In Brief
Seven clubs appealed against orders holding that interest earned on fixed deposits placed with banks is taxable income. The Supreme Court upheld the Bangalore Club precedent, holding that the principle of mutuality—which exempts mutual associations from tax on surplus from member contributions—does not apply to interest on fixed deposits. When clubs invest surplus funds in banks, the banks use those deposits for commercial lending, creating transactions with third parties outside the club. This ruptures the essential requirement of mutuality: complete identity between contributors and beneficiaries. Therefore, such interest income is taxable as income from other sources. The Court rejected arguments that the earlier Cawnpore Club order was a binding precedent, finding it lacked reasoned analysis. Appeals dismissed.
The lawyer headnote and full judgment text are available to registered users.