Mutuality in electricity distribution societies depends on identity of contributors and consumers, not express dissolution clauses.

A cooperative electricity distribution society may claim exemption on the principle of mutuality where there is complete identity between contributors and consumers and no outsider participates in the surplus. The absence of an express bye-law for distribution of surplus assets on dissolution does not, by itself, defeat mutuality if the statutory framework routes the surplus to a Registrar for transfer to a similar society. The analysis also notes that a later amendment to the bye-laws supported the mutual character of the concern, and the surplus from the activity was therefore not chargeable to tax.

---

---

Issues: Whether the assessee society was entitled to claim exemption on the principle of mutuality and, consequently, whether the surplus from its electricity distribution activity was chargeable to tax.

Analysis: The assessee was found to be a mutual association serving members who were also the contributors and consumers of the electricity supplied. The determining test was the complete identity between contributors and recipients, and the absence of outside participation in the surplus. The absence of an express bye-law for distribution of surplus assets on dissolution did not destroy mutuality, because the statutory scheme placed the surplus with the Registrar for transfer to a society with similar objects. The earlier Gujarat view was treated as distinguishable on its facts, while the jurisdictional precedent recognizing mutuality even where surplus is ultimately transferred to another society with similar objects was applied. The later registration of amended bye-laws further supported the conclusion that the concern remained a mutual association.

Conclusion: The assessee was entitled to exemption on the principle of mutuality and the income was not chargeable to tax under section 4 of the Income-tax Act, 1961.

---