The principle of mutuality depends on the facts and circumstances of each case, and in this case, the court held that the interest income was not exempt from taxation under the principle of mutuality as the relationship between the club and the banks was that of a banker and a customer.

Headnote:
Mutuality - Taxation of Interest Income - Income Tax Act - [Section 2(24), Section 4] - The court considered the principle of mutuality in relation to interest income earned from fixed deposits made by a club in member banks. The court held that the interest income was not exempt from taxation under the principle of mutuality as the relationship between the club and the banks was that of a banker and a customer. The court referred to various legal principles and judgments to support its decision.
Fact of the Case:

The club, registered under the Societies Registration Act, deposited a surplus amount in fixed deposits with member banks and claimed the interest earned as deduction based on the principle of mutuality. The assessing authority disallowed the claim, leading to appeals and subsequent rejections.
Finding of the Court:

The appellate commissioner and tribunal accepted the principle of mutuality, but the court held that the interest income was taxable as the relationship between the club and the banks was that of a banker and a customer.
Issues: 1. Taxability of interest income from fixed deposits made by the club in member banks. 2. Applicability of the principle of mutuality to the interest derived from deposits made by the club in member banks.
Ratio Decidendi: The court found that the principle of mutuality did not apply as the relationship between the club and the banks was that of a banker and a customer, and the interest income was taxable.
Final Decision: The court set aside the orders of the Commissioner of Income Tax and the tribunal, and accepted the order of the Assessing Officer, ruling in favor of the revenue.

( 1 ) REVENUE is before us challenging the order of the Income Tax Appellate tribunal dtd 7-1-1999. The order of the Commissioner of Income Tax dtd 30-8-1991 on the following facts.

( 2 ) THE assessee is a club registered under the Societies Registration Act. It has several members. Four of its members are Vijaya Bank, Canara Bank, State Bank of Mysore, and State Bank of india. The club is running on commercial lines for the assessment year 1989-90. The assessee declared a total income of Rs. 2,26,991/ -. The assessee deposited a surplus amount of Rs. 76,16,054/- in Fixed Deposit with the above stated four banks. The Fixed Deposit earned an interest of Rs. 7,887,648/ -. This interest was claimed as deduction by the assessee on the principle of mutuality. It was stated that the four banks being members of a club constitute a common entity and that therefore tax could not be levied as it would amount to levying tax on oneself. The assessing authority did not accept the same and he disallowed the claim. An appeal was filed and the appellate commissioner set aside the order of assessment. A second appeal was filed and it stood rejected. It is in these circumstances, appellant is before us.

( 3 ) THE following questions of law arise for our consideration.

1. Whether, a sum of Rs. 7,87,648/- received by the assessee as interest from Fixed Deposit made by the assessee in four banks who are members in the assessee club amounted to its income and constituted a revenue receipt as per the provision of the Income Tax Act.

2. Whether, the principal of Mutuality can be made applicable to the fund deposited in the four banks who are also members of assessee club, especially when the fund is raised from contribution of several members including the four banks and the interest derived from it is utilized by several member of assessee club? parties have entered appearance. Arguments were heard.

( 4 ) LEARNED Counsel for the revenue would contend that both the tribunal and the appellate authority are wrong in accepting the principle of mutuality in the present circumstances. He would say that the amount deposited in the bank earned interest and that interest is taxable as rightly ruled by the assessing authority. He would also say that the relationship between club and the banks are the relationship of a customer and banker. He would rely on several judgments in support of his submission.

( 5 ) PER contra, learned Counsel for the club would take us through the material on record to say that there exists mutuality. He would elaborate by saying that the club has deposits, and the interest earned from the amount deposited in non-member banks have been subjected to tax. It is only member banks fixed deposit interest is claimed as deduction on the ground of mutuality. He would support the order. He also relies on several judgments.

( 6 ) AFTER hearing, we have carefully perused the material on record.

( 7 ) ASSESSING Officer has chosen to disallow the claim of interest. e. , on the deposit made in the member banks. He has noticed that there exists no mutuality in the case on hand. When the same was challenged, the appellate commissioner holds that the activity of keeping the liquid asset. e. , cash in the custody of its members for safe custody cannot be tainted with commerciality to come within the purview of business income. The appellate authority holds that the surplus fund of the club have been invested in the banks more for security and there was no business activity intended in this investment. This finding of the appellate commissioner is accepted by the tribunal. The tribunal also holds that the activity of the club with such corporate members and vice-versa are clearly activities of mutual consent and interest.

( 8 ) MUTUAL interest or mutuality have been considered by courts of law in several judgments. In AIR1965 SC 96 , [1964 ]53 ITR241 (SC ), [1964 ]8 SCR204 the supreme Court has case considered the mutual benefit theory and rule

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Judicial Analysis