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TMI Blog2015 (6) TMI 1198X X X X Extracts X X X X X X X X Extracts X X X X ..... merits. 3. The effective grounds raised by the department, which are common in all the appeals, are as under: "1. On the facts and in the circumstances of the case, the order of CIT(A)-II is against the provisions of IT Act, 1961 and therefore is unsustainable in law. 2. The CIT(A) erred in appreciating the fact that the interest earned on 'special fund investments' is not offered to tax either in the hands of assessee or by the REC." 4. Since the facts and issues are common in all the appeals, for the sake of brevity, we deal with the facts as involved in AY 2007-08 being ITA No. 280/Hyd/2015. 5. Briefly the facts relating to the issue in dispute are, assessee a cooperative society is carrying on business of purchase, supply and distribution of electrical energy/power to the public in certain assigned areas. For the AY under consideration, assessee filed its return of income on 31/10/2007 declaring 'nil' income. In course of assessment proceeding, AO noticed that assessee has earned accrued interest of Rs. 76,78,387 on investments made by it with commercial banks and Rural Electrification Corporation (REC) bonds. However, assessee has not shown such interest inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,78,387 made by AO. Being aggrieved, revenue is before us. 7. Ld. DR relying upon the grounds raised submitted before us, since the interest has accrued on the deposits made by assessee it is taxable at the hands of assessee. Further, it was submitted, neither assessee nor REC has offered interest income which has been not taken note of by ld. CIT(A). 8. We have heard the ld. DR and perused the materials on record as well as the orders of revenue authorities. As can be seen, the issue in dispute is whether the accrued interest on investments made by assessee of the loan amount received from REC is taxable at the hands of assessee. As can be seen from the assessment order, AO simply on the basis that similar income was assessed at the hands of assessee for AYs 1999-00 to 2006-07 has added it at the hands of assessee. However, as can be seen, the issue relating to taxability of interest income in AYs 1999-00 to 2006-07 came up for consideration before ITAT, Hyderabad Bench in appeals filed by assessee. The Tribunal after considering the submissions of the parties, held as under: 6. We have considered the rival submissions carefully. We have perused the copy of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 FDs), shall be assigned to M/s REC and that M/s REC shall have a lien on it. Clause (3) of the said rule provided 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 upto 40 per cent 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 workshop for manufacture of cross-arms and such other minor items related to the business, for advancement of loans to the members of the society for improving the system by using capacitors, etc. For construction of office buildings, workshops, godowns, staff quarters, etc., for improving the operational efficiency of the society, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... special fund has been assigned to the assessee-society with the previous prior written permission from REC, it could not be the 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 Co. Ltd.'s case (supra) relied upon by the learned Departmental Representative 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 Ltd. vs. Jt. CIT (2007) 15 SOT 451 (Mumbai), 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 was any diversion of income by overriding title : ..................... "(i) There must be income arising out of the corpus held by the assessee. (ii) A portion of the income so generated must be charged to the source its ..... X X X X Extracts X X X X X X X X Extracts X X X X
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