Sen, J. - (1.) This is a consolidated reference under section 256(1) of the I.T. Act, 1961, at the instance of the Commissioner of Income-tax (Central), Calcutta, and arises out of the assessment of the Model Manufacturing Co. (P.) Ltd., the assessee, for the assessment years 1962-63 and 1963-64. The question referred is as follows : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in directing the Income-tax Officer to allow interest of Rs. 70,875 and Rs, 1,48,116 against its income from 'other sources' for the assessment years 1962-63 and 1963-64, respectively, under section 57 of Income-tax Act, 1961 ? "
(2.) The admitted facts and the facts found are, shortly, that the assessee carries on business as selling agents and also in speculation and in other commodities. At the instance of N. L. Kanoria, its director, the assessee purchased 10,100 shares in the New City of Bombay Manufacturing Co. Ltd., a well-established cotton mill in Bombay (hereinafter referred to as the Bombay company), in the names of the said N. L. Kanoria and one Tulsidas Kanoria for a sum of Rs. 27,77,500 at the rate of Rs. 275 per share. The Kanorias, in turn, sold the said shares to the assessee on the same date. The sellers were paid off to the extent of Rs. 14,29,413 borrowed by the assessee from a concern, M/s. Tulsidas Kanoria & Co., for the purpose of acquiring the said shares.
(3.) Another 3,400 shares in the Bombay company were also purchased by the assessee in the name of one Biswanath Jhunjhunwala, a relative of the Kanorias. The price of these shares was paid by the assessee by taking another loan of Rs. 4,85,000 from the said Tulsidas Kanoria & Co.;