TaxTMI 
TaxTMI 
TaxTMI 
2002 (9) TMI 53
X X X X Extracts X X X X
X X X X Extracts X X X X
.... member has furnished two sureties. The decision of the loan committee will be final and binding on the applicants for loans. In the case of ladies who are not earning members, loan is limited to 90 per cent. of the deposit. The period of the loan will be from a minimum of one month and up to a maximum of twelve months. If the amount of loan sought is within fifty per cent. of the deposit standing to the credit of the applicant for the loan, such loan application is not to be rejected if that member is not in default in the matter of payment for the cumulative deposit. Rule 60 of the rules provides that in case the society is to be wound up, the property and funds of the society remaining, after full satisfaction of the liabilities of the society, may be distributed among the members of the society in such manner as the general body of the society may in its absolute discretion decide, or it may be transferred or paid to some other institution with similar aims and objects. Rule 57 deals with the funds of the society and provides that the income, profit and funds of the society shall be applied solely towards the promotion and the objects of the society and a portion of the income....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erred, viz., "1. Whether, the Tribunal was right in law in allowing the assessee's claim for deduction of interest on the deposits to the members of the society for the assessment years 1989-90 to 1991-92? 2. Whether the Tribunal was right in law and had valid materials to hold that the assessee had satisfied the test of mutuality for the assessment year 1991-92 and accordingly its income is eligible for exemption for the assessment year 1991-92 on that basis?" Learned counsel for the assessee submitted that the assessee satisfied all the tests of mutuality laid down by the Supreme Court in the case of CIT v. Kumbakonam Mutual Benefit Fund Ltd. [1964] 53 ITR 241. It was pointed out by learned counsel that unlike in the case considered by the Supreme Court, in this case, the members were duty bound to make a deposit and, therefore, it makes a vital difference to the outcome regarding the taxability or otherwise of the interest income derived by the assessee. In the case of CIT v. Kumbakonam Mutual Benefit Fund Ltd. [1964] 53 ITR 241, a three judge Bench of the apex court considered in depth the English decision in the case of Styles v. New York Life Insurance Co. [1889] 2 TC 460....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... an ordinary betting man's gains would be assessable and they would not be the less so if his bets were confined to his own club or to an association whose rules excluded any bet except with a member of their own body, the other learned judges, who heard the case held that the persons who agree to contribute to a common fund for mutual insurance certainly would not, in ordinary parlance, be regarded as carrying on a trade or vocation for the purpose of earning profit. The profit so called in that case, it was found, arose out of the premiums which the members were required to pay being in excess of what is necessary to provide for the requisite payments to be made upon the deaths of members and such a result came about either from the contributions having, owing to erroneous estimation or over-caution, been originally fixed at a higher rate than was necessary or from the death-rate being lower than was anticipated. Lord Herschell in his speech after noticing this position said: "Can it be properly said that, under these circumstances, the association of mutual insurers has earned a profit? The members contribute for a common object to a fund which is their common property; it turn....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it Fund Ltd. [1964] 53 ITR 241, approved of that law and limited its application only to situations where the mutuality was clearly established by establishing the complete identity as between the contributor and the participator in the common fund. The fund which the court took into account in that case was not the fund made available for being used as capital for the purpose of earning the income but was the income itself which was available for being distributed. The identity was required to be established in relation to that income as regards those contributing to that income and those participating in the distribution of that income. Here, though a member is of necessity also a depositor he is not required to be a borrower. That is wholly optional. The income of the fund is by way of interest and such interest is received only from those who borrow from it. The fact that the money that is lent comes out of the deposits made by the members who have borrowed as also the deposits made by the members who have not chosen to raise any loan will not make any difference so far as the need for establishing the identity between the contributor and the participator vis-a-vis the interes....