2023 (9) TMI 1336 - AT - Income Tax

Clubs' Interest Income from Bank Deposits Taxable Under Mutuality Principle

The ITAT Kolkata dismissed the appeals, upholding that the principle of mutuality does not exempt interest income earned by clubs from bank fixed ... Principle of mutuality - interest income earned by the assessee on the deposits with the bank - assessee-club claimed before the AO that it is a mutual organisation comprising of its members and the surplus income earned from mutual transactions is not taxable as per the principle of mutuality - AO noted that the doctrine of mutuality did not apply on the interest income on FDRs and security deposits as the same are income earned from third party - HELD THAT:- The issue is squarely covered in the case of Secundrabad Club etc [2023 (8) TMI 925 - SUPREME COURT] has categorically held that the principle of mutuality does not exempt from tax interest income earned by clubs from FDs in banks, irrespective of whether the banks are corporate members of the club or not. There is no infirmity in the orders of the lower authorities. There is no merit in the appeals of the assessee and the same are accordingly dismissed. Issues involved: The sole issue involved in the appeals is whether the principle of mutuality applies to the interest income earned by the assessee on deposits with the bank.Judgment Summary:Issue: Principle of mutuality on interest income The assessee, a club, contended that its surplus income from mutual transactions is not taxable under the principle of mutuality. However, the Assessing Officer disagreed, stating that the doctrine of mutuality does not apply to interest income on fixed deposits and security deposits as they are earned from third parties. The CIT(A) upheld the addition made by the Assessing Officer. The ITAT Kolkata, after considering the arguments and the record, referred to a recent decision by the Hon'ble Supreme Court in the case of Secundrabad Club vs. CIT, which clarified that the principle of mutuality does not exempt interest income earned by clubs from bank fixed deposits, regardless of the banks' membership status. As the issue was settled by the Supreme Court, the ITAT found no merit in the appeals and dismissed them, upholding the lower authorities' orders. Consequently, both appeals of the assessee were dismissed on 27th September 2023.