Mutuality exemption fails where contributors and beneficiaries are not identical; surplus from ration card collections remains taxable income.

The principle of mutuality applies only where there is complete identity between the contributors to the common fund and the persons entitled to participate in the surplus. Here, the receipts came from a section of members who had obtained ration cards, while the intended benefit was for a different section of members who had not obtained such cards, so the contribution base and benefit group were not identical. The association's role as an intermediary and its obligation to apply the surplus in a specified manner did not alter the character of the receipts as income. The surplus was therefore taxable and not exempt under mutuality.

---

---

Issues: Whether the surplus collected by the association from members who had obtained ration cards constituted income liable to tax, or was exempt on the principle of mutuality.

Analysis: The principle of mutuality applies only where there is complete identity between the contributors to the common fund and the participators in the surplus. On the facts, the fund was contributed only by a section of members who had obtained ration cards, while the benefit was intended for a different section of members who had not obtained such cards. The obligation to contribute did not rest on all members, and the association's receipts were therefore not the product of a truly mutual fund. The fact that the association acted as an intermediary and was bound to apply the surplus in a particular manner did not deprive the receipt of its character as income. An income is not excluded from tax merely because it is impressed with an obligation as to its application.

Conclusion: The surplus constituted taxable income of the assessee and was not exempt under mutuality.

---