| Headnote |
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 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 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 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] 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] |
