Overriding title under liquidation kept interest receipts out of tax where statutory application of funds left no discretion.

Interest earned by a co-operative bank under liquidation was held not to accrue as taxable income where the statutory scheme required all realisations to be applied first towards the Deposit Insurance and Credit Guarantee Corporation liability. The Tribunal found that section 21(2) of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 left no dominion or discretion with the assessee over such receipts, so the amounts were diverted at source by overriding title in favour of the statutory creditor. Following the binding view in the assessee's own case, the interest income was excluded from tax in its hands and the Revenue's challenge failed.

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Issues: Whether interest income earned by a co-operative bank under liquidation was taxable in its hands or stood diverted at source in favour of the Deposit Insurance and Credit Guarantee Corporation of India by virtue of the statutory scheme.

Analysis: The assessee was a co-operative bank under liquidation, and the realizations from advances and fixed deposits were subject to the mandatory application of funds under section 21(2) of the Deposit Insurance and Credit Guarantee Corporation Act, 1961. The Tribunal followed the binding decision in the assessee's own case and held that all funds realized by the bank under liquidation were required to be applied towards the DICGCI liability first, leaving no dominion or discretion with the assessee over such receipts. On that basis, the income was treated as diverted at source by overriding title and not as income that accrued to the assessee.

Conclusion: The interest income did not constitute taxable income in the hands of the assessee, and the Revenue's challenge failed.

Final Conclusion: The order of the first appellate authority was sustained, and the Revenue's appeal was dismissed.

Ratio Decidendi: Where a statutory obligation creates an overriding title in favour of a third party over realizations received during liquidation, the amounts are diverted at source and do not accrue as taxable income to the assessee.

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