Principle Of Mutuality Cannot Be Extended To Interest Earned By Mutual Concern On Fixed Deposits Placed With Member Banks

INTRODUCTION

1.1 Section 4 of the Income-tax Act, 1961 (‘the Act’) provides that income-tax shall be charged for any assessment year in respect of the ‘total income’ of the previous year of every person. It is a well-settled law that no person can earn profits from himself. This is the basis of the principle of mutuality which has been accepted by the Courts in their decisions rendered from time to time.

1.2 One such decision is that of the Supreme Court in the case of CIT vs. Bankipur Club Ltd. [(1997) 226 ITR 97 –SC)] which was analysed in this column in the August 1998 issue of the BCAJ. In this case, a batch of appeals filed by the department came up before the Supreme Court, and the same were divided into 5 groups. One of the assessees – Cawnpore Club Ltd. which was initially a part of this group of matters was subsequently delinked and kept for hearing separately. While delinking the matter, the Supreme Court observed that it did not appear that the issue of income being exempt on the ground of mutuality was decided in favour of the assessee and the only issue in that appeal filed by the tax department was whether certain income could be taxed under the head Income from house property. In the remaining group of cases, the assessees were companies registered under section 25 of the Companies Act, 1956, a