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Judgment
K.S. Radhakrishan, C.J.—The question raised in this case is whether the receipt of interest on FDRs and Bank deposits is covered by
principle of mutuality and hence is liable to tax even though it does not constitute business activity of the club?
The Income Tax Tribunal disposed of two appeals by a consolidated order dated October 24,2006 relating to assessment years 2003-04 and
2004-05. Grievance raised by the assessee for both assessment years was that the Commissioner of Income Tax was not justified in upholding the
additions of Rs. 2,55,182 for the assessment year 2003-04 and Rs. 2,06,090 and Rs. 25,598 for the assessment year 2004-05 as made by the
Assessing Officer. In the returns of income for both the assessment years the assessee, on the principle of mutuality, had claimed exemption in
respect of interest income of Rs. 2,55,182 and Rs. 2,06,090 on Bank deposits and FDRs for the assessment years 2003-04 and 2004-05, The
Assessing Officer had observed that interest from the Banks and excess of receipts over the expenditure being interest was not income arising out
of mutual activities/arrangements among the members of the club. Accordingly, he had made additions at the time of completion of assessment. The
order of the Assessing Officer was upheld by the Commissioner of Income Tax and later by the Tribunal, Aggrieved by the same, this appeal has
been preferred.
Contention raised was that since the assessee was a club, taxability of its income was governed by the principles of mutuality. It was pointed out
that judgment of the Supreme Court in Commissioner of Income Tax, Bihar Vs. M/s. Bankipur Club Ltd., 7, was wrongly relied upon by the
Assessing Officer for the reason that the question of taxability of interest was never subject matter of appeal before the Apex Court and the issue
had been referred to larger Bench.
Learned Counsel appearing for the respondents stated that matter had already been decided by the ITAT, Amritsar Bench in the case of the
assessee, ITA No. 184(Asr.)/2002 for the assessment year 1988-89, upholding the action of the Assessing Officer. Learned Counsel, therefore,
submitted that identical issue raised pertaining to the assessment year 1988-89 as well hence stands concluded against the assessee.
Admittedly, the assessee had earned interest income on Bank deposits and FDRs. Secondly; there is no statutory obligation on the part of the
assessee to make the deposit in Bank or in FDRs. The principle of mutuality could be applied only if the interest was earned for advances/facilities
of loan given to the members of the club. The assessee had claimed exemption in respect of interest income where source of receipt was Bank and
not the members of the club. In CHELMSFORD CLUB Vs. COMMISSIONER OF INCOME TAX, , the Apex Court held that there must be
complete identity between the contributors and the participators. It was stated that in order to bring income within the purview of doctrine of
mutuality, three conditions must exist, namely, (i) the identity of the contributors to the fund and the recipient from the fund; (ii) the treatment of the
company though incorporated as a mere entity for the convenience of the members, in other words, as an instrument, obedient to their mandate;
and (iii) the impossibility that contributors who derive profits from contributions made by themselves to a fund which could only be expanded or
returned to themselves. It is not a case where the benefit of the interest income derived by the assesses is extended to its members. That being the
factual and legal situation, we are in perfect agreement with the view expressed by the Appellate Tribunal.
The appeal, therefore, lacks merit and is dismissed.