SECUNDRABAD CLUB ETC. versus C.I.T.-V ETC.
[2023] 12 S.C.R. 979, Supreme Court of India, 2023
Outcome: Dismissed (Dismissed)
Segment: Issues
[2023] 12 S.C.R. 979 : 2023 INSC 736
979
CASE DETAILS
SECUNDRABAD CLUB ETC.
v.
C.I.T.-V ETC.
(Civil Appeal Nos. 5195-5201 of 2012)
AUGUST 17, 2023
[B. V. NAGARATHNA AND 
PRASHANT KUMAR MISHRA, JJ.]
HEADNOTES
Issues for consideration: Whether the deposit of surplus funds by the 
assessee Clubs by way of bank deposits in various banks is liable to be taxed 
in the hands of the Clubs or, whether, the principle of mutuality would apply 
and the interest earned from the deposits would not be subject to tax under 
the provisions of the Income Tax Act, 1961; and whether the judgment of 
this Court in *Bangalore Club’s case would call for reconsideration in light 
of the order of this Court in **Cawnpore Club’s case.
Income Tax Act, 1961 – s. 2(24) – Deposit of surplus funds by the 
Clubs by way of bank deposits in various banks – Interest earned on 
the ﬁ xed deposits, if liable to be taxed in the hands of the clubs:
Held: Interest income earned on ﬁ xed deposits made in the banks 
by the assessee Clubs has to be treated like any other income from other 
sources within the meaning of s. 2(24) and the principle of mutuality would 
not apply – Conversely, if any income is earned by the Clubs through its 
assets and resources, from persons who are not members of the Clubs, such 
income would also not be covered under the principle of mutuality and 
would be liable to be taxed under the provisions of the Income Tax Act. 
[Para 43 (ii), (v), (vi)]
Income Tax Act, 1961 – *Bangalore Club
vs. Commissioner of 
Income Tax’s case wherein it was held that the amount of interest 
earned by the assessee club from the banks would not fall within the 
ambit of the mutuality principle and would be exigible to income tax
980
SUPREME COURT REPORTS 
[2023] 12 S.C.R.
in the hands of the assessee – Reconsideration of, in view of the earlier 
order of this Court in **Cawnpore Club’s case:
Held: Reasoning given by the Coordinate Bench of this Court 
in *Bangalore Club’s case is just and proper – It would not call for 
reconsideration even when viewed in light of the previous Order of this 
Court in **Cawnpore Club’s case – Judgment in *Bangalore Club is not 
per incuriam although, the earlier Order passed by a Coordinate Bench of 
this Court in the case of **Cawnpore Club was not noticed in *Bangalore 
Club – Principle of mutuality would not apply to interest income earned 
on ﬁ xed deposits made by the appellant Clubs in the banks irrespective 
whether the banks are corporate members of the club or not – Said judgment 
in *Bangalore Club’s case holds the ﬁ eld. [Para 5, 26-28, 39, 41 and 43 
(ii), (iii), (vii)]
Constitution of India – Art. 141 – Declaration of law – Binding 
eﬀ ect of – **Commissioner of Income Tax vs. M/s Cawnpore Club Ltd.’s 
case, if a binding precedent:
Held: Order of this Court in **Cawnpore Club’s case cannot be 
treated as a precedent within the meaning of Art. 141 as the said order does 
not declare any law – Appeals ﬁ led by the revenue as against **Cawnpore 
Club were disposed of without going into the larger question as to whether 
**Cawnpore Club could be taxed on the interest income earned on ﬁ xed 
deposits made by it in the banks, or whether the principle of
mutuality 
would apply to the said income – There is no ratio decidendi emanating 
from the said order which would be a binding precedent for subsequent 
cases – **Cawnpore Club’s case ought not to have been taken note of and 
considered by a Co-ordinate Bench of this Court while deciding the case of 
*Bangalore Club – Order passed in **Cawnpore Club binds only the parties 
in those appeals and cannot be understood as a precedent for subsequent 
cases. [Para 11, 26, 27 and 43 (i)]
Constitution of India – Art. 141 – Declaration of law – Binding 
eﬀ ect of – Judgment of the Karnataka High Court in ***Canara Bank’s 
case, if a binding precedent – 
Held: Judgment of the Division Bench of the Karnataka High Court 
in ***Canara Bank must be restricted to apply to the facts of the said case
981
alone though the special leave petition ﬁ led against the said judgment was 
dismissed by this Court – It cannot be a precedent for subsequent cases – 
Judgment of another Division Bench of the said High Court in the case of 
*Bangalore Club was not brought to the notice of the Division Bench, which 
rendered the judgment in the case of ***Canara Bank – It is the judgment 
of the Division Bench of the said High Court in *Bangalore Club that has 
been sustained by a Coordinate Bench of this Court by a detailed reasoning.
[Para 28 and 43 (iv)]
Doctrines/ Principles – Principle of mutuality in the context of 
Income Tax Laws:
Held: Principle of mutuality is rooted in common sense – A person 
cannot make a proﬁ t from herself – This implies that a person cannot earn 
proﬁ t from an association that he shares a common identity with – Essence of 
the principle lies in the commonality of the contributors and the participants 
who are also beneﬁ ciaries – There has to be a complete identity between 
the contributors and the participants – Thus, 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. [Para 8.1]
Doctrines/ Principles – Principle of mutuality – Evolution of, in 
India – Discussed. [Paras 8.5 to 8.9.11]
Doctrines/Principles – Principle of mutuality – Applicability of, 
with regard to the interest income earned on ﬁ xed deposits made in 
banks/ﬁ nancial
institutions by the appellant Clubs, in the backdrop of 
the dictum of this Court in the case of Bangalore Club – Triple test for 
applying the principle of mutuality – Explained and reiterated. [Paras 
31-37]
Ratio decidendi – Importance and explanation of:
Held: Ratio decidendi of a judgment is the reason assigned in support 
of the conclusion – It can be discerned only upon reading of a judgment in 
its entirety and the same has to be culled out thereafter – Ratio of the case 
has to be deduced from the facts of the case and the particular provision of 
law interpreted or applied by the court and the decision has to be read in the 
context of the particular statutory provisions involved in the matter – Ratio 
or the basis of reasons and principles underlying a decision is distinct from 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC.
982
SUPREME COURT REPORTS 
[2023] 12 S.C.R.
the ultimate relief granted or manner of disposal adopted in a given case – 
Thus, the ratio decidendi of a judgment is binding as a precedent and not 
the ﬁ nal order in the judgment. [Para 13, 17 and 18]
Constitution of India – Art. 141 – Binding precedent – Principle 
and purpose:
Held: In terms of Art. 141, the ratio of the judgment is the binding 
precedent – Ratio decidendi of a judgment is the reason assigned in support 
of the conclusion – Legal principle underlying the decision would be binding 
as a precedent for a subsequent case – Thus, while applying a decision to a 
later case, the court dealing with it has to carefully ascertain the principle 
laid down in the previous decision – Decision in a case takes its ﬂ avour 
from the facts of the case and the question of law involved and decided – 
However, a decision which is not express and is neither founded on any 
reason nor proceeds on a consideration of the issue cannot be deemed to be 
law declared, so as to have a binding eﬀ ect as is contemplated u/Art. 141 – 
Decision applicable only to the facts of the case cannot be treated as a binding 
precedent – An order made merely to dispose of the case cannot have the 
value or eﬀ ect of a binding precedent – Doctrine of binding precedent helps 
in promoting certainty and consistency in judicial decisions and enables an 
organic development of the law besides providing assurance to individuals 
as to the consequences of
transactions forming part of daily affairs. 
[Para 16, 18, 19 and 22]
Judicial discipline – Facet of:
Held: Art. 141 states that all the courts in India, are bound to follow 
the decisions of the Supreme Court – This principle is an aspect of judicial 
discipline – Constitution of India – Art. 141. [Para 16]
Obiter dictum – Meaning and purpose:
Held: Obiter dictum is an observation by a court on a legal question 
which may not be necessary for the decision pronounced by the court – 
However, the obiter dictum of the Supreme Court is binding u/Art. 141 to 
the extent of the observations on points raised and decided by the Court in 
a case – Though the obiter dictum of the Supreme Court is binding on all 
courts, it has only persuasive authority as far as the Supreme Court itself 
is concerned. [Para 20]
983
Judgment/order – Interpretation of:
Held: Words used in a judgment are not to be interpreted as those of 
a statute – Words used in a judgment should be rendered and understood 
contextually and are not intended to be taken literally – Decision is not 
an authority for what can be read into it by implication or by assigning 
an assumed intention of the judges and inferring from it a proposition of 
law which the judges have not speciﬁ cally or expressly laid down in the 
pronouncement – Decision is an authority for what is speciﬁ cally decided 
and not what can logically be deduced therefrom. [Para 21]
LIST OF CITATIONS AND OTHER REFERENCES
*Bangalore Club vs. Commissioner of Income Tax, (2013) 5 SCC 
509:[2013] 1 SCR 267 – held a good law and relied on.
**Commissioner of Income Tax vs. M/s Cawnpore Club Ltd., 
Kanpur (2004) 140 Taxman 378 (SC); Commissioner of Income Tax, 
Bihar vs. Bankipur Club Ltd., (1997) 5 SCC 394:[1997] 1 Suppl. SCR 
263; ***Canara Bank Golden Jubilee Staﬀ  Welfare Fund vs. Deputy 
Commissioner of Income Tax, (2009) 308 ITR 202; Natraj Finance 
Corporation, (1988) 169 ITR 732; Chelmsford Club (2000) 243 ITR 89; 
I.T.I. Employees Death and Superannuation Relief Fund, (1998) 234 ITR 
308 (Kar); Commissioner of Income Tax vs. Common Eﬄ  uent Treatment 
Plant, (Thane-Belapur) Association, (2010) 328 ITR 362; Madras 
Gymkhana Club Vs. Deputy Commissioner of Income Tax (2010) 328 
ITR 348 (MAD); State of West Bengal vs. Calcutta Club Ltd., (2019) 19
SCC 107; Kunhayammed vs. State of Kerala, (2000) 6 SCC 359:[2000] 
1 Suppl. SCR 538; Fateh Maidan Club vs. Assistant Commissioner of 
Income Tax ITA Nos.937, 939, 947and 952/Hyd/1995 and 716 to 720/
Hyd/2000, Asst. yrs. 1983-84 to 1997-98 dated 13.08.2023; Jubilee Hills 
International Centre vs. Income Tax Oﬃ  cer 2023 SCC OnLine TS 41; CIT 
vs. Venkatesh Premises Coop. Society Ltd., (2018) 15 SCC 37:[2018] 3 SCR 
214; Royal Calcutta Turf Club vs. Secretary of State, (1921) ILR 48 Cal 
844 : AIR (1921) Cal 633 : (1921) 1 ITC 108; English and Scottish Joint 
Co-Operative Wholesale Society, Ltd. vs. Commissioner of Agricultural 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC.
984
SUPREME COURT REPORTS 
[2023] 12 S.C.R.
Income- Tax, 1948 SCC OnLine PC 41; CIT vs. Royal Western India Turf 
Club Ltd., AIR 1954 SC 85:[1954] SCR 289; Kunhayammed vs. State 
of Kerala, AIR (2000) SC 2587:[2000] 1 Suppl. SCR 538; Patna Golf 
Club vs. CIT, 2016 SCC OnLine Patna 2067 (Misc. Appeal No. 541 of 
2007); Sports Club of Gujarat Ltd. vs. CIT, 171 ITR 504; B. Shama Rao 
vs. Union Territory of Pondicherry, AIR 1967 SC 1480:[1967] SCR 650; 
Dalbir Singh vs. State of Punjab, (1979) 3 SCC 745:[1979] 3 SCR 1059; 
State of Uttar Pradesh vs. Synthetics and Chemicals Ltd. (1991) 4 SCC 
139:[1991] 3 SCR 64; Sanjay Singh vs. Uttar Pradesh Public Service 
Commission, Allahabad; (2007) 3 SCC 720:[2007] 1 SCR 235; DTC vs. 
DTC Mazdoor Congress Union, AIR 1991 SC 101:[1990] 1 Suppl. SCR 
142; Yum! Restaurants (Marketing) Pvt. Ltd. vs. Commissioner of Income 
Tax, Delhi, (2021) 7 SCC 678; Keshav Mills Co. Ltd. vs. CIT, (1965) 2 
SCR 908 – referred to.
New York Life Insurance Co. vs. Styles (Surveyor of Taxes), (1886-90)
All ER Rep Ext 1362; Last vs. London Assurance Corporation, 10 App. 
Cas. 438; Walter Fletcher on his own behalf and on behalf of Trustees and 
Committee of Doctor’s Cave Bathing Club vs. the Commissioner of Income 
Tax (1971) UKPC 30; The Carlisle & Silloth Golf Club vs. Smith, (1912) 6 
TC 48; Revesby Credit Union Cooperative Ltd. vs. Federal Commissioner 
of Taxation, (1965) 112 CLR 564; Bohemians Club vs. Acting Federal 
Commissioner of Taxation, (1918) 24
CLR 334; Equitable Life Assurance 
Society of the United States vs. Bishop, (1900) 1 QB 177; Re: Commissioner 
of Taxation And: Australian Music Traders Association, (1990) FCA 261; 
Jones vs. South-West Lancashire Coal Owners’ Association Limited, (1927) 
AC 827; Municipal Mutual Insurance Limited vs. Hills, (1932) 16 TC 
430; Social Credit Savings and Loans Society Limited vs. Commissioner 
of Taxation, (1971) 125 CLR 560; Sydney Water Board Employees’ Credit 
Union Limited vs. Commissioner of Taxation, (1973) 129 CLR 446; 
Quinn vs. Leathem, 1901 AC 495 (HL); Qualcast (Wolverhampton) Ltd. 
vs. Haynes, 1959 AC 743; Mersey Docks vs. Lucas, 8 App. Cas. 891 – 
referred to.
Halsbury’s Laws of England, 4th Edn., Reissue, Vol.23, Paras 224
985
OTHER CASE DETAILS INCLUDING IMPUGNED 
ORDER AND APPEARANCES
Civil Appellate Jurisdiction: Civil Appeal Nos. 5195-5201 of 2012.
From The Judgment And Order Dated 27.08.2011 Of The High Court 
Of Andhra Pradesh, Hyderabad In I.T.T.A. Nos.422, 529, 530, 531, 532, 
533 Of 2006 And 244 Of 2010.
With
CIVIL APPEAL NOS.5233, 5235-5237 OF 2023, SLP (C) NOS.16817, 
16819, 16818 OF 2011, CIVIL APPEAL NOS.5202-5209, 5210-5217, 
5218-5219, 5220-5227, 5229, 5231, 5232, 5238-5240, 5241-5243, 5244-
5246, 5247-5249 OF 2023, SLP (C) NO.13986 OF 2011, CIVIL APPEAL 
NOS.5201, 5228, 5230, 5234 OF 2023
Appearances:
Arvind P. Datar, Firoze B. Andhyarujina, Pritesh Kapur, Sr. Advs., 
D. Abhinav Rao, Maneck Andhyarujina, Rahul Jajoo, Ms. Prerna Robin, 
Devadipta Das, Ms. Radha Rangaswamy, Ms. Ranjeeta Rohatgi, Ms. 
Shrika Gautam, M. P. Senthil Kumar, V. Prabakar, N. J. Ramchandar, Ms. 
Jyoti Parashar, R. Chandrachud, A. Radhakrishnan, Pratap Venugopal, Ms. 
Surekha Raman, Rahul Unnikrishnan, Prashant Kumar Nair, Abhishek 
Anand, Shreyash Kumar, M/s. K J John and Co, K. K. Mani, Ms. T. Archana, 
Rajeev Gupta, Vinay Rajput, Advs. for the Appellants.
Balbir Singh, A.S.G., Arijit Prasad, Mrs. Gargi Khanna, Mrs. Alka 
Agarwal, A. K. Kaul, Prashant Singh Ii, Shyam Gopal, Santosh Kumar, 
Prahlad Singh, Vijaynand Tripathi, Indrajit Prasad, Raj Bahadur Yadav, 
Mrs. Anil Katiyar, Advs. for the Respondents.
JUDGMENT / ORDER OF THE SUPREME COURT
JUDGMENT
NAGARATHNA, J.
Since leave has been granted in
Special Leave Petition Nos. 035895-
035901 of 2011, in the connected matters also leave is granted. 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC.
986
SUPREME COURT REPORTS 
[2023] 12 S.C.R.
2. In these cases, since common questions of law and facts arise, they 
have been clubbed together and are heard and disposed of by this common 
judgment. These appeals arise from the High Courts of Andhra Pradesh 
at Hyderabad pertaining to Secunderabad Club and the Madras High 
Court pertaining to Madras Gymkhana Club, Madras Cricket Club, The 
Coimbatore Cosmopolitan Club, Madras Club, M/s Wellington Gymkhana 
Club and M/s the Coonoor Club. 
Bird’s eye view of the controversy:
3. A short but interesting question of law arises in these cases, which 
is, whether the deposit of surplus funds by the appellant Clubs by way 
of bank deposits in various banks is liable to be taxed in the hands of the 
Clubs or, whether, the principle of mutuality would apply and the interest 
earned from the 1deposits would not be subject to tax under the provisions 
of the Income Tax Act, 1961 (hereinafter referred to as “the Act” for the 
sake of convenience). The High Courts in the impugned judgments have 
uniformly held that the interest earned on the bank deposits made by the 
clubs is liable to be taxed in the hands of the clubs and that the principle of 
mutuality would not apply. 
4. In the above context, the pertinent controversy is whether, the 
judgment of this Court in the case of Bangalore Club vs. Commissioner 
of Income Tax, (2013) 5 SCC 509 (“Bangalore Club”) calls for 
reconsideration in view of the earlier order of this Court in
Commissioner 
of Income Tax vs. M/s Cawnpore Club Ltd., Kanpur (“Cawnpore Club”)
disposed of by this Court on 05.02.1998 reported in (2004) 140 Taxman 
378 (SC).
5. While considering the above controversy, we dispose of these 
appeals by holding that the judgment in Bangalore Club does not call for 
reconsideration and these appeals could be disposed of in terms of the said 
judgment. We proceed to delineate on the subject and support our conclusion 
by ﬁ rst discussing the cases concerning Commissioner of Income Tax, Bihar 
vs. Bankipur Club Ltd., (1997) 5 SCC 394 (“Bankipur Club”); Cawnpore 
Club and Bangalore Club.
987
Triology of cases:
a) Bankipur Club
In this case, twenty-three cases including seven appeals which were 
de-linked were classiﬁ ed into ﬁ ve groups which are as under:
(i)  
Group A concerned the question with regard to proﬁ ts arising 
from the sales made to regular members of a club, being 
entitled to exemption on the doctrine of mutuality.
(ii)  
Group B was with regard to the question, whether, the income 
derived by a club from its house property let to its members 
and their guests was not chargeable to income tax and whether 
income derived by a club from the sale of liquor to its members 
and their guests was not taxable in its hands.
(iii)  
Group C cases pertained to the question, whether, chambers in 
the building of a club let out to members, annual value of a club 
house and pavilions and income earned from such properties 
owned by a club was liable to be taxed.
(iv)  
Group D cases were with regard to the question as to whether, 
an association consisting of ﬁ lm distributors and exhibitors 
incorporated as a company under Section 25 of the Companies 
Act, 1956 was liable to be taxed in respect of (a) admission fees, 
readmission fees, periodical subscriptions from the members 
etc., under the head “others” and (b) service charges from the 
members for rendering speciﬁ c services to the members under 
the head “service to the members”, or the same would not be 
taxable on the principle of mutuality.
(v)  
Group E concerned cases where the assessee clubs
had derived 
income from property let out and also interest received from 
Fixed Deposit Receipt (FDR), National Savings Certiﬁ cate 
(NSC), etc. by the clubs.
Paragraphs 4 and 19 of the Bankipur Club are relevant and they read 
as under:
4. …. the appeals coming within Group E — CIT v. Cawnpore 
Club Ltd. (seven appeals) are de-linked and they will be posted 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
988
SUPREME COURT REPORTS 
[2023] 12 S.C.R.
separately to be heard on merits. We shall indicate the reason for 
this a little later.
XXX
19. The above four sets of cases falling in Groups A to D shall 
alone be covered by this judgment. With regard to 7 cases/appeals 
falling in Group E, the assessee is Cawnpore Club Ltd. It is seen that 
the income that was sought to be assessed in the case of the assessee, 
was one derived from property let out and also interest received from 
FDR, NSC etc. In these cases, the Court held that income should be 
assessed as one from “other sources” and not income from property. 
It does not appear that the larger plea that the income is totally 
exempt on the principle of mutuality, was decided in favour of the 
assessee. In the appeals ﬁ led by the Revenue, the only question that 
may probably arise is, whether income received from the property 
let out and interest by way of FDRs, NSC etc. can be brought to tax 
under the head “income from property”. Since the issue raised in this 
batch of seven cases is not similar to or same as the one involved in 
the other cases coming under Groups A to D, we do not propose to deal 
either with the facts or the decisions rendered by the authorities in this 
batch of cases (Group E). All that we propose to do is to de-link the 
cases coming under Group E and direct them to be posted separately 
for hearing and disposal before an appropriate Bench.
(emphasis by us)
b) Cawnpore Club:
 Subsequent to
de-linking of Group E cases in respect of Cawnpore 
Club, the order dated 05.02.1998 passed in those batch of appeals which 
formed Group E cases reads as under:
“IN THE SUPREME COURT OF INDIA
Civil Appeal Nos. 4777-78 of 1989,4534 of 1991,1773 of 
1992,4303 of 1995, 3840 of 1996 and 8046 of 1995 
5 February 1998
Decided On: 05.02.1998
989
Appellants: Commissioner of Income Tax
Vs.
Respondent: Cawnpore Club Ltd.
In the Supreme Court of India B.K Kirpal & S.P. Kurdukar, JJ.
ORDER
1. One of the questions which the High Court had decided in 
other cases relating to the same assessee was that the doctrine of 
mutuality applied and, therefore, the income earned by the assessee 
from the rooms let out to its members could not be subjected to tax. 
No appeal had been ﬁ led against the said decision and the matters 
stood concluded as far as the assessee was concerned. This being so, 
no useful purpose would be served in proceeding with the appeals on 
the other questions when the respondent cannot be taxed because of 
the principle of mutuality. 
2. The appeals were accordingly dismissed. No order as to costs.”
(emphasis by us)
The aforesaid order was passed by a two-Judge Bench of this Court 
on 05.02.1998.
c) Bangalore Club:
Thereafter, the decision in the case of Bangalore Club was rendered 
by another two Judge Bench on 14.01.2013.
In Bangalore Club, the question was, whether, for the relevant 
assessment years, the said Club rightly sought an exemption from 
payment of income tax on the interest earned on the ﬁ xed deposits kept 
with certain banks, which were corporate members of the said club, on 
the basis of doctrine of mutuality. However, tax was paid on the interest 
earned on ﬁ xed deposits kept with non-member banks. In the said case, 
surplus amounts of the said Club were deposited in four banks
which 
were members of the said Club. The question that arose was, whether, 
the principle of mutuality would apply to the funds deposited in the said 
four banks. Having regard to the fact that the said funds were raised 
from contribution of several members including the four banks which 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
990
SUPREME COURT REPORTS 
[2023] 12 S.C.R.
were corporate members of the said Club and the interest derived from 
it was utilised by several members of the assessee Club, in the said case, 
the High Court nevertheless held that the principle of “no man can trade 
with himself” would not be available in respect of a nationalised banks 
holding a ﬁ xed deposit on behalf of its customer. That the relationship is 
one of a banker and a customer. Consequently, the High Court reversed 
the decision of the Tribunal and restored the order of the assessing oﬃ  cer. 
Hence, an appeal was ﬁ led by the assessee Bangalore Club before this 
Court. 
The question for determination before this Court was, whether, or not 
interest earned by the assessee on the surplus funds invested in ﬁ xed deposits 
with the corporate member banks is exempt from levy of income tax, based 
on the doctrine of mutuality. After appreciating the general understanding 
of the doctrine of mutuality in the context of the provision of the Act and by 
referring to New York Life Insurance Co. vs. Styles (Surveyor of Taxes), 
(1886-90) All ER Rep Ext 1362 (“Styles”) and other judgments of the House 
of Lords and the High Court of Australia and by referring to the Simon’s 
Taxes Vol. B. 3rd Edn., Paras B1.218 and B1.222 (pp.159 and 167) it was 
observed as under: 
“18. In short, there has to be a complete identity between the 
class of participators and class of contributors; the particular label or 
form by which the
mutual association is known is of no consequence. 
Kanga and Palkhivala explain this concept in The Law and Practice 
of Income Tax (8th Edn., Vol. I, 1990) at p. 113 as follows:
“1. Complete identity between contributors and 
participators.- ‘… The contributors to the common fund and 
the participators in the surplus must be an identical body. That 
does not mean that each member should contribute to the common 
fund or that each member should participate in the surplus 
or get back from the surplus precisely what he has paid.’ The 
Madras, Andhra Pradesh and Kerala High Courts have held that 
the test of mutuality does not require that the contributors to the 
common fund should willy-nilly distribute the surplus amongst 
themselves: it is enough if they have a right of disposal over 
the surplus, and in exercise of that right they may agree that on
991
winding up the surplus will be transferred to a similar association 
or used for some charitable objects.”
(emphasis supplied)
XXX
22. The second feature demands that the actions of the 
participators and contributors must be in furtherance of the mandate 
of the association. In the case of a club, it would be necessary to show 
that steps are taken in furtherance of activities that beneﬁ t the club, 
and in turn its members. Therefore, in Chelmsford Club, since the 
appellant provided recreational facilities exclusively to its members 
and their guests on “no-proﬁ t-no-loss” basis and surplus, if any, was 
used solely for maintenance and development of the Club, the Court 
allowed the exception of mutuality.
23. The mandate of the club is a question of fact and can be 
determined from the memorandum or articles of association, rules 
of membership, rules of the organisation, etc. However, the mandate 
must not be construed myopically. While in some situations, the 
beneﬁ ts may be evident directly in the short run, in others, they may 
be accruable to an organisation indirectly, in the long run. Space must 
be made for both such forms of interactions between the organisation 
and its members. Therefore, as Finlay, J. observed in National Assn. of 
Local Govt. Oﬃ  cers v. Watkins (Inspector of Taxes), where member 
of a club orders dinner and consumes it, there is no sale to him. At 
the same time, as in CIT v. Bankipur Club Ltd., where a club makes 
“surplus receipts”
from the subscriptions and charges for the various 
conveniences paid by members, even though there is no direct beneﬁ t 
of the receipts to the customers, the fact that they will eventually be 
used in furtherance of the services of the club must be considered as 
a furtherance of the mandate of the club.
24. Thirdly, there must be no scope of profiteering by the 
contributors from a fund made by them which could only be expended 
or returned to themselves. The locus classicus pronouncement comes 
from Rowlatt, J.’s observations in Thomas (Inspector of Taxes) v. 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
992
SUPREME COURT REPORTS 
[2023] 12 S.C.R.
Richard Evans & Co. Ltd. wherein, while interpreting Styles case, 
he held that if proﬁ ts are distributed to shareholders as shareholders, 
the principle of mutuality is not satisﬁ ed. He observed thus: (Richard 
Evans case, KB pp. 46-47)
“… But a company can make a proﬁ t out of its members 
as customers, although its range of customers is limited to its 
shareholders. If a railway company makes a proﬁ t by carrying 
its shareholders, or if a trading company, by trading with the 
shareholders even if it is limited to trading with them, makes 
a proﬁ t, that proﬁ t belongs to the shareholders in a sense, but 
it belongs to them qua shareholders. It does not come back to 
them as purchasers or customers; it comes back to them as 
shareholders upon their shares. Where all that a company does 
is to collect money from a certain number of people—it [does 
not matter] whether they are called members of the company 
or participating policy-holders—and apply it for the beneﬁ t of 
those same people, not as shareholders in the company, but as the 
people who subscribed it, then, as I understand Styles case, there 
is no proﬁ t. If the people were to do the thing for themselves, 
there would be no proﬁ t, and the fact that they incorporate a 
legal entity to do it for them makes no diﬀ erence; there is still 
no proﬁ t. This is not because the entity of the company is to be 
disregarded; it is because there is no proﬁ t, the money being
simply collected from those people and handed back to them, 
not in the character of shareholders, but in the character of those 
who have paid it. That, as I understand [it], is the eﬀ ect of the 
decision in Styles case .”
(emphasis supplied)
XXX
28. This brings us to the facts of the present case. As aforesaid, 
the assessee is an AoP. The banks concerned are all corporate members 
of the Club. The interest earned from ﬁ xed deposits kept with non-
member banks was oﬀ ered for taxation and the tax due was paid.
993
Therefore, we are required to examine the case of the assessee, in 
relation to the interest earned on ﬁ xed deposits with the member banks, 
on the touchstone of the three cumulative conditions, enumerated 
above.
29. Firstly, the arrangement lacks a complete identity between the 
contributors and participators. Till the stage of generation of surplus 
funds, the set-up resembled that of a mutuality; the ﬂ ow of money, 
to and fro, was maintained within the closed circuit formed by the 
banks and the Club, and to that extent, nobody who was not privy to 
this mutuality, beneﬁ ted from the arrangement. However, as soon as 
these funds were placed in ﬁ xed deposits with banks, the closed ﬂ ow 
of funds between the banks and the Club suﬀ ered from deﬂ ections 
due to exposure to commercial banking operations. During the course 
of their banking business, the member banks used such deposits to 
advance loans to their clients. Hence, in the present case, with the 
funds of the mutuality, the member banks engaged in commercial 
operations with third parties outside of the mutuality, rupturing the 
“privity of mutuality”, and consequently, violating the one-to-one 
identity between the contributors and participators as mandated by 
the ﬁ rst condition. Thus, in the case before us the ﬁ rst condition for a 
claim of mutuality is not satisﬁ ed.
30. As aforesaid, the second condition demands that to claim 
an exemption from tax on the principle of mutuality, treatment of the
excess funds must be in furtherance of the object of the club, which is 
not the case here. In the instant case, the surplus funds were not used 
for any speciﬁ c service, infrastructure, maintenance or for any other 
direct beneﬁ t for the member of the Club. These were taken out of 
mutuality when the member banks placed the same at the disposal of 
third parties, thus, initiating an independent contract between the bank 
and the clients of the bank, a third party, not privy to the mutuality. 
This contract lacked the degree of proximity between the Club and 
its member, which may in a distant and indirect way beneﬁ t the Club, 
nonetheless, it cannot be categorised as an activity of the Club in pursuit 
of its objectives. It needs little emphasis that the second condition 
postulates a direct step with direct beneﬁ ts to the functioning of the 
Club. For the sake of argument, one may draw remote connections 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
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SUPREME COURT REPORTS 
[2023] 12 S.C.R.
with the most brazen commercial activities to a Club’s functioning. 
However, such is not the design of the second condition. Therefore, 
it stands violated.
31. The facts at hand also fail to satisfy the third condition of the 
mutuality principle i.e. the impossibility that contributors should derive 
proﬁ ts from contributions made by themselves to a fund which could 
only be expended or returned to themselves. This principle requires 
that the funds must be returned to the contributors as well as expended 
solely on the contributors. True, that in the present case, the funds do 
return to the Club. However, before that, they are expended on non-
members i.e. the clients of the bank. The banks generate revenue by 
paying a lower rate of interest to assessee Club, that makes deposits 
with them, and then loan out the deposited amounts at a higher rate of 
interest to third parties. This loaning out of funds of the Club by the 
banks to the outsiders for commercial reasons, in our opinion, snaps 
the link of mutuality and thus, breaches the third condition.
32. There is nothing on record which shows that the banks made 
separate and special provisions for the funds that came from the Club, 
or that they did not loan them out. Therefore, clearly, the Club did not 
give, or get, the treatment a club gets from its members; the interaction 
between them clearly reﬂ ected one between a bank and its client. This 
directly contravenes
the third condition as elucidated in Styles and 
Kumbakonam Mutual Beneﬁ t Fund Ltd. cases.”
XXX
34. In the present case, the interest accrues on the surplus 
deposited by the Club like in the case of any other deposit made by 
an account-holder with the bank.
XXX
37. We may add that the assessee is already availing the beneﬁ t 
of the doctrine of mutuality in respect of the surplus amount received 
as contributions or price for some of the facilities availed of by its 
members, before it is deposited with the bank. This surplus amount 
was not treated as income; since it was the residue of the collections 
left behind with the Club. A façade of a club cannot be constructed
995
over commercial transactions to avoid liability to tax. Such set-ups 
cannot be permitted to claim double beneﬁ t of mutuality. We feel that 
the present case is a clear instance of what this Court had cautioned 
against in Bankipur Club, when it said: (SCC p. 22, para 22)
“22. … if the object of the assessee Company claiming 
to be a ‘mutual concern’ or ‘club’, is to carry on a particular 
business and money is realised both from the members and 
from non-members, for the same consideration by giving the 
same or similar facilities to all alike in respect of the one and 
the same business carried on by it, the dealings as a whole 
disclose the same proﬁ t-earning motive and are alike tainted 
with commerciality. In other words, the activity carried on by 
the assessee in such cases, claiming to be a ‘mutual concern’ 
or ‘members’ club’ is a trade or an adventure in the nature of 
trade and the transactions entered into with the members or non-
members alike is a trade/business/transaction and the resultant 
surplus is certainly proﬁ t—income liable to tax. We should also 
state, that ‘at what point, does the relationship of mutuality end 
and that of trading begin’ is a diﬃ  cult and vexed question. A host 
of factors may have to be considered to arrive at a conclusion. 
‘Whether or not the persons dealing with each other, is a “mutual 
club” or carrying on a trading activity or an adventure in the 
nature of trade’ is largely a question of fact. (Wilcock case, TC 
p.
132 : KB at pp. 44 and 45.)”
(emphasis supplied)
38. In our opinion, unlike the aforesaid surplus amount itself, 
which is exempt from tax under the doctrine of mutuality, the amount 
of interest earned by the assessee from the aforenoted four banks will 
not fall within the ambit of the mutuality principle and will therefore, 
be exigible to income tax in the hands of the assessee Club.
Canara Bank: 
Before proceeding to consider the submissions advanced at the Bar, 
it would be useful to discuss Canara Bank Golden Jubilee Staﬀ  Welfare 
Fund vs. Deputy Commissioner of Income Tax, (2009) 308 ITR 202 (Kar), 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
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SUPREME COURT REPORTS 
[2023] 12 S.C.R.
(“Canara Bank”) as learned senior counsel, Sri Datar, has relied upon 
the said judgment of the Division Bench of the High Court of Karnataka 
authored by one of us, Nagarathna J. In the said case, it was held that 
interest on investment and dividend on shares is governed by the principle 
of mutuality and therefore, not taxable, by relying on the decisions in 
Natraj Finance Corporation, (1988) 169 ITR 732 and Chelmsford Club 
(2000) 243 ITR 89 and by distinguishing the decision in I.T.I. Employees 
Death and Superannuation Relief Fund, (1998) 234 ITR 308 (Kar). The 
aforesaid conclusion was based on the source of fund of the assessee during 
the two relevant years. It was further observed therein that the source of 
fund was wholly contributed by the members of the assessee during the 
relevant assessment years and therefore, the income on the aforesaid two 
heads was held to be not taxable. The Special Leave Petition ﬁ led against 
the said judgment was dismissed by this Court by order dated 28.07.2009. 
However, two other High Courts namely, the Bombay High Court 
and the Madras High Court expressed reservations with respect to the 
observations in Canara Bank. Speaking through Dr. D.Y. Chandrachud J. 
(as the learned Chief Justice then was), the Bombay High Court observed 
in Commissioner of Income Tax vs. Common Eﬄ  uent Treatment Plant, 
(Thane-Belapur) Association, (2010) 328 ITR 362 that the judgment in 
Canara Bank had
struck a divergent note and therefore, the said judgment 
must be conﬁ ned to the special facts as they occur in that case. The Karnataka 
High Court, while dealing with the issue in Canara Bank placed a great 
deal of emphasis on the source of funds of the assessee. The Karnataka High 
Court clariﬁ ed that it was making it clear that its conclusion “is based on 
the source of funds of the assessee during the two relevant years”. It was 
pointed out that the mere fact that the funds which were invested in ﬁ xed 
deposits with the banks were funds which originated from the contributions 
made by the members of the assessee cannot conclude the question as 
regards the taxability of the receipts on account of interest obtained from 
the investment of these funds. According to the Bombay High Court these 
receipts must partake the character of income from other sources and would 
be exigible to tax.
In Madras Gymkhana Club Vs. Deputy Commissioner of Income 
Tax (2010) 328 ITR 348 (MAD) a Division Bench of the Madras High
997
Court observed that whatever was stated in Canara Bank will have to be 
construed in the special facts and circumstances of that case and it cannot 
have universal application. It was further observed that investment of surplus 
fund with some of the member banks and other institutions in the form of 
ﬁ xed deposits and security which in turn result in earning interest cannot 
be held to satisfy the mutuality concept. 
Submissions:
6. In the above backdrop of decisions of this Court as well as High 
Courts on the point of controversy, we shall now consider the rival 
submissions.
Submissions of Appellants:
6.1 The central theme of the submissions advanced by Sri Arvind 
Datar, learned senior counsel appearing for some of the appellant Clubs is 
that the two judge Bench Judgement of this Court in Bangalore club is not 
a binding precedent and therefore the same calls for reconsideration. In this 
regard, our attention was drawn to the order of another two-Judge Bench 
of this Court in the case of Cawnpore Club to contend that the judgment 
in Bangalore Club does not notice the order passed in Cawnpore Club,
the latter being in favour of appellant – assessees herein, and therefore, 
the judgment in Bangalore Club calls for reconsideration. In this regard, 
the judgment of the Karnataka High Court in Canara Bank was referred 
to and relied upon to contend that the principle of mutuality would apply 
even to interest earned from ﬁ xed deposits, National Savings Certiﬁ cates
etc. invested by the appellant-Clubs in various banks who may or may not 
be corporate members of these Clubs. 
6.2 Elaborating on the said contentions, Sri Datar, submitted that 
income by way of receipts by several clubs for supply of food and beverages, 
admission fees, making available sporting and other facilities, or by way 
of renting rooms, halls etc. are exempted from payment of income tax on 
the basis of the principle of mutuality. That in Bankipur Club, this Court 
had divided the cases into ﬁ ve groups (referred to above) and Group ‘E’ 
cases, which pertained to income earned from renting of rooms and interest 
earned from Fixed Deposits, National Savings Certiﬁ cates etc. were de-
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
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SUPREME COURT REPORTS 
[2023] 12 S.C.R.
linked. There were seven cases in Group “E’ which were not decided in 
Bankipur Club, but in the remaining cases, this Court upheld the principle 
of mutuality as being applicable to the income earned by the Club and held 
such income to be exempt from payment of income tax. In this regard, it was 
highlighted that the services oﬀ ered by a social club to its members are not 
with any proﬁ t motive and therefore, were not tainted with commerciality. 
Sri Datar submitted that subsequent to the delinking of the group “E” cases, 
this Court in Cawnpore Club held that the Revenue had not appealed with 
regard to the earnings from renting of rooms and that the other questions 
which arose in those appeals also included the question of interest earned 
on Fixed Deposit etc. invested in banks and it was held that such interest 
was also not taxable on the principle of mutuality. Therefore, the investment 
of surplus income made by the Clubs in the form of Fixed Deposits, Post 
Oﬃ  ce Deposits etc. were exempt from payment of income tax on the basis 
of the mutuality principle. 
6.3 It was next submitted that there is a direct conﬂ ict between the 
view taken in the case of Cawnpore Club and the judgment of this Court in 
Bangalore Club which are both two Judge Bench decisions. That from the 
year 2004 onwards till 2013, when the judgment in Bangalore Club was 
rendered by this Court, all interest earned from Fixed Deposits, Post Oﬃ  ce
Deposits, by the clubs, was entitled to exemption from payment of income 
tax since it was the surplus income of the clubs which was earned without 
any proﬁ t motive which was invested in the Banks and Post Oﬃ  ces and the 
interest income earned thereon was used exclusively for the beneﬁ t of the 
clubs and its members. However, the judgment in Bangalore Club reversed 
the entire prevalent view and denied exemption which was earlier available 
to the clubs. Thereafter, various High Courts have followed the judgment of 
this Court in Bangalore Club and have disregarded the earlier order passed 
by this Court in Cawnpore Club, which is not proper.
6.4 Learned senior counsel Sri Datar contended that there are glaring 
ﬂ aws in the reasoning of this Court in Bangalore Club and hence, the said 
judgment also being contrary to the order passed in Cawnpore Club, is 
not a binding precedent and is per incurium. Therefore, the judgment in 
Bangalore Club ought to be reconsidered and the matter may be referred 
to a larger Bench.
999
6.5 In this context, Sri Datar submitted that the decision in the 
Bangalore Club fails to note that when there is no proﬁ t motive in the 
activities of a club and despite the fact that surplus income is generated, its 
activities and income cannot be tainted with commerciality. That in the said 
decision it was observed that the interest earned from ﬁ xed deposits made in 
Banks, Post Oﬃ  ces etc. were held to be commercial in nature as the Banks 
have used them for commercial operations by lending the said amounts to 
third parties and earning a higher interest. Therefore, the essential ingredients 
for the application of the principle of mutuality being ruptured, exemption 
was not available to the banks, vis-à-vis, the interest income earned from 
the ﬁ xed deposits was the reasoning, which is contrary to the order passed 
in the case of Cawnpore Club. 
6.6 In this context, it was further sought to be contended that when the 
triple test for the applicability of the principle of mutuality is satisﬁ ed, the 
notion of rupture of mutuality or one to one identity could not have been the 
basis for denying the exemption from payment of income tax on the interest 
income generated by the clubs. In this context, our attention was drawn to 
another two-judge bench judgment of this Court in State of West Bengal vs. 
Calcutta Club Ltd., (2019) 19 SCC 107 wherein this Court observed that 
the principle of mutuality would apply to transactions covered within the 
scope of
Article 366 (29-A) (e) of the Constitution (that is on sale of food 
and beverages and services rendered to the members of the club).
6.7 While placing heavy reliance on the order passed by this Court in 
the case of Cawnpore Club which has not been noticed in the subsequent 
judgment in Bangalore Club, it was contended by Sri Datar that the order 
in Cawnpore Club attracts the doctrine of merger inasmuch as the judgment 
of the Allahabad High Court had merged with the order of this Court and 
consequently, the order of this Court became a binding precedent under 
Article 141 of the Constitution. Therefore, for not referring to the said 
precedent, the judgment in Bangalore Club is liable to be reconsidered. 
In this context, reliance was placed on decision of this Court in the case of 
Kunhayammed vs. State of Kerala, (2000) 6 SCC 359 (“Kunhayammed”) 
to contend that when a special leave petition is converted into a Civil Appeal, 
and a judgment is rendered in the Civil Appeal, the same is a binding 
precedent to be followed subsequently by all courts unless this Court ﬁ nds 
that the said decision requires reconsideration, in which event, the matter 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
1000
SUPREME COURT REPORTS 
[2023] 12 S.C.R.
will have to be referred to a larger Bench. The same not having been done, 
there are now two decisions which have taken diametrically opposite views, 
namely, in the case of Cawnpore Club and in the case of Bangalore Club
and hence, this batch of cases may be referred to a larger Bench for laying 
down the correct law on the point. 
6.8 It was also submitted that the ITAT, Hyderabad Bench, in Fateh 
Maidan Club vs. Assistant Commissioner of Income Tax in ITA Nos.937, 
939, 947and 952/Hyd/1995 and 716 to 720/Hyd/2000, Asst. yrs. 1983-84 
to 1997-98 dated 13.08.2023, has categorically noticed that this Court 
had aﬃ  rmed the judgment of the High Court in Cawnpore Club and had 
held in favour of assessee on all issues including the issue as to whether 
interest income earned by the clubs from ﬁ xed deposits made in the banks, 
post oﬃ  ces etc. would be exempt from tax on the basis of the principle 
of mutuality. Therefore, there was a consistency in the understanding of 
the order passed by this Court in Cawnpore Club and the same has now 
been diluted by the subsequent judgment of this Court in Bangalore Club. 
Therefore, the matter requires reconsideration and it is necessary to revisit 
and consider the correctness of the judgment of this Court in Bangalore 
Club and hence, these appeals could be referred to a larger Bench.
6.9 Sri Andhyarjuna, learned senior counsel at the outset referred 
to Sub-Section 24 of Section 2 of the
Act which deﬁ nes Income Tax and 
particularly clause (vii) which speaks about the proﬁ ts and gains of any 
business of insurance carried on by a mutual insurance company or by 
a co-operative society, computed in accordance with Section 44 or any 
surplus taken to be proﬁ ts and gains by virtue of provisions contained in 
the First Schedule of the Act. That there is an express inclusion under the 
said provision income earned by any business of insurance carried on by a 
mutual insurance company or by a cooperative society but all other entities 
such as social clubs do not come within the scope of the said provision. 
The reason being that such entities do notearn any proﬁ ts as such so as to 
be included within the deﬁ nition of income. In this regard, reference was 
also made to Section 56 of the Actwhich speaks about income from other 
sources. The said provision states that income of every kind which is not 
to be excluded from the total income under the Act is chargeable to income 
tax under the head, “Income from other sources” if it is not chargeable 
to income tax under any of the heads speciﬁ ed under items (a) to (e) of
1001
Section 14. Such income from other sources is in the nature of a revenue 
receipt. In so far as social clubs and mutual associations are concerned 
the character and nature of the receipt is immaterial. What is important is 
utilisation of the income earned by a club, which is only for the beneﬁ t 
of its members. Therefore, interest earned on ﬁ xed deposits made by the 
clubs being a source of income, it would not matter as to whether it is a 
capital or a revenue receipt.
6.10 It was next submitted that although the principle of mutuality is 
not deﬁ ned under the Act, the judicial precedent has been that income from 
interest earned on ﬁ xed deposits is not taxable. But the judgment of this 
Court in Bangalore Club has not taken into consideration the deﬁ nition 
of income, the facts as to utilisation of such income for the beneﬁ t of its 
members of a club and the nuances of the principle of mutuality. Therefore, 
the said judgment is not correct and is contrary to the previous of judgment 
of this Court in Cawnpore Club. 
6.11 It was next contended that although the decision in Cawnpore 
Club is termed as an “Order” it is nevertheless a reaﬃ  rmation of the judgment 
of the High Court, and therefore, the said “Order” would be a precedent for 
subsequent cases. But in Bangalore Club, a coordinate Bench of this Court 
has not considered the Order passed in Cawnpore Club and hence, there 
are now two judgments which are diametrically opposite on the question 
of the
application of the principle of mutuality to interest income earned 
by clubs. In this regard, our attention was also drawn to a judgment of the 
Telengana High Court in Jubilee Hills International Centre vs. Income 
Tax Oﬃ  cer reported in 2023 SCC OnLine TS 41, wherein it was observed 
that the Tribunal was not justiﬁ ed in taking a view that the principle of 
mutuality would not apply with reference to transactions entered into by 
the appellant therein with regard to non-permanent or non-life members. 
Learned senior counsel therefore, also contended that the judgment of this 
Court in Bangalore Club requires reconsideration. 
6.12 Learned senior counsel Sri Andhyarujinawith reference to the facts 
in the case of Secunderabad Club submitted that it is an association of persons 
which is a mutual association and the Club is a social or recreational Club 
existing solely for the beneﬁ t of its members. The main object of the Club 
is for promoting social activities including sports and recreation amongst 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
1002
SUPREME COURT REPORTS 
[2023] 12 S.C.R.
its members and various services can be availed by its members. That the 
surplus income generated by the Club consists of payments made by the 
members for use of the Club. The surplus income of the Club is deposited in 
banks by way of ﬁ xed deposits, post oﬃ  ces, national savings certiﬁ cates etc., 
which are the only modes in which the surplus income could be deposited 
having regard to the provisions of the Act. Therefore, the said deposits 
being surplus income generated by the Club from the members, through the 
activities of the Club, the interest earned on the said deposits is also exempt 
from payment of income tax on the principle of mutuality. It was submitted 
that irrespective of whether the banks are corporate members of the club or 
not, there is complete identity between the source of deposits made by the 
Club in banks, post oﬃ  ces etc. and the beneﬁ ciaries of the interest earned, 
as the interest earned on the said deposits are being used for the beneﬁ t of 
the members of the Club. It was further submitted that the members of the 
Club, as a class, contribute towards earning the surplus income and if the 
same is deposited in a bank, which is a corporate member and interest is 
earned which is ultimately used for the beneﬁ t of the members, the said 
transaction would attract the principle of mutuality. 
6.13 In this regard, it was pointed out that it was not right to reason that 
when ﬁ xed deposits are
made in banks by the clubs such as Secunderabad 
club and such funds are utilised by the banks for their lending and other 
business, there would be a rupture or diversion in the application of the 
principle of mutuality. It was highlighted that when the surplus income of 
the clubs is deposited in ﬁ xed deposit and interest earned on the said deposits 
is ultimately accounted for in the kitty of the clubs to be utilised for the 
beneﬁ t of the members of the clubs, there is no diversion of funds by the 
clubs to any member or to non-members. Just like any prudent individual 
who would invest surplus income in ﬁ xed deposits until the said amounts 
are needed for use, in the same way the clubs, instead of keeping the surplus 
income idle, are depositing the same in ﬁ xed deposits and when interest is 
generated on the said deposits, the same would ultimately ﬂ ow towards the 
use and expenditure for the beneﬁ t of the members of the clubs. Therefore, 
there is complete identity which is one of the essentials for application of 
the principle of mutuality and the same has been explained in the case of 
Calcutta Club with reference to the judgment in the case of Bangalore 
Club. That the three-judge Bench in Calcutta Club has categorically
1003
observed that the principle of mutuality is applicable to incorporated or 
unincorporated clubs even after the 46th Amendment to Article 366 (29-A) 
of the Constitution of India and therefore, by the said reasoning of the three-
Judge Bench, the judgment in Bangalore club would call for reconsideration.
6.14 Sri Kapur, learned senior counsel only highlighted with regard to 
the income earned from ﬁ xed deposits made by the clubs in member banks 
only. That in Bangalore Club, this Court had failed to distinguish between 
the two kinds of transactions, namely, one between the club and the banks 
and the other, between the banks and its borrowers which are totally disjunct 
and therefore, the reasoning in the judgment of this Court in Bangalore 
Club would call for a reconsideration. Our attention was also drawn to the 
judgment of this Court in CIT vs. Venkatesh Premises Coop. Society Ltd., 
(2018) 15 SCC 37, particularly, paragraph 19 thereof.
Submissions of respondents:
6.15 Sri Balbir Singh, learned senior counsel and Additional Solicitor 
General appearing for the respondent - Revenue at the outset submitted that 
the judgments impugned in these appeals would not call for any interference 
as they have proceeded on a correct analysis of the nature of transaction 
involved when the clubs invest their surplus income in Banks, Post Oﬃ  ces, 
or other similar deposits so as to earn interest thereon. It was contended 
that the judgment of this Court in Bangalore Club
squarely covers the facts 
and issues involved in these cases and the said judgment does not call for 
reconsideration. In this regard, it was submitted at the outset that the three-
Judge Bench decision in the case of Calcutta Club does not cover the issues 
involved in the present case and therefore, the same has to be distinguished. 
6.16 While dealing with the facts and the reasoning of this Court in 
Bangalore Club, it was contended by the learned ASG that as regards the 
generation of surplus funds, the principle of mutuality would apply but as 
soon as the funds are invested in the form of ﬁ xed deposits in the banks 
(whether corporate members of the club or not), in post oﬃ  ces or through 
national savings certiﬁ cates etc., the funds suﬀ er a deﬂ ection as a result 
of being exposed to commercial banking operations or operations of the 
post oﬃ  ces, which utilise the said funds deposited by the said clubs for 
advancing loans to their customers and thus, generating a higher income 
by lending it a higher rate to the third party customers and paying a lower 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
1004
SUPREME COURT REPORTS 
[2023] 12 S.C.R.
rate of interest on the ﬁ xed deposits made by the clubs. That this activity 
of the banks of utilising the funds of the clubs which are in the form of 
ﬁ xed deposits towards its banking activities with third parties who are 
outside the net of mutuality, is purely a commercial operation. Therefore, 
there is a rupture of the principle of mutuality,resulting in a breach of one 
of the conditions of the principle of mutuality, namely, identity between 
contributors and participators. That the surplus funds are not used directly 
by the clubs towards any speciﬁ c service, maintenance or any other direct 
beneﬁ t for the members of the club, but are deposited in the form of ﬁ xed 
deposits in banks to be at the disposal of the said banks for its operations 
vis-a-vis third parties, namely, customers of the banks. Therefore, there is no 
identity vis-a-vis the third parties being the customers of the banks and the 
members of the Clubs. Hence, the principle of mutuality would not apply. 
According to the learned ASG, this is so irrespective of whether the ﬁ xed 
deposits are made in banks which are corporate members of the clubs or in 
any other bank or post oﬃ  ces. That the interest accrued on the ﬁ xed deposits 
made by the clubs is similar in nature to any other banks’ deposit earning 
an interest made by any other customer of the bank during the course of 
banking operations and hence, it has a taint of commerciality which is
fatal 
to the principle of mutuality. 
6.17 It was next contended that for the application of principle of 
mutuality, there has to be a no-proﬁ t motive in the activities of the club, 
exclusively for the beneﬁ t of the members of the Clubs. Therefore, there 
cannot be avoidance of the liability to pay tax on such income earned by the 
clubs on the principle of mutuality. It was emphasised by the learned ASG 
that the relationship between the club with a bank as a customer of the banks 
is a business relationship just as any other customer of the bank would have 
a relationship with a bank and hence, the protection of mutuality cannot 
be invoked to such transactions which are purely commercial in nature. In 
this regard, our attention was drawn to various paragraphs of the judgment 
of this Court in the case of Bangalore Club to contend that the reasoning 
therein is just and proper which would not call for reconsideration by a 
reference to a larger Bench. 
6.18 Learned ASG also drew our attention to the fact that the Bombay 
High Court as well as the Madras High Court had not concurred with the 
judgment of the Karnataka High Court in Canara Bank and they observed
1005
that the said judgment may be restricted to the facts of that case alone and 
cannot act as a precedent particularly in view of the judgment of this Court 
in Bangalore Club. It was sought to be contended that the judgment in 
Bangalore Club, had impliedly overruled the decision of the Karnataka 
High Court in Canara Bank.
Learned ASG submitted that these appeals lack merit and therefore, 
the same may be dismissed. 
Reply Arguments:
6.19 By way of reply, learned senior counsel, Sri Datar, while brieﬂ y 
reiterating his submissions drew our attention to the fact that the special 
leave petition ﬁ led against the judgment of the Karnataka High Court in 
Canara Bank was dismissed and therefore, this Court having aﬃ  rmed 
the said judgment of the High Court, which is in line with the judgment 
of this Court in Cawnpore Club, the subsequent judgment in Bangalore 
Club taking a totally contrary view as held by this Court earlier, requires 
reconsideration. Therefore, the observations of the Bombay High Court as 
well as the Madras High Court on Canara Bank are not binding and are in 
the nature of obiter.
6.20 It was submitted that till the judgment of this Court in Bangalore 
Club was delivered, all the social clubs could claim exemption from payment 
of income tax on the interest income earned on the ﬁ xed deposits in banks, 
post oﬃ  ces etc., however,since 2013, the interest income is subject to tax 
which may be 30% or above which will greatly aﬀ ect the exchequer of
the 
clubs and reduce the surplus income at the hands of the club which would 
be prejudicial to the very existence of the social clubs which ultimately 
are non-proﬁ t entities. Learned senior counsel Sri Datar therefore, urged 
that there may be a reference to a larger Bench, for reconsideration of the 
decision in Bangalore Club, so as to beneﬁ t the assessee clubs. 
6.21 It was also reiterated that the Order in Cawnpore Club is a 
declaration of law and the same ought to have been considered by a 
Coordinate Bench of this Court in Bangalore Club. That the decision in 
Cawnpore Club is a fall out of the judgment in Bankipur Club and the 
same is of binding nature. While referring to the judgment of this Court 
in the case of Kunhayammed, Sri Datar submitted that the decision in 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
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SUPREME COURT REPORTS 
[2023] 12 S.C.R.
Cawnpore Club attracts the doctrine of merger and the said judgment 
would also be binding. 
6.22 It was reiterated that the aspect of proﬁ t motive cannot be 
attributed to clubs as the only intention behind depositing surplus funds of 
the clubs in a bank is a matter of prudence and the interest earned thereon 
along with the principal amount deposited would only be used for the beneﬁ t 
of the members of a club. Therefore, he urged that at the outset, this Bench 
may consider as to whether the judgment in Bangalore Club would call for 
reconsideration, while closing his arguments.
Points for Consideration:
7. Having heard learned senior counsel and counsel for the respective 
parties, we ﬁ nd that the following points would arise for our consideration:
a)  
Whether the judgment of this Court in Bangalore Club would 
call for reconsideration in light of the “Order” of this Court in 
Cawnpore Club?
b)  
Whether the interest on income earned by Clubs such as the 
appellants herein would be covered under the principle of 
mutuality and therefore be exempt from payment of tax?
c)  
What Order?
Principle of mutuality:
8. At the outset it would be useful to understand and discuss the 
principle of mutuality in the context of income tax law.
8.1 The principle of mutuality is rooted in common sense. A person 
cannot make a proﬁ t from herself. This implies that a person cannot earn 
proﬁ t 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 beneﬁ ciaries. 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. 
8.2 The landmark House of Lords precedent on the application of the 
doctrine of mutuality to the taxability of the surplus made by mutual beneﬁ t
1007
associations is the Styles case. The members of New York Life Insurance 
Company comprised its policyholders. The Company calculated insurance 
premium based on the estimated death rate in its membership. The surplus 
of premium collected after deducting the expenditure incurred towards 
insurance claims was returned to the members in the form of credit to their 
account. The question was whether the surplus returned to the members – 
being earned from and by holders of the participating policies - was liable 
to be assessed to income tax as proﬁ ts or gains. The insurance company 
sought to distinguish its case from Last vs. London Assurance Corporation, 
10 App. Cas. 438 (“London Assurance Corporation”), wherein surplus 
premiums credited to members of the insurance company were held to 
be exigible to tax. The Company argued that its premium income was not 
proﬁ t, and hence not amenable to income tax. The Queen’s Bench Division 
being of the opinion that the case could not be distinguished from London 
Assurance Corporation, held that the premium income of the Company 
received under participating policies was liable to be assessed to income 
tax and reversed the determination of the Commissioners. This decision 
was aﬃ  rmed by the Court of Appeal.
8.3 Against these decisions, the company brought an appeal before the 
House of Lords. The House of Lords was divided in the ratio 4:2 in the matter, 
with the majority holding that that no part of the premium income
received 
under participating policies was liable to be assessed to income tax as 
proﬁ ts or gains. That London Assurance Corporation was distinguishable, 
the income in that case being derived from transactions with persons who 
were not members and not from mutual insurances between members only.
8.4 The majority concluded that for income to be taxable, its source 
must be external to the Assessee. The fact that the Fund is a legal entity 
(for certain purposes) does not matter for, in the language of Lord Watson, 
it represented “the aggregate of its members and the members are the 
participators of its proﬁ ts.”Lord Halsbury and Lord Fitzgerald dissented. 
Lord Halsbury reasoned that the nature of business would be more relevant 
than the relationship between the parties. Lord Fitzgerald, in his dissenting 
opinion, concluded that the premiums earned by the insurance company, so 
transferred to its headquarters in New York, ‘for the purpose of investment 
there by the corporation, formed part of the proﬁ t of the concern, and 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
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[2023] 12 S.C.R.
became liable here to income tax.’ He adjudicated the dispute independently, 
without placing any reliance on London Assurance Corporation, which 
was sought to be distinguished by the Assessee. While acknowledging the 
diﬀ erence between the facts of both cases, to the extent that policyholders 
were members of the New York Life Insurance Company, but outsiders as 
regards London Assurance Corporation, it was concluded that ‘distinction 
creates no real diﬀ erence.’
Evolution of the principle of mutuality in India:
8.5 The Calcutta High Court also made a notable contribution to 
the evolution of the common law on mutuality. In Royal Calcutta Turf 
Club vs. Secretary of State, (1921) ILR 48 Cal 844 : AIR (1921) Cal 
633 : (1921) 1 ITC 108, the Calcutta High Court considered the case 
of an unincorporated club that carried on business within the meaning 
of the Excess Proﬁ ts Duty Act (10 of 1919). The Calcutta High Court 
reasoned that the proceeds generated by way of entrance fees charged 
from the public and the license fees credited by the book makers, would 
be assessable to income tax.
8.6 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 SCC 
OnLine PC 41, 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 
proﬁ ts from contributions made by them.
8.7 Substantial emphasis was placed on the pricing of the services 
oﬀ ered and the proﬁ t motive behind the same. It was noted that the English 
and Scottish Joint Co-operative Wholesale Society, Ltd. is not bound by 
its rules to sell its tea only to its members, but it could make no diﬀ erence 
if it were. The pertinent observations in this regard, are extracted as under:
1009
“No matter who the purchasers may be, if the society sells the 
tea grown and manufactured by it at a price which exceeds the cost 
of producing it and rendering it ﬁ t for sale, it has earned proﬁ ts which 
are, subject to the provisions of the taxing Act, taxable proﬁ ts.”
Given the deep-rooted common law tradition, Indian jurisprudence 
has had a rich engagement with the principle of mutuality, especially in the 
context of taxation. 
8.8 A Constitution Bench of this Court in CIT vs. Royal Western India 
Turf Club Ltd., AIR 1954 SC 85 rendered a signiﬁ cant judgment on this 
subject. Royal Western India Turf Club realised money from both members 
and non-members, in lieu of the same services rendered in the course of 
the same business. The Supreme Court held, as extracted below, that an 
exemption founded on the doctrine of mutuality could not be granted:
“23. As already stated, 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 beneﬁ t. 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 proﬁ ts 
as in any other commercial concern.”
This Court further reasoned that the principles of Styles case had no 
application to the case before it. This Court noted that ‘there is no mutual 
dealing between the members inter se in the nature of mutual insurance, no 
contribution to a common fund put up for payment of liabilities undertaken 
by each contributor to the other contributors and no refund of surplus to 
the contributors.
8.9 At this stage, it would be apposite to consider some English and 
American cases on the aspect of mutuality. 
8.9.1 In Walter Fletcher on his own behalf and on behalf of Trustees 
and Committee of Doctor’s Cave Bathing Club vs. the Commissioner of 
Income Tax (“Walter Fletcher”) reported in (1971) UKPC 30, the Privy 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
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SUPREME COURT REPORTS 
[2023] 12 S.C.R.
Council considered the question whether, the Doctor’s Cave Bathing Club 
at Montego Bay, Jamaica (appellant therein) was assessable to income 
tax on the proﬁ t element contained in receipts from certain hotels, whose 
guests had the right to use the said Club. It was observed therein that 
the expression “the mutuality principle” has been devised to express the 
basis for exemption of groups of persons making contribution towards the 
common purpose or any surplus over expenditure. That it is a convenient 
expression, but the situations it covers are not in all respects alike. In some 
cases, the essence of the matter is that the group of persons in question is 
not in any sense trading, so the starting point for an assessment for income 
tax in respect of trading proﬁ ts does not exist. In other cases, there may 
be in some sense a trading activity, but the objective or the outcome, is 
not proﬁ ts, it is merely to cover expenditure and to return any surplus, 
directly or indirectly, sooner or later, to the members of the group. These 
two criteria often, perhaps generally, overlap since one of the criteria of 
a trade is the intention to make proﬁ ts and a surplus comes to be called 
a proﬁ t if it derives from a trade. So, the issue is better framed as one 
question, rather than two: is the activity, on the one hand, a trade, or an 
adventure in the nature of trade, producing a proﬁ t, or is it on the other, a 
mutual
arrangement which, at most, gives rise to a surplus.
8.9.2 On the facts of the said case, it was observed that the disparity 
between the member of the club and the guest of the hotel (hotel members) 
was substantial. In other words, the members of the club were trading, 
earning proﬁ ts from the hotel which used to send their guests for using 
the club facilities, commensurate with their subscription. Therefore, any 
surplus income derived by the said Club from the hotel members was in the 
nature of proﬁ ts and therefore the nature of the transaction being a trading 
transaction, the income thus generated was liable for tax. 
8.9.3 Reference was made to the case of The Carlisle & Silloth Golf 
Club vs. Smith, (1912) 6 TC 48, which brings out the distinction between 
members, contributing on a mutual basis in order to secure an amenity, and 
outsiders admitted to participate in amenities on payment, with whom the 
club is trading. At what point, does the relationship of mutuality end and that 
of trading begin? That is the critical and diﬃ  cult question and the relevance 
of facts is to ascertain the nature of the activity. It was observed that it is
1011
not an essential condition of mutuality that contributions to the fund and 
rights in it should be equal; but if mutuality is to have any meaning, there 
must be a reasonable relationship, contemplated or in result, between what 
a member contributes and what with due allowance for interim beneﬁ ts of 
enjoyment, he may expect or be entitled to draw from the fund i.e., there 
ought to be a relationship between his liabilities and his rights. 
8.9.4 In Revesby Credit Union Cooperative Ltd. vs. Federal 
Commissioner of Taxation, (1965) 112 CLR 564, the High Court of Australia 
considered the question, whether, principle of mutuality applies to deprive 
the dividend of the character of income. It was observed that the principle of 
mutuality seems to be settled in cases where a number of people contribute 
to a fund created and controlled by them for a common purpose. In such 
cases, any surplus paid to the contributors after the use of the fund for the 
common purpose is not income but is to be regarded as a mere repayment 
of the contributor’s own money vide Bohemians Club vs. Acting Federal 
Commissioner of Taxation, (1918) 24 CLR 334. Incorporation of the fund 
is not relevant vide Styles. What is required is that the fund must have 
been created for the common purpose and owned or controlled wholly by 
the contributors. If it is owned or controlled by anyone else the principle 
cannot apply vide Equitable Life Assurance Society of the United States 
vs. Bishop, (1900)
1 QB 177. Furthermore, any contributions to the fund 
derived from sources other than the contributors’ payments, such as interest 
from the investment of part of the fund, or income from a business activity 
conducted by the members, cannot be taken into account in computing the 
surplus vide Carlisle and Silloth Golf Club vs. Smith (supra). Also, the 
cases establish that the principle cannot apply unless at any given point in 
time the contributors to the fund are identical with the beneﬁ ciaries of the 
distribution of the surplus vide Styles (supra).
8.9.5 While applying the aforesaid dicta to the facts of the said case, it 
was held that the principle of mutuality cannot apply to deprive the dividend 
of the character of income. The dividend in question therein was the surplus 
of revenue over expenditure. The greater part of the revenue was drawn 
from two sources namely, interest on loans to members and interest on 
investments in associated credit societies. The contributors to the revenue 
are those members who had current loans and the societies in which money 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
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SUPREME COURT REPORTS 
[2023] 12 S.C.R.
was invested. However, the beneﬁ ciaries of the payment of the dividend 
were all the members. It was observed that the revenue earned was by virtue 
of the society’s business dealings with a number of its members and should 
be classed as income.
8.9.6 In Re: Commissioner of Taxation And: Australian Music 
Traders Association, (1990) FCA 261, the case pertained to the Australian 
Music Traders Association, a mutual association. The controversy was 
whether such a mutual association or organization which received income 
from an activity would fall within the mutuality principle. In the said case, 
reference was made to Walter Fletcher (supra) and the test enunciated 
therein by Lord Wilberforce with regard to the nature of an activity 
undertaken by a mutual association or a club namely, whether, the activity 
is a trade or an adventure in the nature of trade, producing a proﬁ t, or is 
it, a mutual arrangement which, wholly gives rise to a surplus. In the said 
case, the activity in question was the holding of a music traders’ trade fair. 
In the years prior to the subject year of income, the Association itself had 
organised the trade fairs and let out stalls to music traders. Although the 
rental income received by the Association from such stall holders who were 
members of the Association was accepted to be mutual, nevertheless, as the 
individual traders displayed and sold their wares to members of the public, 
it was
doubted whether the fairs had a mutual character. Traders, many of 
whom were not members of the Association, carried on their individual 
businesses. The rental paid was calculated according to the space occupied 
or leased by the stall holder for the purposes of his own business activity. In 
the year of income in question, the Association had arranged for a separate 
organisation, namely, Exhibition and Trade Fair Pvt. Ltd., to organise the 
fair. The fee which the Association received from the organiser was ﬁ xed 
by their agreement, though referrable in part to the total space sublet by 
the organiser to members of the Association and non-members alike. It was 
observed that no strand of mutuality remained as no contribution was made 
by any member of the Association to the Association in respect of the fair. 
That the amount paid by the organiser of the fair to the Association was not 
a fee payable by the members of the Association into a common fund and 
the fair, though it beneﬁ tted members of the Association, was not a mutual, 
non-proﬁ t activity. Its essence was that of trading for proﬁ t by individual 
traders, though through the medium of a common activity, the fair. Therefore,
1013
it was observed that the Association’s receipts from the organiser of the fair 
were not receipts which had a mutual character. The receipts were income 
assessable to tax. 
8.9.7 Discussing the early formulations of the mutuality principle 
which was generally associated with insurance, reference was also made 
to Styles (supra) which was followed in Jones vs. South-West Lancashire 
Coal Owners’ Association Limited, (1927) AC 827 (Jones). Five years 
later, in Municipal Mutual Insurance Limited vs. Hills, (1932) 16 TC 
430, the House of Lords distinguished Styles and Jones. The facts in the 
latter case were that the appellant therein was formed by various local 
authorities primarily for the purpose of enabling them to insure against 
ﬁ re, on favourable terms. The eﬀ ective control of the said Company was 
held by ﬁ re policy holders, who alone were entitled to the surplus assets 
of the Company on winding up of the Company. However, in the course 
of time, the Company also undertook an extensive business in employers’ 
liability and other insurances, both with existing ﬁ re policy holders and 
others. The revenue conceded that the ﬁ re insurance business is a business 
of mutual insurance which did not attract liability to income tax. The 
appellant company therein agreed that it was liable for tax on its proﬁ ts 
from employers’ liability and other insurances undertaken on behalf of 
persons who were not ﬁ re policy holders. However, there was an issue 
between the
parties as to whether the appellant company was liable to pay 
tax on the proﬁ ts which it earned on such other insurances, with ﬁ re policy 
holders. At ﬁ rst instance, Justice Rowlatt dealt with the critical question 
and analysed that in the said case there was no distinction between what 
is made out of a member in respect of non-ﬁ re business and what is made 
out of a stranger in respect of non-ﬁ re business; the member is a stranger. 
He is not, as a miscellaneous policy holder, getting any share in the 
miscellaneous policy business. The miscellaneous policy business is done 
for the beneﬁ t of the body of ﬁ re policy holders. Therefore, revenue earned 
out of ﬁ re insurance business of the company by the members who were 
all ﬁ re policy holders was a business of mutual insurance which did not 
attract liability to income tax but the revenue earned from miscellaneous 
policy business was taxable. The position was compared to a shareholder 
of a railway company who buys a ticket to travel by train; for this purpose, 
he is merely an outsider. 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
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SUPREME COURT REPORTS 
[2023] 12 S.C.R.
8.9.8 The aforesaid analysis of Rowlatt J. was aﬃ  rmed by the Court 
of Appeal as well as by the House of Lords. The House of Lords clariﬁ ed 
that insofar as surplus income arising from a ﬁ re policy, they are really 
entitled to the money as being those who contributed it and, accordingly, 
it has been admitted that any proﬁ t made on the ﬁ re policies is governed 
by the Styles case (supra). But as regards employers’ liability business and 
miscellaneous business the surplus it did not go to the contributors for, as 
ﬁ re policy holders in a body, they had not contributed and therefore this 
business was in the same position as business with complete outsiders, the 
surpluses in which are admitted to be proﬁ t.
8.9.9 Reference was also made to another Australian decision in the 
case of Social Credit Savings and Loans Society Limited vs. Commissioner 
of Taxation, (1971) 125 CLR 560, wherein the necessity for identicality 
between the contributors to the common fund and the participators in it, 
was emphasised.
8.9.10 Reference was also made to Sydney Water Board Employees’ 
Credit Union Limited vs. Commissioner of Taxation, (1973) 129 CLR 446 
which is a decision of the Full High Court of Australia. In the said case, 
the facts are interesting. The taxpayer was a credit union which borrowed 
money from its members. It also borrowed money, to a smaller amount, 
from non-members, on ﬁ xed deposit. The money borrowed was re-lent
by 
it to members, but the class of borrowing members was not identical with 
the class of lending members; some borrowing members did not lend money 
to the taxpayer, and some lending members did not borrow. The taxpayer 
received interest on the money lent by it, and obtained surpluses over its 
expenditure. The issue was whether the interest received by the credit union 
from its members was taxable under the Australian Income Tax Act. The 
Court unanimously held that the interest was taxable. 
8.9.11 While considering the application of the mutuality principle 
in the said case, it was held that there were two impediments: that precise 
identicality between the individuals contributing to a fund and the 
participants in that fund was no longer required. However, there ought be 
a “reasonable relationship” between contributions and beneﬁ ts and that no 
such relationship existed, as all members of the Association had not taken 
space at the 1984 Australian Music Exhibition. Secondly, it was observed
1015
that the money received by the Association in respect of the exhibition was 
not the money held on behalf of individual members. The money became 
part of the general funds of the Association, to be dealt with as the members 
of the Association might see ﬁ t from time to time, but without any obligation 
to those members who had taken space at the 1984 exhibition. Till 1984, 
the Association used to organise the fair itself using voluntary members’ 
labour but in 1985, the fair was organised by a professional organiser i.e., 
through the Company (Exhibition and Trade Fairs Pty Limited). There 
were forty-eight exhibitors out of which only twenty-nine were members 
of the Association. The claim was initially rejected by the Commissioner 
of Income Tax on the basis that the receipt must be treated as an ordinary 
trading receipt received in the course of the Association’s business. It was 
held that the principle of mutuality did not apply. Ultimately, the High Court 
of Australia by a majority of 2:1 held that the Commissioner was right and 
aﬃ  rmed his decision and set aside the decision of the Tribunal.
Analysis:
9. While considering the questions that arise in these appeals, we have 
to take into account the following aspects: 
a)  
Whether the Order of this Court in Cawnpore Club is a binding 
precedent which ought to have been taken note of and considered 
by a Co-ordinate Bench of this Court while deciding the case of 
Bangalore Club?
b)  
Whether the judgment of
the Karnataka High Court in Canara 
Bank has to be restricted to the facts of the said case although 
the special leave petition ﬁ led against the said judgment was 
dismissed by this Court?
c)  
Whether a Coordinate Bench of this Court has rightly decided 
the case of Bangalore Club? 
10. Learned senior counsel, Sri Datar, placed heavy reliance on the 
judgment of this Court in Kunhayammed vs. State of Kerala, AIR (2000) 
SC 2587, to contend that once an appeal has been preferred or a petition 
seeking leave to appeal has been converted into an appeal before the Supreme 
Court, that is, once leave has been granted in a Special Leave Petition, the 
appellate jurisdiction of the Supreme Court is invoked and the judgment or 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
1016
SUPREME COURT REPORTS 
[2023] 12 S.C.R.
order passed in appeal would attract the doctrine of merger. The order may 
be of reversal, modiﬁ cation or merely of aﬃ  rmation. That in the case of 
Cawnpore Club, the order of this Court clearly attracts the doctrine of merger 
inasmuch as this Court gave its imprimatur to the judgment of the Allahabad 
High Court impugned in those civil appeals by categorically stating that the 
doctrine of mutuality would apply in the context of the interest earned on 
ﬁ xed deposits made in a bank by Cawnpore Club. If that be so, then the law 
declared by the Supreme Court in the case of Cawnpore Club would be a 
binding precedent and ignoring the said judgment in a subsequent case, a 
Coordinate Bench of this Court had passed a contradictory judgment, i.e., 
in the case Bangalore Club. Therefore, it was contended that the judgment 
of this Court in Bangalore Club being per incuriam, cannot have any 
precedential value and if this Bench is to accept the said position, then 
the earlier order passed by this Court in Cawnpore Club must be applied 
in the instant case, or in the alternative, the matter could be referred to a 
larger Bench for considering the correctness or otherwise of the judgment 
in Bangalore Club.
11. While considering the said submission, it is noted that in Bankipur 
Club, in so far as the Group A and D cases were concerned, it was held that 
the principle of mutuality applied and therefore, income earned from such
activities was exempt from taxation. As already noted above in Bankipur 
Club, Group “E” cases in which the assessee clubs earned income from 
interest received from ﬁ xed deposits receipts (FDR) and National Savings 
certiﬁ cates (NSC etc.) were de-linked, to be posted separately to be heard 
on merits. In paragraph 19 of the judgment in Bankipur Club, the reasons 
for segregation or delinking of the cases falling under Group “E” has been 
speciﬁ cally stated, the reason being that in those appeals, the question was 
with regard to income earned from letting out property only. Thereafter in 
Cawnpore Club, another Coordinate Bench noted that the High Court had 
decided that “the income earned from the assessee from the rooms let out to 
its members could not be subjected to tax”. No appeal had been ﬁ led against 
the said decision by the Revenue on that point and therefore, the matter stood 
concluded in so far as the assessee therein, namely, Cawnpore Clubwas 
concerned. Having said that, it was further observed that no useful purpose 
would be served in proceeding with the appeals on the other questions when 
the respondent cannot be taxed by virtue of the principle of mutuality. This
1017
Court did not spell out what “the other questions” were in respect of which 
the respondent Cawnpore Club could not be taxed owing to the principle 
of mutuality. It must be remembered that the appeal had been ﬁ led by the 
Revenue against Cawnpore Club and not vice-versa. In the absence of there 
being even an indication as to “the other questions” in respect of which, this 
Court found that the proceedings in the appeals ﬁ led by the Revenue could 
not be continued because of the principle of mutuality, such an observation 
would not imply that the order passed in the said case is a binding precedent 
within the scope and meaning of Article 141 of the Constitution. It must be 
remembered that the appeals in the case of Cawnpore Club were ﬁ led by 
the Revenue and merely because the Revenue did not press its appeal in 
respect of the other aspects of the case and this Court found that the income 
earned by the assessee from the rooms let out to its members could not be 
subjected to tax on the principle of mutuality, it would not mean that the 
other questions which were not pressed by the Revenue in the said appeal 
stood answered in favour of the asseesse and against the Revenue. On the 
other hand, in the absence of there being any indication in the order as to 
what “the other questions” were in respect of which the principle of mutuality 
applied, in our view, there is no ratio decidendi emanating from the said 
order which would be a binding precedent for
subsequent cases. In view of 
the disposal of Revenue’s appeals in the case of Cawnpore Club by a brief 
order sans any reasoning and dehors any ratio, cannot be considered to be 
a binding precedent which has been ignored by another Coordinate Bench 
of this Court while deciding Bangalore Club. In our view, the Order passed 
in Cawnpore Club binds only the parties in those appeals and cannot be 
understood as a precedent for subsequent cases. 
12. In this regard, it would be useful to refer to the judgment of the 
Division Bench of the Patna High Court in Patna Golf Club vs. CIT, 2016 
SCC OnLine Patna 2067 (Misc. Appeal No. 541 of 2007) wherein after 
referring to Bankipur Club and the order passed subsequently in Cawnpore 
Club, it was observed that on a reading of the order of this Court in Cawnpore 
Club, no inference could be drawn to the eﬀ ect that the principle of mutuality 
would apply to interest income earned on ﬁ xed deposits made in the banks. 
It was further observed that interest earned on income cannot be part of 
income from house property and consequently, it is income from other 
sources. Reference was also made to Sports Club of Gujarat Ltd. vs. CIT, 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
1018
SUPREME COURT REPORTS 
[2023] 12 S.C.R.
171 ITR 504 to observe that when income is derived from investments in 
ﬁ xed deposits in Banks, it is derived from a third party and is not by way 
of contributions of the members of the club and therefore, such interest 
earned on income is taxable and the principle of mutuality would not apply.
Ratio decidendi:
13. It is a settled position of law that only theratio decidendi of a 
judgment is binding as a precedent. In B. Shama Rao vs. Union Territory 
of Pondicherry, AIR 1967 SC 1480, it has been observed that a decision 
is binding not because of its conclusion but with regard to its ratio and the 
principle laid down therein. In this context, reference could also be made 
to Quinn vs. Leathem, 1901 AC 495 (HL), wherein it was observed that 
every judgment must be read as applicable to the particular facts proved, 
or assumed to be proved, since the generality of the expressions which 
may be found there are not intended to be expositions of the whole law, 
but governed and qualiﬁ ed by the particular facts of the case in which such 
expressions are found. In other words, a case is only an authority for what 
it actually decides. 
14. Reliance could also be placed on the dissenting judgment of A.P. 
Sen, J. in Dalbir Singh vs. State of Punjab, (1979) 3 SCC 745, wherein his 
Lordship observed that a decision on a question of sentence depending upon 
the facts and circumstances of a particular case, can never be regarded as a
binding precedent, much less “law declared” within the meaning of Article 
141 of the Constitution so as to bind all courts within the territory of India. 
According to the well-settled theory of precedents, every decision contains 
three basic ingredients:
(i)  ﬁ ndings of material facts, direct and inferential. An inferential 
ﬁ nding of fact is the inference which the Judge draws from the 
direct or perceptible facts;
(ii)  statements of the principles of law applicable to the legal 
problems disclosed by the facts; and
(iii)  judgment based on the combined eﬀ ect of (i) and (ii) above.
For the purposes of the parties themselves and their privies, ingredient 
(iii) is the material element in the decision, for, it determines ﬁ nally their
1019
rights and liabilities in relation to the subject-matter of the action. It is the 
judgment that estops the parties from reopening the dispute. However, for 
the purpose of the doctrine of precedent, ingredient (ii) is the vital element 
in the decision. This is the ratio decidendi. It is not everything said by a 
judge when giving a judgment that constitutes a precedent. The only thing 
in a judge’s decision binding a party is the principle upon which the case is 
decided and for this reason it is important to analyse a decision and isolate 
from it the ratio decidendi. 
15. In the leading case of Qualcast (Wolverhampton) Ltd. vs. Haynes, 
1959 AC 743, it was laid down that the ratio decidendi may be deﬁ ned as a 
statement of law applied to the legal problems raised by the facts as found, 
upon which the decision is based. The other two elements in the decision 
are not precedents. A judgment is not binding (except directly on the parties 
to the lis themselves), nor are the ﬁ ndings of fact. This means that even 
where the direct facts of an earlier case appear to be identical to those of 
the case before the court, the judge is not bound to draw the same inference 
as drawn in the earlier case.
16. The legal principles guiding the decision in a case is the basis for a 
binding precedent for a subsequent case, apart from being a decision which 
binds the parties to the case. Thus, the principle underlying the decision 
would be binding as a precedent for a subsequent
case. Therefore, while 
applying a decision to a later case, the court dealing with it has to carefully 
ascertain the principle laid down in the previous decision. A decision in 
a case takes its ﬂ avour from the facts of the case and the question of law 
involved and decided. However, a decision which is not express and is 
neither founded on any reason nor proceeds on a consideration of the issue 
cannot be deemed to be law declared, so as to have a binding eﬀ ect as is 
contemplated under Article 141, vide State of Uttar Pradesh vs. Synthetics 
and Chemicals Ltd. (1991) 4 SCC 139. Article 141 of the Constitution 
states that the law declared by the Supreme Court shall be binding on all 
the courts within the territory of India. All courts in India, therefore, are 
bound to follow the decisions of Supreme Court. This principle is an aspect 
of judicial discipline. 
17. If a decision is on the basis of reasons stated in the decision or 
judgment, only the ratio decidendi is binding. The ratio or the basis of 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
1020
SUPREME COURT REPORTS 
[2023] 12 S.C.R.
reasons and principles underlying a decision is distinct from the ultimate 
relief granted or manner of disposal adopted in a given case. It is the ratio 
decidendi which forms a precedent and not the ﬁ nal order in the judgment, 
vide Sanjay Singh vs. Uttar Pradesh Public Service Commission, 
Allahabad; (2007) 3 SCC 720. Therefore, the decision applicable only to 
the facts of the case cannot be treated as a binding precedent. 
18. The doctrine of binding precedent helps in promoting certainty and 
consistency in judicial decisions and enables an organic development of the 
law besides providing assurance to individuals as to the consequences of 
transactions forming part of daily aﬀ airs. Thus, what is binding in terms of 
Article 141 of the Constitution is the ratio of the judgment and as already 
noted, the ratio decidendi of a judgment is the reason assigned in support 
of the conclusion. The reasoning of a judgment can be discerned only 
upon reading of a judgment in its entirety and the same has to be culled out 
thereafter. The ratio of the case has to be deduced from the facts involved in 
the case and the particular provision(s) of law which the court has applied 
or interpreted and the decision has to be read in the context of the particular 
statutory provisions involved in the matter. Thus, an order made merely to 
dispose of the case cannot have the value or eﬀ ect of a binding precedent.
19. What is binding,
therefore, is the principle underlying a decision 
which must be discerned in the context of the question(s) involved in 
that case from which the decision takes its colour. In a subsequent case, a 
decision cannot be relied upon in support of a proposition that it did not 
decide. Therefore, the context or the question, while considering which, a 
judgment has been rendered assumes signiﬁ cance. 
20. As against the ratio decidendi of a judgment, an obiter dictum is 
an observation by a court on a legal question which may not be necessary 
for the decision pronounced by the court. However, the obiter dictum of the 
Supreme Court is binding under Article 141 to the extent of the observations 
on points raised and decided by the Court in a case. Although the obiter 
dictum of the Supreme Court is binding on all courts, it has only persuasive 
authority as far as the Supreme Court itself is concerned. 
21. In the context of understanding a judgment, it is well settled that 
the words used in a judgment are not to be interpreted as those of a statute. 
This is because the words used in a judgment should be rendered and
1021
understood contextually and are not intended to be taken literally. Further, 
a decision is not an authority for what can be read into it by implication 
or by assigning an assumed intention of the judges and inferring from it a 
proposition of law which the judges have not speciﬁ cally or expressly laid 
down in the pronouncement. In other words, the decision is an authority for 
what is speciﬁ cally decides and not what can logically be deduced therefrom. 
22. Further, the precedential value of an order of the Supreme Court 
which is not preceded by a detailed judgment would be lacking inasmuch 
as an issue would not have been categorically dealt with. What is of essence 
in a decision is its ratio and not every observation found therein, nor what 
logically follows from the various observations made therein.
23. Another important principle to be borne in mind is that declaration 
of the law by the Supreme Court can be said to have been made only when it 
is contained in a speaking order, either expressly or by necessary implication 
and not by dismissal in limine. In the words of Mukherji, CJ, in DTC vs. DTC 
Mazdoor Congress Union, AIR 1991 SC 101, the expression ‘declared’ is 
wider than the words ‘found or made’. The latter expression involves the 
process, while the former expresses the result. 
24. In view of the aforesaid discussion, we think that we cannot 
accept the argument advanced by learned Sr. Counsel, Sri Datar, for the 
following reasons: ﬁ rstly, the
Order in Cawnpore Club is not on the basis 
of any reasoning or a deduction made as to whether on the interest earned 
on ﬁ xed deposits made by a club in a bank, income tax would be attracted 
or not. In the absence of any deduction or reasoning or analysis, the said 
order cannot carry precedential value so as to be binding on this Court in a 
subsequent case. This is because there is no discernable ratio decidendi in 
the said Order. Of course, the said Order would bind the parties to the case. 
While carefully reading the Order passed by this Court in Cawnpore Club, 
it can be discerned that the High Court had clearly spelt out that in the case 
of income earned from letting out of rooms/property to its members, the 
same would not be subjected to tax. On the aforesaid aspect, the revenue 
had not ﬁ led any appeal before this Court, and therefore, on that aspect the 
matter should conclude in favour of the assessee therein i.e. Cawnpore Club. 
Secondly, without going into the other aspects of the case, this Court simply 
noted that the assessee therein (Cawnpore Club) could not be taxed on the 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
1022
SUPREME COURT REPORTS 
[2023] 12 S.C.R.
principle of mutuality, therefore, it would not serve any purpose to proceed 
with the appeals on the other questions. What those other questions were 
has not been spelt out in the order nor have reasons been assigned as to on 
what aspect or activities of the said Club and its transactions the principle 
of mutuality would apply. In the absence of there being any clear indication 
in the discussion or analysis and there being a simple closure of a case, it 
would clearly imply that the doctrine of mutuality would apply only to those 
activities to which it would normally apply. That is diﬀ erent from saying 
that even in the case of income earned by a club from non-members or 
income earned from investment made by a club in ﬁ xed deposits in a bank 
would attract the principle of mutuality and therefore, no tax is payable. 
Thirdly, if an order of this Court is brief and meant only for the purpose of 
closure of the controversy involved in a particular case and with a view to 
conclude the case, undoubtedly, such an order is binding on the parties to 
the said order, but in our view, it cannot act as a precedent for subsequent 
cases such as the present one with which we are dealing. 
25. In fact, in paragraph 19 of Bankipur Club, while considering the 
interest income received on ﬁ xed deposits, this Court observed that such 
income could be considered as income from other sources and not income 
from property. It was further
observed by this Court, “It does not appear 
that the larger plea that the income is totally exempt on the principle of 
mutuality, was decided in favour of the assessee.”. It was in the above context 
that the Group “E” cases were segregated as this Court was of the view that 
the income earned from the property let out and also interest received on 
the ﬁ xed deposits could be considered separately. 
26. When the appeals were considered thereafter in the case of 
Cawnpore Club this Court simply applied the principle of mutuality to the 
income earned by the club from rooms rented out to its members as not being 
subject to tax. As far as the other questions were concerned, this Court only 
observed that “no useful purpose would be served in proceeding with the 
appeals on the other questions when the respondent cannot be taxed because 
of the principle of mutuality.” This observation in Cawnpore Club must 
be juxtaposed with the observations expressed above in Bankipur Club.
When the aforesaid observations made in Cawnpore Club are considered in 
light of the larger plea, we ﬁ nd that the same was not answered in Bankipur
1023
Club nor in Cawnpore Club. But, the subsequent decision in Bangalore 
Club ultimately answered the said larger plea through a detailed reasoning. 
Therefore, it cannot be held that the short order passed in Cawnpore Club 
is a precedent which was ignored by a Coordinate Bench of two judges in 
Bangalore Club, so as to make the latter decision per incuriam. On the other 
hand, we are of the view that the larger plea which was neither considered 
in Bankipur Club nor in Cawnpore Club was ultimately considered and 
answered in Bangalore Club by a detailed judgment. 
27. Therefore, we do not ﬁ nd any fault in a subsequent Coordinate 
Bench of this Court in Bangalore Club in not noticing the Order passed 
in the case of Cawnpore Club while dealing, in a detailed manner, on the 
taxability of the income earned from the interest on ﬁ xed deposits made by 
the said Club in banks, whether the banks are members of the clubs or not. 
Thus, not much can be read into the Order dated 05.02.1988 passed in the 
case of Cawnpore Club so as to hold that the same was law declared by 
this Court within the meaning of Article 141 of the Constitution and hence, 
is a binding precedent which ought to have been followed by a subsequent 
Coordinate Bench of this Court in Bangalore Club and the same not having 
been done, renders the judgment in Bangalore Club vulnerable or vitiated. 
In the circumstances, we do not ﬁ nd it necessary and justiﬁ ed to refer the 
judgment of this Court in
Bangalore Club to a Larger Bench on this ground. 
Further, we also think that the order dated 05.02.1998 passed by this Court 
in the Civil Appeals concerning Cawnpore Club is not a binding precedent 
which had to be followed in subsequent cases, as the said Order did not 
declare any law. 
28. As far as the judgment of the Karnataka High Court in Canara 
Bank is concerned, although the Special Leave Petition challenging the same 
was dismissed by this Court, we ﬁ nd merit in the observations of the Bombay 
High Court and the Madras High Court to the eﬀ ect that the said judgment 
must be restricted to its own facts and the same cannot be considered as a 
precedent. In this regard, what is of signiﬁ cance to note is that the judgment 
of Karnataka High Court in Bangalore Club was not brought to the notice 
of the Division Bench of the said Court which decided Canara Bank. Had 
the Division Bench known about the judgment passed by a Coordinate 
Bench of that Court in Bangalore Club holding that interest earned on ﬁ xed 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
1024
SUPREME COURT REPORTS 
[2023] 12 S.C.R.
deposits in banks is liable to be taxed and that the principle of mutuality 
would not apply, possibly, the judgment in Canara Bank may have been 
diﬀ erent. Therefore, we hold that the judgment in Canara Bank is restricted 
to the facts of that case and cannot be construed to be a precedent as such. 
29. It would be useful to refer to certain other judgments of this Court 
having relevance to the points under consideration. 
(a) In a three-Judge Bench decision in State of West Bengal vs. 
Calcutta Club Ltd., (2019) 19 SCC 107, this Court considered the following 
questions:
30.1. (i) Whether the doctrine of mutuality is still applicable to 
incorporated clubs or any club after the 46th Amendment to Article 
366(29-A) of the Constitution of India?
30.2. (ii) Whether the judgment of this Court in Young Men’s 
Indian Assn. still holds the ﬁ eld even after the 46th Amendment of 
the Constitution of India; and whether the decisions in Cosmopolitan 
Club and Fateh Maidan Club which remitted the matter applying the 
doctrine of mutuality after the constitutional amendment can be treated 
to be stating the correct principle of law?
30.3. (iii) Whether the 46th Amendment to the Constitution, by 
deeming ﬁ ction provides that provision of food and beverages by the 
incorporated clubs to its permanent members constitute sale thereby 
holding the same to be liable to sales tax?”
The aforesaid questions arose in the context of Article
366(29-A) 
which is a provision inserted to the Constitution of India by virtue of the 
46th Amendment to the Constitution and in the context of the West Bengal 
Sales Tax Act, regarding tax on sale or purchase of goods. 
This Court referred to the judgment in the case of Bangalore Club 
and observed that the doctrine of mutuality as applied to clubs envisages 
a complete identity between contributors and participators. Referring to 
Halsbury’s Laws of England, 4th Edn., Reissue, Vol.23, Paras 224 it was 
observed that members’ clubs are an example of mutual undertaking; but, 
where a club extends facilities to non-members, to that extent, the element 
of mutuality is wanting. That a members’ club is assessable in respect of 
proﬁ ts derived from aﬀ ording its facilities to non-members. That where
1025
non-members are oﬀ ered facilities on the payment of fees, then, the club 
was carrying on a business which could be isolated and the proﬁ t from 
which was assessable to income tax. But there is no liability in respect of 
proﬁ ts made from members who avail themselves of the facilities provided 
for members. In short, there has to be a complete identity between the class 
of participators and the class of contributors of funds; the particular label 
or form by which the mutual association is formed is of no consequence. 
It was further observed that if persons carry on a certain activity 
in such a way that there is a commonality between contributors of funds 
and participators in the activity, a complete identity between the two is 
then established. Since the members perform the activities of the club for 
themselves, the fact that they incorporate a legal entity to do it for them 
makes no diﬀ erence. Reference was also made to Section 2(24)(vii) of the 
Act which deﬁ nes taxable income. The doctrine of mutuality, based on 
common law principles, is premised on the theory that a person cannot make 
a proﬁ t for himself. Therefore, amount received from oneself cannot be 
regarded as income and be held to be taxable. It was observed that income 
of a cooperative society from business is taxable under Section 2(24)(vii) 
and will stand excluded from the principle of mutuality. It was concluded 
that the doctrine of mutuality continues to be applicable to incorporated
and 
unincorporated members’ clubs even after the 46th Amendment introducing 
Article 366(29-A) into the Constitution of India and that sub-clause (f) of 
the said Article has no application to member’s clubs in the context of the 
Finance Act, 1994 which, inter alia, deals with tax on services. 
After discussing elaborately on the deﬁ nition of club or association; 
taxable service in the context of payment of service tax; and in the context 
of the deﬁ nition of ‘service’ under the Finance Act, 1994, it was observed 
that from 2005 onwards, the Finance Act, 1994 does not purport to levy 
service tax on members’ clubs in the incorporated form. That the judgment 
in Young Men’s Indian Assn. made no distinction between a club in the 
corporate form and a club by way of a registered society or incorporated 
by a deed of trust.
(b) In Yum! Restaurants (Marketing) Pvt. Ltd. vs. Commissioner 
of Income Tax, Delhi, (2021) 7 SCC 678, this Court speaking through 
Khanwilkar, J. in paragraph 17 observed as under:
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
1026
SUPREME COURT REPORTS 
[2023] 12 S.C.R.
“17. In order to undertake the examination of mutuality, we 
gainfully advert to English & Scottish Joint Coop. Wholesale Society 
Ltd. v. CAT, which has been quoted with approval by this Court in 
CIT v. Royal Western India Turf Club Ltd. and Bangalore Club. 
The aforestated stream of judicial pronouncements expound three 
conditions/tests to prove the existence of mutuality:
(i) Identity of the contributors to the fund and the recipients 
from the fund;
(ii) Treatment of the company, though incorporated as a 
mere entity for the convenience of the members and policy-
holders, in other words, as an instrument obedient to their 
mandate, and;
(iii) Impossibility that contributors should derive proﬁ ts 
from contributions made by themselves to a fund which could 
only be expended or returned to themselves.
Whereas the legal position on what amounts to a mutual concern 
stands fairly settled, the factual determination of the same on a case-
to-case basis poses a complex issue that requires deeper examination. 
Such examination ought to be conducted in the light of the tests 
enunciated above.”
While discussing the element which involves the test of commonality 
of identity between the members or participators in the mutual concern 
and the beneﬁ ciaries thereof, and applying the three-pronged test extracted 
hereinabove, it was observed that common identity signiﬁ es that the class of 
members should stay intact as the transaction
progresses from the stage of 
contributions to that of returns/surplus. Therefore, there must be uniformity 
in the class of participants in the transaction. It was further observed that 
“the moment such a transaction opens itself to non-members, either in the 
contribution or the surplus, the uniformity of identity is impaired and the 
transaction assumes the tint of a commercial transaction. The emphasis on 
the words member and non-member is of import because the doctrine of 
mutuality does not prohibit the inclusion or exclusion of new members. It was 
observed, what is prohibited is the infusion of a participant in the transaction 
who does not become a “member” of the common fund, at par with other
1027
members, and yet participates either in the contribution or surplus without 
subjecting himself/herself to mutual rights and obligations. The principle 
of common identity prohibits any one-dimensional alteration in the nature 
of participation in the mutual fund as the transaction fructiﬁ es. Any such 
alteration would lead to the non-uniform participation of an external element 
or entity in the transaction, thereby opening the scope for a manifest or latent 
proﬁ t-based dealing in the transaction, with parties outside the closed circuit 
of members. Such proﬁ t-oriented activity would be amenable to income tax 
as per Section 2(24) of the Act.
Moving further, this Court observed that coterminous with the 
requirement of common identity, is the requirement of completeness of 
identity between the contributors and participators which is contemplated 
under the doctrine. In order to determine whether there is completeness of 
identity or breach of mutuality, the court is well within its powers to go 
beyond the periphery of the concern and undertake an examination, akin 
to the lifting of the veil, in order to discern the real nature thereof. It was 
also observed that mutuality and non-proﬁ teering character of a concern are 
to be determined in light of its actual working structure and the factum of 
corporation or incorporation or the form in which it is clothed is immaterial. 
In the said case, the questions were answered against the assessee company 
and in favour
of the revenue.
30. We have considered the arguments advanced at the Bar on behalf 
of the respective parties;and considered the nuances of the principle of 
mutuality in the context of the applicability of the said principle with regard 
to the interest income earned on ﬁ xed deposits made in banks/ﬁ nancial 
institutions by the appellant Clubs, in the backdrop of the dictum of this 
Court in the case of Bangalore Club.
31. While considering the triple test for applying the principle of 
mutuality, we ﬁ nd that in the case of Bangalore Club, the aforesaid triple 
test was applied. It was reiterated that the principle of mutuality envisages:
(i) Complete identity between the contributors and participators;
(ii) Action of the participators and contributors must be in furtherance 
of the mandate of the associations or the Clubs. The mandate of the Club 
is a question of fact which has to be determined from the Memorandum or 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
1028
SUPREME COURT REPORTS 
[2023] 12 S.C.R.
Articles of Associations, Rules of Membership, Rules of the Organisation, 
etc., which must be construed broadly. 
(iii) There must be no scope for proﬁ teering by the contributors from a 
fund made by them which could only be expended or returned to themselves. 
32. Applying the aforesaid principles to the facts of the case, it was 
observed in Bangalore Club, that in relation to transactions, namely, deposit 
of surplus funds earned by the clubs, in banks which are members of the 
club, the principle of mutuality applies till the stage of deposit of funds and 
would lose its application, once the funds are deposited as ﬁ xed deposit in the 
banks. This is because the funds would be exposed to commercial banking 
operations which means that the deposits could be used for lending to third 
parties and earning a higher interest thereon and by paying a lower rate of 
interest on the ﬁ xed deposits to the clubs. That the bank’s utilizing the funds 
of the clubs deposited in ﬁ xed deposit receipts, for their banking business 
would completely rupture the “privity of mutuality” and as a result,the 
element of complete identity between the contributors and participators 
would be lost. Consequently, the ﬁ rst condition for the claim of mutuality 
is not satisﬁ ed.
33. That, it is not a normal activity of the appellants-clubs to deposit 
funds in a bank. It is only when a surplus is generated. These appellant 
Clubs just like Bangalore
Club are social clubs, and it is the surplus funds 
earned through various activities of the Clubs which are deposited as 
ﬁ xed deposit in the banks so as to earn an interest owing to the business 
of banking. In the absence of the said ﬁ xed deposits being utilized by the 
banks for their transactions with their customers, no interest can be payable 
on the ﬁ xed deposits. This is so in respect of any customer of a bank who 
would deposit surplus funds in a bank. It may be that the interest income 
would be ultimately used for the beneﬁ t of the members of the Clubs but 
that is not a consideration which would have an impact on satisfying the 
triple test of mutuality. It was observed in Bangalore Club that even if 
ultimately the interest income and surplus funds in the ﬁ xed deposit are 
utilized for the beneﬁ t of the members of the clubs,the fact remains that 
when the ﬁ xed deposits were made by the clubs in the banks,they were 
exposed to transactions with third parties,i.e., between the banks and its 
customers and this would snap the principle of mutuality breaching the triple
1029
test. When the reasoning of this Court in Bangalore Club is considered 
in light of the judgments of overseas jurisdictions, it is noted that this 
proposition would squarely apply even to ﬁ xed deposits made in banks 
which are members of the clubs. In other words, it is only proﬁ t generated 
from the payments made by the members of the clubs, which would not 
be taxable. This was also the reasoning in the case of Royal Western India 
Club (supra), wherein it was observed that where services are rendered by 
the club to both members and non-members,the dealings of the Club with 
non-members is in the ordinary course of the business carried on with a 
view to earn the proﬁ ts, as in any other commercial concern and hence, 
subjected to tax. This is on the principle that complete identity between 
the contributors and the recipients is absent. 
34. The question asked therefore is - at what point does the relationship 
of mutuality end and that of trading begin. If there is an entry of a third 
party or non-member to deal with the contributions of or funds of the club 
or to utilize the funds of the club and return the same with interest, then, 
the relationship of the parties is not on the basis of a privity of mutuality. 
The essential condition of mutuality, i.e., identity between the contributors 
and participators would end. The relationship would then be like any other 
commercial relationship such as that between a customer and a bank where 
the ﬁ xed deposit is
made by the customer for the purpose of earning an 
interest income. 
35. If the principle of mutuality is to apply, then, where a number of 
people contribute to a fund are ultimately paid the surplus from the fund, it 
is a mere repayment of the contributors’ own money. However, if the very 
same surplus fund is not applied for the common purpose of the club or 
towards the beneﬁ t of the members of the club directly but is invested with 
a third party who has the right to utilize the said funds,subject to payment of 
interest on it and repayment of the principal when desired by the club,then,in 
such an event, the club loses its control over the said funds. Further,the 
interest generated on the ﬁ xed deposits or investment made is a commercial 
activity, thereby permitting the bank to utilize the ﬁ xed deposit amount for its 
banking business and derive proﬁ ts from the said banking business by way 
of lending the amount for a higher rate of interest while paying alower rate 
of interest on the ﬁ xed deposit made by the club. Thus, identicality between 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
1030
SUPREME COURT REPORTS 
[2023] 12 S.C.R.
the contributors to the common fund and the participators in it which is a 
sine qua non for the application of the principle of mutuality would get 
ruptured. When surplus funds of a club are invested as ﬁ xed deposits in a 
bank and the bank has a right to utilize the said ﬁ xed deposit amounts for its 
banking business subject to repayment of the principal along with interest, 
then, the identity is lost. 
36. Conversely, when the facilities of the club are oﬀ ered to members 
as well as to non-members for a price, there is a vital distinction between 
the transactions, i.e., between the club and its members vis-a-vis club and 
non-members. When the facilities of a club are extended to the members of 
the club who contribute towards the income generated by the club, there is 
an identity between the contributors and the recipients and, therefore, the 
principle of mutuality would apply. However, if the same facilities of the 
club are oﬀ ered to non-members or to the public for the purpose of earning 
an additional income, then, it is in the nature of a commercial transaction 
and thus becomes a proﬁ table venture. In such a case, the principle of 
mutuality would not apply. 
37. In order for the triple test to apply to the diﬀ erent and varied 
transactions of the clubs,it is necessary to lift the veil and discern the nature 
of each transaction: whether there is third party intervention which is the 
reason for earning the
income; or it is an income generated between the 
members and the club, as such,i.e., only between the members of the club. 
When the transactions of the club are viewed in the aforesaid prism then, 
in each of the transactions whether the principle of mutuality would apply, 
has to be discerned.
38. The attractive argument advanced by Sri Datar and Sri Andhyarjuna 
regarding the utilisation of the interest income towards the beneﬁ t of the 
members of the club is repelled by a fundamental principle of income tax. 
The said principle is propounded by the House of Lords in Mersey Docks 
vs. Lucas, 8 App. Cas. 891 (“Mersey Docks”). In the said case it is held that 
the mode of application of the surplus generated out of a trading activity has 
no bearing on its taxability. To borrow from the conclusion in that case, the 
Revenue’s “right to be paid the tax out of it in the least degree depends on 
what they do with it afterwards.”
1031
39. In the circumstances, we ﬁ nd that the reasoning given by the 
Coordinate Bench of this Court in Bangalore Club is just and proper and 
would not call for reconsideration. 
40. The reasoning in Bangalore Club is also fortiﬁ ed by judgments 
from overseas jurisdictions, discussed above,such as Municipal Mutual 
Insurance Limited vs. Hills; Walter Fletcher; Re: Commissioner of 
Taxation And: Australian Music Traders Association.
41. In the circumstance, we do not ﬁ nd that the judgment in Bangalore 
Club is not a binding precedent for the reason that it does not refer to the 
earlier judgment of this Court in Cawnpore Club. Secondly, on a close 
reading of reasons assigned by this Court in Bangalore Club we ﬁ nd that 
they are justiﬁ ed and squarely apply to the cases at hand.
42. In this context, the sagacious dictum of seven learned Judges of 
this Court in Keshav Mills Co. Ltd. vs. CIT, (1965) 2 SCR 908 ought to 
guide the exercise of jurisdiction on questions that have been duly settled 
by judgments of this Court. In the said case, it was observed as follows:
“23. … [I]n reviewing and revising its earlier decision, this Court 
should ask itself whether in the interests of the public good or for any 
other valid and compulsive reasons, it is necessary that the earlier 
decision should be revised. When this Court decides questions of 
law, its decisions are, under Article 141, binding on all courts within 
the territory of India, and so, it must be the constant
endeavour and 
concern of this Court to introduce and maintain an element of certainty 
and continuity in the interpretation of law in the country. Frequent 
exercise by this Court of its power to review its earlier decisions on 
the ground that the view pressed before it later appears to the Court 
to be more reasonable, may incidentally tend to make law uncertain 
and introduce confusion which must be consistently avoided. That 
is not to say that if on a subsequent occasion, the Court is satisﬁ ed 
that its earlier decision was clearly erroneous, it should hesitate to 
correct the error; but before a previous decision is pronounced to be 
plainly erroneous, the Court must be satisﬁ ed with a fair amount of 
unanimity amongst its members that a revision of the said view is 
fully justiﬁ ed. It is not possible or desirable, and in any case it would 
be inexpedient to lay down any principles which should govern the 
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]
1032
SUPREME COURT REPORTS 
[2023] 12 S.C.R.
approach of the Court in dealing with the question of reviewing and 
revising its earlier decisions. It would always depend upon several 
relevant considerations:— What is the nature of the inﬁ rmity or error 
on which a plea for a review and revision of the earlier view is based? 
On the earlier occasion, did some patent aspects of the question remain 
unnoticed, or was the attention of the Court not drawn to any relevant 
and material statutory provision, or was any previous decision of this 
Court bearing on the point not noticed? Is the Court hearing such 
plea fairly unanimous that there is such an error in the earlier view? 
What would be the impact of the error on the general administration 
of law or on public good? Has the earlier decision been followed on 
subsequent occasions either by this Court or by the High Courts? And, 
would the reversal of the earlier decision lead to public inconvenience, 
hardship or mischief? These and other relevant considerations must be 
carefully borne in mind whenever this Court is called upon to exercise 
its jurisdiction to review and revise its earlier decisions.”
Conclusion:
43. In view of the above discussion, we arrive at the following 
conclusions:
(i)  
The Order of this Court in Cawnpore Club cannot be treated 
as a precedent within the meaning of Article 141 of the 
Constitution of India as the said order does not declare any 
law and the appeals ﬁ led by the revenue as against
Cawnpore 
Club were disposed of without going into the larger question 
as to whether Cawnpore Club could be taxed on the interest 
income earned on ﬁ xed deposits made by it in the banks, or 
whether the principle of mutuality would apply to the said 
income.
(ii)  
The judgment of this Court in Bangalore Club does not call 
for reconsideration even when viewed in light of the previous 
Order of this Court in Cawnpore Club. Consequently, we 
hold that the principle of mutuality would not apply to interest 
income earned on ﬁ xed deposits made by the appellant Clubs 
in the banks irrespective whether the banks are corporate 
members of the club or not.
1033
(iii)  
In view of the above, we hold that the judgment in Bangalore 
Club is not per incuriam although, the earlier Order passed 
by a Coordinate Bench of this Court in the case of Cawnpore 
Club is not noticed in Bangalore Club.
(iv)  
We also hold that the judgment of the Division Bench of the 
Karnataka High Court in Canara Bank must be restricted 
to apply to the facts of the said case alone and cannot be a 
precedent for subsequent cases. This is because the judgment 
of another Division Bench of the said High Court in the case of 
Bangalore Club was not brought to the notice of the Division 
Bench, which rendered the judgment in the case of Canara 
Bank. Further, it is the judgment of the Division Bench of the 
said High Court in Bangalore Club that has been sustained 
by a Coordinate Bench of this Court by a detailed reasoning.
(v)  
Thus, the interest income earned on ﬁ xed deposits made in the 
banks by the appellant Clubs has to be treated like any other 
income from other sources within the meaning of Section 2(24) 
of Income Tax Act, 1961. 
(vi)  
Conversely, if any income is earned by the Clubs through its 
assets and resources, from persons who are not members of 
the Clubs, such income would also not be covered under the 
principle of mutuality and would be liable to be taxed under 
the provisions of the Income Tax Act. 
(vii)  
In view of the above conclusions and having found that 
Bangalore Club does not call for reconsideration, we hold 
that the
said judgment which holds the ﬁ eld would squarely 
apply to these appeals also.
Consequently, the appeals are dismissed.
Parties to bear their respective costs.
Pending applications, if any, stand disposed of.
Headnotes prepared by:  
Appeals dismissed.
Nidhi Jain
SECUNDRABAD CLUB ETC. v. C.I.T.-V ETC. 
[B. V. NAGARATHNA, J.]