TMI Blog2010 (1) TMI 849X X X X Extracts X X X X X X X X Extracts X X X X ..... cy 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. - ITA No. 1112 to 1115, 1198 and 1199/Hyd/2005 - - - Dated:- 13-1-2010 - ORDER Per Bench 1. These eight appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ittance were framed by M/s REC and a copy of the same is filed in compilation before this Tribunal. He submitted that operation and maintenance of the special fund shall be done by the society only with the approval of M/s. REC and no amount could be withdrawn or paid from the fund without the specific written permission from M/s REC for bona fide purposes, as specified under these rules. He referred to the various Clauses in the 'Special Fund Rules' framed by M/s REC and submitted that the assessee is not the owner of the special fund and M/s REC has the first charge over the special fund which is an outstanding loan to the assessee society. He submitted that provisions of Section 4 of the IT Act 1961, does not apply to the case of the assessee, as the issue in this case is not that, whether M/s REC could override the provisions of section 4 of the IT Act. He submitted that merely because the amount of special fund so created is shown in the asset side of the balance sheet of the assessee society, it does not follow that the ownership thereof belongs to the assessee society and the fact remains that the assessee is merely a custodian thereof. He relied on the following decisions i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered the rival submissions carefully. We have perused the copy of the revised guide lines issued by M/s REC dated 30.1.1997. We find that the assessee is a cooperative society carrying on the business of purchase and distribution of electrical energy to the public at large in the specified area. The assessee 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. The only issue before us is 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., for improving the operational efficiency of the society, for providing service connections to the Harijans, SCs/STs and land less labourers without collecting service charges, security deposits etc. and likewise, other purposes specified therein. Clause (5) of the said rule provides that no relaxation in these rules would be permissible except to the extent approved by M/s REC. These rules further provides that the suitable amount not exceeding 60% of the fund available at any time shall be earmarked as reserves by REC. This amount should be kept 61 months FD in a Cooperative Bank/Nationalized Bank. The amount shall be used on the express written instructions of M/s REC and the first charge on it shall be the outstanding loan on the society. 7. A mere perusal of these rules framed by REC clearly establishes the case of the assessee that the assessee is merely a custodian of the amount in the special fund created as per the instructions and rules framed by REC for the administration of the special fund and the ownership of the funds continues with the REC. We find that the assessee is not allowed any withdrawal from the said special fund without written permission from the REC. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty or, in other words, the obligation must attach to the source of income in that the income itself should not accrue to the receiver and not to the receiver of the income to apply it in a particular manner. (iii) The income so charged must be passed on or is required to be passed or, in other words, is required to be diverted in favour of a third party before it reaches the assessee itself; and (iv) The assessee, after the income stands diverted at source by a superior title, is no longer concerned with that income or, in other words, the assessee must be completely divested of any kind of dominion over the income." Applying the aforesaid tests to the facts of the case before us, it is clear that there is no diversion of income by overriding title by M/s. REC in favour of the assessee-society. The income by way of interest, etc, has accrued to M/s. REC in its own right- The amount so collected was retained by M/s. REC and was available with it for use and application as per its directions. The income in this case never reached the assessee by virtue of any overriding title. A reading of various clauses of the Revised Rules on the Constitution and Administration of Special Fu ..... 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