Silver-sulphur hydroxo-peroxo vanadate species generated from silver-sulphur-oxido vanadium cluster favoured by the heterolytic dissociation of C-CN bond of acetonitrile was found to be highly active for selective oxidation of benzyl alcohol at low temperature and in presence of hydrogen peroxide. The in situ generated active peroxo-vanadium species was well characterized via electrospray ionization technique and various spectrochemical analyses. Benzyl alcohols with different substituents were successfully and selectively oxidized to its corresponding aldehydes. The reactions were highly solvent selective and it proceeded well only in acetonitrile. The formation of the product even in presence of free radical trapping agent revealed for the non-free radical mechanism. Density functional theory (DFT) calculations on the mechanism of benzyl alcohol oxidation suggested that Ag-pi interaction played a significant role in stabilizing the intermediates and transition states.