No disallowance u/s 14A if tax-free investments capable of taxable income

All the assessees in the present case are investment and trading companies. They issued unsecured optionally convertible premium notes of Rs. 1 lakh each. As per the terms of the said issue, the premium note holders could convert the said premium notes into equity shares of the company at the end of maturity period or redeem the same at any time after the end of three years from the date of allotment. In case of early redemption, the premium note holder were entitled to a proportionate premium. During the year under consideration, the holders of premium notes got the said notes redeemed and ac...