided against assessee. issue considered in above case was not before Tribunal assessee. issue considered in above case was not before Tribunal i n other cases relied upon by assessee. only question before Tribunal in cases relied upon by assessee was whether assessee was engaged in business of holding investment or not. question whether deduction under s. 36 or 37 of Act could be allowed even where income from such business was not computable under head Profits and gains from business or profession was not before Tribunal in cases relied upon by assessee. Therefore, said decisions cannot be applied in present case. Now, we come to submissions of assessee s counsel challenging correctness of legal finding given by Tribunal in case of Kankhal Investment & Trading Co. (P) Ltd. (supra). first contention of assessee s counsel is that statutory deductions allowable under Act cannot be denied even though corresponding receipts are to be considered under heads Capital gains or Income from other sources . This contention was also raised by on behalf of assessee in case of Kankhal Investment & Trading Co. (P) Ltd. (supra) and Tribunal rejected same by observing in para 20 of order which is extracted below: "20. It has been contended by learned counsel for assessee that assessee should not lose statutory deductions under s. 36(1)(iii) merely because its income is to be computed under other heads. We are unable to accept such contention. What is to be computed under s. 28 is profits and gains of business or profession, which also includes losses. As per commercial or accounting principles, neither profits nor losses from business can be computed unless receipts and expenditures having nexus with each other are taken into consideration. Further, income under s. 28 is to be computed in accordance with provisions of ss. 30 to 43D as provided in s. 29. All provisions contained in ss. 30 to 43D provide that deduction shall be allowed in respect of expenditure or allowance mentioned therein. deduction presupposes existence of receipts chargeable under this head. If receipts are to be considered under other heads then, question of deduction under head Profits and gains from business or profession would not arise. As already pointed out, receipts and expenditure must go together. We may clarify that receipt may be actual or to be received in future. receipt may be on accrual basis. There may be cases that there is no receipt in one year and it may be received in next year. In such cases, loss may be computed because receipts may be expected in next year. crux of matter is that there must be receipts either actual or on accrual basis before deduction can be allowed therefrom. Consequently, if receipts, in respect of which expenditure are incurred, are considered under other heads, then question of determining any income under head Profits or gains from business or profession does not arise. Hence, contention of assessee is rejected." learned counsel for assessee has challenged above observations of Tribunal by submitting that commercial or accounting principles cannot be applied in computing profits and gains of business while computing income under head Profits and gains from business or profession . According to him, existence of receipt may be necessary for computing profits and gains of business as per commercial or accounting principles but while computing income under statute, existence of receipts is not condition precedent. It is sufficient if there is nexus between incurring of expenditure and activities of business carried on by assessee. We are unable to accept such contention of learned counsel for assessee. commercial principles have always been applied by Courts whenever difficulty has arisen in computing profits and gains of business under s. 28 of Act. There is long list of cases to support this proposition but we would refer to only few of them. In case of Chainrup Sampatram vs. CIT (1953) 24 ITR 481 (SC), question was whether opening and closing stock of business could be taken into consideration in computing business income under s. 10 of 1992 Act corresponding to s. 28 of 1961 Act. apex Court held that though there is no specific provision yet as per commercial principles, opening and closing stock of business has to be taken into consideration in computing true profits of business. relevant observations of their Lordships at p. 486 are being quoted below to support above legal position: "This is theory underlying rule that closing stock is to be valued at cost or market price whichever is lower, and it is now generally accepted at cost or market price whichever is lower, and it is now generally accepted as established rule of commercial practice and accountancy. As profits for income-tax purposes are to be computed in conformity with ordinary principles of commercial accounting, unless of course, such principles have been superseded or modified by legislative enactments unrealised profits in shape of appreciated value of goods remaining unsold at end of accounting year and carried over to following year s account in business that is continuing are not brought into charge as matter of practice, though, as already stated, loss due to fall in price below cost is allowed even if such loss has not been actually realised." Similarly, in case of Badridas Daga vs. CIT (1958) 34 ITR 10 (SC), apex Court held that loss on account of robbery on way when employee was carrying cash for purpose of business is allowable as deduction even though no specific deduction is provided. Such deduction was held to be allowable only on basis of commercial principles as is apparent from following observations: "While s. 10(1) of Indian IT Act, 1922, imposes charge on profits or gains of business, it does not provide how these profits are to be computed. Sec. 10(2) enumerates various items which are admissible as deductions b u t they are not exhaustive of all allowances which could be made in ascertaining profits of business taxable under s. 10(1). Profits and gains which are liable to be taxed under s. 10(1) are what are understood to be such under ordinary commercial principles." Hon ble Bombay High Court in case of Indequip Ltd. vs. CIT (1994) 116 CTR (Bom) 261: (1993) 202 ITR 417 (Bom) has also held as under: "When claim is made for deduction for which there is no specific provision in law, whether it is admissible or not will depend on whether, having regard to accepted commercial practice and trading principles, it can be said to arise out of carrying on of business and be incidental to it. loss for which deduction is claimed must be one that springs directly from carrying on business, and not any loss sustained by assessee even if it has some connection with his business. approach essentially means approach of prudent businessman." In case of Challapalli Sugars Ltd. vs. CIT 1974 CTR (SC) 309: (1975) 98 ITR 167 (SC), apex Court at p. 173 held as under: "As expression actual cost has not been defined, it should, in our opinion, be construed in sense which no commercial man would misunderstand. For this purpose it would be necessary to ascertain connotation of above expression in accordance with normal rules of accountancy prevailing in commerce and industry." In view of above decisions, it is clear that in absence of statutory provisions, commercial principles have to be applied in determining profits and losses of business. Accordingly, we do not find merit in contention of learned counsel for assessee. decisions of apex Court relied upon by learned counsel for assessee are quite distinguishable and do not advance case of assessee. At this stage, it would be appropriate to refer judgment of Hon ble Supreme Court in case of CIT vs. Sun Engg. Works (P) Ltd. (1992) 107 CTR (SC) 209: (1992) 198 ITR 297 (SC) wherein it has been held that it is neither desirable nor permissible to pick out word or sentence from judgment of Supreme Court divorced from context of question under consideration and treat it to be complete law declared by Court. decision of Supreme Court takes its colour from question involved in case in which it is rendered and while applying decision to later case Courts must carefully try to ascertain true principle laid down by decision. In case of Maharashtra Sugar Mills Ltd. (supra) relied upon by learned counsel for assessee, there was no dispute that income from receipts from business of manufacturing and sale of sugar carried on by assessee was computed under head Profits and gains from business or profession . While in present case business receipts are considered under head Capital gains and not under head Profits and gains from business or profession . Hence, deductibility of expenses per se was not disputed before Court. only dispute before Supreme Court was whether part of expenditure could be disallowed merely on ground that portion of income was exempt from taxation. Court held that if nexus between expenditure and business carried on is established then deduction cannot be denied. Thus, Court proceeded on admitted position that income was assessable under head Profits and gains from business or profession . That decision, therefore, cannot be applied where income from so-called business receipts is not computable under head Profits and gains from business or profession . In case of Amalgamation (P) Ltd. (supra) also, there was no dispute regarding computability of income under head Profits and gains from business or profession . only question was whether expenses incurred by assessee were wholly and exclusively for purpose of business. Court held that there was no nexus between expenditure and business carried on by assessee. Hence, deduction was held not allowable. Consequently, this decision cannot be applied where receipts are not to be computed under head Profits and gains from business or profession . In view of above discussion, it is held that reliance placed by assessee s counsel on above decision is misplaced. next submission of learned counsel for assessee is that judgments of Supreme Court in case of United Commercial Bank Ltd. (supra) as well as in case of East India Housing & Land Development Trust Ltd. (supra), are authority only for proposition that if particular income is assessable under particular head then such income must be assessed under that very head but such judgments do not decide as to under which section deduction is to be claimed. We are unable to accept this submision. In our opinion, computation of income includes consideration of receipt as well as expenditure under that head. It would be absurd to contend that receipts are to be considered under head Capital gains and expenditure incurred would be considered under head Profits and gains from business or profession . In our opinion, receipts as well as connected expenditure can only be considered under one head. There is no judgment to support contention of assessee that receipt can be considered under one head while expenditure can be considered under other head. Accordingly, contention of learned counsel for assessee is rejected. last submission of assessee s counsel is that deduction can be claimed even though there is no receipt. In this connection, we may clarify that for claiming deduction, it is not necessary that there must be receipts in particular year. There cannot be any dispute to proposition laid down by Hon ble Supreme Court in case of Rajendra Prasad Moody (supra). What is condition precedent is that activity carried on by assessee must be capable of generating income. income may not be generated in particular year but on that account deduction cannot be denied in view of aforesaid Supreme Court judgment. But on basis of that judgment it cannot be contended that receipt arising from activity can be considered under one head while expenditure incurred to carry on such activity can be taken into consideration under other head. It is also submitted that s. 24 allows deduction even though there is no receipt. Firstly it is stated that s. 23 provides that annual value of every house property is chargeable to tax which also includes self-occupied house. However, sub-s. (2) of s. 23 provides that ALV of such house shall be nil. computation of income under head Income from house property is on notional basis as income is chargeable even though there is no receipt. theory of receipt itself is outside scope under this head. income is assessable under this head irrespective of receipt even in respect of other properties and where property is vacant, separate deduction has been provided. above legal position does not support case of assessee at all. We have already held that profits and gains from business cannot be computed unless receipts as well as expenditure are taken into consideration. This proposition has been laid down considering commercial principles which have been found to be acceptable in computation of income as per decisions referred to by us in earlier part of order. Before parting with this order it would also be appropriate to refer para 21 of order in case of Kankhal Investments & Trading Co. (P) Ltd. (supra) so as to avoid any other dispute on this issue: "21. Another contention of learned counsel for assessee is that interest paid should be allowed as deduction against income by way of interest on debentures, which has been assessed on business income. We are unable to accept this contention too. One may carry on various businesses but under scheme of Act, income from each source has to be computed independently though assessable under same head. It is only for convenience that consolidated accounts are maintained. Reference can be made to provisions of s. 70 of Act, which reads as under: 70. Set off of loss from one source against income from another source under same head of income Save as otherwise provided in this Act, where net result for any assessment year in respect of any source falling under any head of income as loss, assessee shall be entitled to have amount of such loss set off against his income from any other source under same head. bare look at above provisions make it clear that income must be computed in respect of each source assessable under same head. If there is loss from one source, same can be set off against income from other source assessable under same head. Let us explain it through example. company may carry on business of dealing in shares as broker as well as on its own account. In eyes of law, dealing in shares as broker is one source o f income while dealing in shares on its own account is another source of income. In such cases, assessee may earn gross profit of Rs. 50,000 from purchase and sale of shares on its own account with assistance of borrowed fund on which interest of Rs. 1,20,000 is paid. Thus there would be net loss of Rs. 70,000. On other hand, income from brokerage business may be computed at Rs. 1,00,000. After setting off loss, net income for business would be Rs. 30,000. However, such set off is not permissible as per provisions of s. 73 as loss on sale of shares will have to be considered as speculation loss, which can only be carried forward to next year. To avoid such situation, assessee cannot plead that income from dealing in shares be taken at Rs. 50,000 and deduction on account of interest on borrowed funds be set off against brokerage income. Thus, it cannot declare loss from brokerage at Rs. 20,000 and income from dealing in shares at Rs. 50,000 and net income from business at Rs. 30,000. In eye of law, it will have to compute in respect of each source of income and thus there will be loss of Rs. 70,000 from dealing of each source of income and thus there will be loss of Rs. 70,000 from dealing in shares and profit of Rs. 1,00,000 from brokerage business. Under s. 70, assessee can set off such loss but such provision is subject to other provisions of Act and therefore such loss cannot be set off as per provisions of Explanation to s. 73. In view of above discussions, it has to be held that assessee is not entitled to deduct interest payment from interest income from holding of debentures as there is no nexus between borrowed funds and investment in debentures. Admittedly, borrowed funds were utilized for purchase of shares of L & T Ltd. and therefore interest paid cannot be set off against income by way of interest on debentures." In view of above finding of Tribunal, it is clarified that assessee cannot claim deduction on account of premium on redemption of debentures against income from business of leasing. In view of above discussion, we are unable to accept contention of assessee s counsel that legal finding given by Tribunal in case of Kankhal Investments & Trading Co. (P) Ltd. (supra), is incorrect. Therefore, following said decision of Tribunal, it is held that assessee would not be entitled to deduction under s. 37 of Act even assuming that assessee was engaged in business of holding investments. In present case AO has given finding of fact that amounts raised on issue of debentures were utilised for purchase of debentures issued by group company and not for regular business of leasing. It is also not in dispute that income from sale of debentures has been offered by assessee under head Capital gains . Considering above finding of fact and following decision of Tribunal in case of Kankhal Investments & Trading Co. (P) Ltd. (supra), it is held that assessee is not entitled to deduction in respect of payment made on redemption of debentures. order of CIT(A) is therefore, reversed and consequently disallowance made by AO is restored. In result, appeal of assessee is dismissed while appeal of Revenue is allowed. *** S.G. CHEMICALS & DYES TRADING LTD. v. DEPUTY COMMISSIONER OF INCOME TAX