Doctrine of mutuality excludes receipts from section 14A, as they are not income that forms part of total income.

Receipts arising under the doctrine of mutuality are not exempt income, but income at all, because they fall outside the charging and computational provisions of the Income-tax Act. Section 14A applies only to expenditure incurred in relation to income that forms part of total income but is kept out by a specific exemption. On that basis, mutuality receipts, being excluded at the threshold, are not income which does not form part of total income for section 14A purposes, and section 14A does not apply.

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Issues: Whether an income not subject to tax on the doctrine of mutuality can be construed as income which does not form part of the total income under the Income-tax Act, 1961 for the purposes of section 14A.

Analysis: Section 14A applies to expenditure incurred in relation to income which, though in the nature of income, does not form part of the total income under the Act. The legislative intent behind section 14A is to disallow expenditure relatable to exempt income that is otherwise includible in total income but kept by a specific statutory exemption. Receipts arising on the doctrine of mutuality stand on a different footing: they are not exempt income but are not income at all, since a person cannot make profit out of itself and such receipts do not enter the computation under sections 2(24) and 4.

Conclusion: Income excluded at the threshold by the doctrine of mutuality is not income which does not form part of total income for section 14A purposes; consequently, section 14A does not apply.

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