Mutuality applies to interest on temporary deposits of surplus member funds, keeping the income exempt from tax.

Interest earned from temporary bank deposits of surplus funds derived from member receipts remained covered by the doctrine of mutuality because the underlying receipts arose from member-linked facilities and there was no dealing with outsiders. The court treated the deposit income as retaining the character of the common mutual fund, so it did not acquire taxable profit character. The assessee was therefore entitled to exemption, and the Revenue's challenge failed.

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Issues: Whether interest earned from banks on temporary deposits of surplus funds attributable to member receipts is exempt from tax on the principle of mutuality.

Analysis: The club's receipts arose from members and their guests, and the facilities from which the surplus funds were generated were available only to members and their guests. The Tribunal had already applied the doctrine of mutuality to exempt income earned from such member-linked activities. The interest income arose only from deposits of those very surplus funds, and there was no material distinction between that interest and the underlying mutual receipts. A surplus generated from a common fund with no dealings with outsiders does not assume the character of taxable profit.

Conclusion: The interest earned on temporary bank deposits retained the character of mutual income and was not taxable. The question was answered in favour of the assessee and against the Revenue.

Ratio Decidendi: Interest derived from temporary investment of surplus funds originating from mutual member receipts continues to fall within the doctrine of mutuality where the fund is confined to members and there is no dealing with outsiders.

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