S.4 : Charge of Income-tax – Mutuality – Interest on fixed deposits with member banks is taxable
As per the club rules, a corporate member like a bank was entitled to nominate their whole time directors, or full time senior executives, as members. It was held that when a company itself becomes a member of a club to the extent of making contribution it is responsible, but when it comes to participation and availment of facilities and privileges it is not the juridical person but it is only the nominated officers of the company who do so. There is thus a discernible factor which takes away the nexus between contribution and participation. It further held that there is also a dichotomy between the juridical personality who contributes to the club and the nominees (who can be changed) who actually avail of facilities and receive benefits from the club activities. An important facet of the principle of mutuality is not only the identity of the contributors of and the recipients from, the fund, but also the right to be returned the contribution in the event of the aggregate of members getting dissolved. If the continuance of the original contributors till the end, or till the achievement of the objects for forming the association or society/club is uncertain, the principle of mutuality ceases to apply. Further, when a person deposits money in a bank, the relationship is that of a creditor and a debtor, and they would be bound by the contract that regulates the deposit and payment of interest thereon. Principle of mutuality ends the moment the club deposits the amount with the sole aim of earning interest on the deposits. Further, by depositing its funds with its corporate member banks, the club would certainly help increase the business of the bank. In that view of the matter, the corporate member bank is being shown a favour, and is not being provided a facility. Therefore, it was held that interest on fixed deposits with banks was taxable. (A.Ys. 1996-97, 1998-99 to 2001-02)
CIT v. Armed Forces Officer’s Co-operative Housing Society Ltd. (2012) 254 CTR 163 (AP)(High Court)
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