9911796707
TMI Blog2010 (1) TMI 849X X X X Extracts X X X X X X X X Extracts X X X X ..... d Special Fund by the appellant Society as per the directions/instructions and sanctions by REC; 3. The CIT(A) failed to appreciate that the operation and management of the special fund by the society shall be done with the approval of the corporation and no amount shall be withdrawn or paid from the said Fund without specific written approval which clearly evidences that the appellant had no control; 4. The CIT (A) ought to have appreciated that the Appellant at best is holding funds on behalf and for the welfare of the members/consumers as per the Rules framed by the REC with regard to Special Fund utilization and therefore can never become income of the Appellant. 3. The learned counsel for the assessee submitted that the assessee is a Cooperative Society, and has debited to its profit and loss account, the amount of interest payable to M/s Rural Electrification Corporation of India (REC), a Government, of India undertaking, and as per the directions and guide lines issued by M/s REC, the assessee society has to credit the amount of interest so payable to M/s REC to the Special Fund being maintained by the assessee. He submitted that the assessee society has no control over t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reserve fund and that there was no derivation of income by overriding title as claimed by the assessee society. She submitted that M/s REC is only a managing authority and has a control over the utilization of funds, but the fact remains that the ownership of the special fund remains with the assessee society and the assessee has rightly shown the same as its asset in the balance sheet filed with the Department. She submitted that the rules framed for the management of the special fund are for the object of providing aid to the assessee in efficient improvement of the assessee itself or through its members. She relied on the decision of the Hon'ble Supreme Court in the case of M/s Associated Power Company Ltd. vs. CIT (218 ITR 195) (207), in support of her proposition that the restriction on the mode of investment and utilization of the special fund do not make a difference in the legal position that the assessee company was the owner of the fund and its income and that income accrued in the hands of the assessee society has not been diverted to M/s REC or any other person. 5. The learned counsel for the assessee in his rejoinder submitted that the interest debited to the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d special fund rule provides that the amount deposited by the assessee society in the special fund should be strictly utilized for the purpose which are approved by M/s REC. Under these rules, the special fund shall be managed and operated by the society subject to the rules framed by M/s REC. Clause 1.2 of the said rules provides that no amount out of the special fund shall be withdrawn or paid without specific written permission by the Corporation for bona fide purposes as specified under these rules. Clause 2.1.4 of the said rule provides that special fund account (including the amount converted to F Ds), shall be assigned to M/s REC and that M/s REC shall have a lien on it. Clause (3) of the said rule provides that the first charge on the special fund shall be that of M/s REC. Clause (4) provides that M/s REC would consider the request of the assessee society from time to time for permitting the society to utilize up to 40% of the amount available in special fund for any one or more for the specific purposes. These purposes are, on Member Education-cum-Member services programme, for opening a retail shop for various electrical goods, for setting up of a small work shop for manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. We find that the decision of the Hon'ble Supreme Court in Associated Power Company Limited vs. CIT cited supra relied upon by the learned DR is distinguishable on facts as in this case it was found that the power company was the owner of the fund and income thereof. 8. Coming to the issue whether there was any diversion of income by overriding title in this case, we find that the income from the Special Fund has not accrued to the assessee and therefore, the assessee could not be taxed thereon. In Nuclear Power Corporation of India V/s. JCIT(15 SOT 451), the Mumbai Bench of the Tribunal after considering plethora of judgments on the issue has laid down the following tests to decide whether in a given case there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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