Bank interest is exempt by applying the principle of mutuality for mutual associations

In CIT v.Talangang Co-op Group Housing Society Ltd (2010) 44 DTR (Delhi)58 the assessee a housing welfare society collected money from the members for construction of houses and flats.Later, it allotted the flats to its members.There was some difference in contribution of money amongst the members viz. those who joined later paid more than those who joined earlier. Some shops were also constructed for the members in the complex and no benefit was given to outsiders even from the shops so constructed.

The court held that the benefit of the association was for members only and it is therefore a mutual association.As regards interest income from bank deposits held by the society it was held that in the absence of a finding that the funds of the society were diverted for any other purpose, the principle of mutuality was not violated by the act of making or keeping bank deposit. Thus it was held that the society was eligible for the benefits of mutuality. The decision accordingly went in favour of the assessee.