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[2009] 177 Taxman 460 (AAR)/[2009] 308 ITR 321 (AAR)/[2009] 221 CTR 210 (AAR) [2009] 177 TAXMAN 460 (AAR - NEW DELHI) AUTHORITY FOR ADVANCE RULINGS, NEW DELHI Rural Electrification Corporation Ltd.* , In re JUSTICE P.V. REDDI, CHAIRMAN A. SINHA AND RAO RANVIJAY SINGH, MEMBER A.A.R. NO. 758 OF 2007 DECEMBER 23, 2008 Section 36(1)(viii) of the Income-tax Act, 1961 - Financial corporation, reserve created by - Assessment year 2004-05 - Applicant is a Government company, which is registered as a non-banking financial company by Reserve Bank of India - Its main objective is to provide long-term finance primarily to State Electricity Boards for purpose of transmission, distribution and generation of electricity - As per its objectives, it has provided long-term finance to State Electricity Boards at fixed interest rates - Subsequently, on request made by State Electricity Boards to get interest rates reduced in view of steep fall in interest rates, applicant re-scheduled interest rates fixed at time of advancing loans and for that re-scheduling, it received swapping premium from State Electricity Boards - By way of instant application, it seeks advance ruling in respect of eligibility of swapping premium for deduction under section 36(1)(viii) - Whether applicant being engaged in business of generation, distribution or transmission of power satisfies requirements of being an eligible entity as laid down in section 36(1)(vii) - Held, yes - Whether 'swapping premium' received by applicant has direct and immediate nexus with its business of providing long-term finance and, therefore, qualifies for deduction under section 36(1)(viii) - Held, yes FACTS The applicant is a Government company and has been registered as a non-banking financial company by the Reserve Bank of India. Its main objective is to provide long-term finance, primarily to the State Electricity Boards for the purpose of transmission, distribution and generation of electricity. Since it derived income from advancing long-term finance for the industrial or agricultural development or for the development of infrastructural facility in consonance with the specified objectives right from the beginning,…

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