Mutuality principle fails for trade union subscriptions, making member contributions taxable as income under the residuary head.

Annual subscriptions received by a registered trade union from members were held to be income chargeable to tax because the mutuality principle failed: the union was a separate legal person, its dissolution rules did not require surplus assets to be returned to members, and the necessary complete identity between contributors and recipients was absent. The receipts were also not business profits, as the union was a non-trading trade association and did not carry on business with members. In the absence of any specific exemption, the subscription income fell within the residuary head of income under the Income-tax Acts and was taxable.

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Issues: Whether the annual subscriptions received by a registered trade union from its members were liable to be included in its total income.

Analysis: The association was a registered trade union and a body corporate under the Trade Unions Act, 1926. Its rules did not require the surplus assets on dissolution to be returned to members, and rule 38 permitted the assets to be used in the manner resolved upon at dissolution. That arrangement destroyed the complete identity between contributors and recipients which is essential to mutuality. The association therefore could not claim exemption on the basis of mutual concern. The receipts were not profits or gains of business because the association was a non-trading trade association and did not carry on business with members. Nevertheless, subscription receipts from members were receipts from an outside source in the hands of a distinct legal person and answered the broad concept of income. Since no specific exemption applied, such income was chargeable under the residuary head of income under the Income-tax Acts.

Conclusion: The annual subscriptions were income and were taxable; the assessee was not entitled to exemption on mutuality grounds.

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