Doctrine of Mutuality - Indian Laws - General

Meaning of ''Doctrine of Mutuality''- SECUNDRABAD CLUB ETC. VERSUS C.I.T. - [ 2023 (8) TMI 925 - SUPREME COURT ] The principle of mutuality is rooted in common sense. A person cannot make a profit from herself. This implies that a person cannot earn profit from an association that he shares a common identity with. The essence of the principle lies in the commonality of the contributors and the participants who are also beneficiaries. There has to be a complete identity between the contributors and the participants. Therefore, it follows, that any surplus in the common fund shall not constitute income but will only be an increase in the common fund meant to meet sudden eventualities. The principle of mutuality in the context of income tax law. The Privy Council s decision in an appeal emerging from the Madras High Court, in English and Scottish Joint Co-Operative Wholesale Society, Ltd. vs. Commissioner of Agricultural Income- Tax,[ 1948 (4) TMI 2 - PRIVY COUNCIL] , crystallized the triple test for applying the principle of mutuality: (1) the identity of the contributors with and recipients of the common fund; (2) the status of the association or company, as an instrument obedient to the mandate of its members; and (3) the absence of possibility for contributors of the fund to derive profits from contributions made by them. A Constitution Bench of this Court in CIT vs. Royal Western India Turf Club Ltd., 1953 (10) TMI 9 - SUPREME COURT rendered a significant judgment on this subject. The Supreme Court held, as extracted below, that an exemption founded on the doctrine of mutuality could not be granted: .................in the instant case there is no mutual dealing between the members inter se and no putting up of a common fund for discharging the common obligations to each other undertaken by the contributors for their mutual benefit. On the contrary, we have here an incorporated company authorised to carry on an ordinary business of a race course company and that of licensed victuallers and refreshment purveyors and in fact carrying on such a business. There is no dispute that the dealings of the company with non-members take place in the ordinary course of business carried on with a view to earning profits as in any other commercial concern.