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2010 (1) TMI 849 - AT - Income TaxAssessee was granted loan by the Rural Electrification Corporation of India Ltd. (REC) and interest was payable at the specified rate to M/s REC by the assessee. M/s REC has issued guide lines and instructions on the constitution and administration of a special fund created out of the interest payable by the assessee society to M/s REC on the amount of remittances granted by REC - As per these rules, the amount payable on account of interest on the remittances granted by M/s REC, a special savings fund account in a nationalized/cooperative bank with the specific provision with the bank that it shall permit withdrawal from the said account by the assessee society of such amount as may be authorized by M/s REC - whether the ownership of the amount in special fund account so created was of the assessee society or M/s REC and whether the interest thereon accrues to the assessee society - Held that:- utilization of up to 40% of the amount available on special fund only with the permission of M/s REC for specific purposes detailed therein and these purposes merely improved the efficiency of the assessee society directly or through its members but in our considered opinion, it does not confirm the ownership right over the said fund amount to the assessee society and accordingly it could not be said that the interest on such special fund has accrued to the assessee society. Merely because the management of the special fund has been assigned to the assessee society with the previous prior written permission from REC, it could not be said that the ownership of the special fund vest in the assessee society, power company was the owner of the fund and income thereof Whether there was any diversion of income by overriding title - income from the Special Fund has not accrued to the assessee - Held that:- assessee could not be taxed thereon , interest accrued on the special fund amount including the FDs made there from does not accrue to the assessee society and the assessee is accordingly not liable to pay tax thereon. Accordingly, the grounds of appeal taken by the assessee in its appeals are allowed, appeals preferred by the assessee are allowed.
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