2017 (1) TMI 104 - HC - Income Tax

Doctrine of mutuality application - earning interest income of FDRs and mutual funds arises out of the funds invested with non-members - Held that - On facts there is no dispute that in the present case FDRs were taken by the assessee club from the banks and the bank cannot be said to be regular members of the assessee club. Therefore, any transaction between the assessee club and the bank could not be said to be the transactions between the members and the interest earned on the amount in the bank would not attract the principle of mutuality. The assessee club had made investments in the mutual fund it was not an investment with the member but with an outsider or a non-member, therefore, the principle of mutuality would not apply. - Decided against the assessee.

Summary

Issues:
- Interpretation of the doctrine of mutuality in relation to interest income from FDRs and mutual funds invested with non-members.

Analysis:
The High Court heard an Income Tax Appeal filed by the department against an order of the Tribunal regarding the application of the doctrine of mutuality to interest income earned by an assessee club from Fixed Deposit Receipts (FDRs) and mutual funds. The main question was whether the doctrine of mutuality would apply when the funds were invested with non-members. The court noted that the FDRs were taken by the club from banks, which were not regular members of the club. Therefore, transactions between the club and the banks could not be considered as transactions between members, and the interest earned would not fall under the principle of mutuality.

The CIT (Appeals) also emphasized that the principle of mutuality applies to income arising from transactions with or between members. In this case, since the club had made investments in mutual funds with non-members, the principle of mutuality would not extend to such commercial transactions. The court relied on a decision of the Hon'ble Apex Court in the case of Bangalore Club vs. Commissioner of Income Tax & Anr. to support the interpretation that the doctrine of mutuality does not apply to transactions with non-members, as in the present case.

Based on the facts presented and the legal principles established, the High Court concluded that the principle of mutuality would not apply to the interest income earned by the assessee club from FDRs and mutual funds invested with non-members. Therefore, the substantial question of law was answered in favor of the department and against the assessee. The appeal was disposed of accordingly, with no costs imposed.