The main legal point established in the judgment is the application of legal provisions and their interpretations, including the conditions for allowing interest paid in respect of capital borrowed, the admissibility of investment allowance, the deduction of ex gratia bonus payments, and the classification of interest and dividend income under specific heads of income.

( 1 ) THE present appeal preferred by the Revenue under Section 260a of the IT Act, 1961 (hereinafter referred to as "the Act") has been admitted by this Court on the following four substantial questions of law : "1. Whether, on facts and circumstances of the case, the Tribunal was justified in deleting the interest disallowed on loan given by the assessee to its sister-concern for non-business purposes ?

( 2 ) WHETHER, on facts and circumstances of the case, the Tribunal was justified in directing to allow investment allowance on telephone exchange installed in fertilizer unit and distillery unit which is engaged in manufacture of articles and things listed in Eleventh Schedule of IT Act, 1961 ?

( 3 ) WHETHER, on facts and circumstances of the case, the Tribunal was legally justified in holding that the ex gratia bonus payments made by the assessee over and above the bonus payable in accordance with the provisions of Bonus Act, 1965, were an allowable deduction ?

( 4 ) WHETHER, on facts and circumstances of the case, the Tribunal was justified in directing the AO to treat the interest and dividend income as business income while AO has rightly assessed the same as income from other sources ?" 2. Briefly stated, the facts giving rise to the present appeal are as follows. The respondent (hereinafter referred to as "the assessee-company") is a public limited company incorporated under the provisions of the Companies Act. Earlier it was known as the Rampur distillery and Chemical Co, Ltd. It is engaged in the manufacture of industrial alcohol, Indian made foreign liquor, country liquor, fertilizers, etc. During the asst. yr. 1990-91, the previous year of which ended on 31st March, 1990, the assessee-company filed the return of income on 31st Dec. , 1990. It showed nil income after set off of carry forward loss of Rs. 2,31,67,914. The return of income was processed under Section 143 (1) (a) of the Act, vide intimation dt. 31st Aug. , 1991, and the AO had made certain adjustments to the returned income. Regular assessment proceedings were initiated and the Dy. CIT (Asst.), Special Range, Moradabad, vide order dt. 26th Nov. , 1992, disallowed, amongst other, the following items : (i) Rs. 2,83,635 being the amount of interest on the loan to sister-concern, namely, M/s Rampur international (P) Ltd. , Calcutta (ii) Rs. 42,526 and Rs. 38,792 in respect of the investment allowance on telephone exchange and diesel generating set installed in the distillery unit and fertilizer unit, respectively; (iii) Rs. 45,927 on account of ex gratia payment which was in addition to the bonus paid to its employees; (iv) He also treated the interest and dividend income disclosed by the assessee-company under the head income from other sources and not as business income. 3. In the appeal filed before the CIT (A), the action of the AO was confirmed in respect of the aforementioned points. Feeling aggrieved, the assessee-company preferred a second appeal before the Tribunal, New Delhi. The Tribunal, vide order dt. 20th July, 1999, had deleted the disallowance of interest of Rs. 2,83,635 on the ground that the loan of Rs. 17. 19 lakhs was given to the sister-concern, M/s Rampur International (P) Ltd. , as early as in the financial year 1985 and the Department had not disallowed any of the amount in the asst. yr. 1986-87, onwards till the asst, yr. 1990-91 on that count. Placing reliance on the decision of the Karnataka High Court in the case of CIT v. Sridev Enterprises (1991) 192 ITR 165 (Kar), it has held that if the assessee-company has advanced certain sum to another company having common partners free of interest and the assessee was paying interest on the money borrowed and in the past year the assessee claim for deduction of interest paid was disallowed then no disallowance can be made in the subsequent years as it is to be presumed that those advances were not out of borrowed fund by the assessee and that is why no disallowance was mad