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Body of Individuals – Mutual Associations


Body of Individuals – Mutual Associations

This article provides an overview of the different types of body of individuals. The article also mentions the kinds of income taxable and exempt in each case, in accordance with the provisions of the Income Tax Act.

Members Club

Membership clubs are authentic mutual associations, whereby its members raise funds by way of entrance fees and periodical subscriptions in order to provide themselves with social, sporting and other similar amenities. Services performed to the members include refreshment services, residential services, provision of sports facilities etc. Services can be performed to non-members, subject to conditions. These services are not considered as sales or transfer, and hence has no element of taxable profit, thanks to its lack of commercial element.

The following list provides a picture of which income is taxable in the assessment of a Members Club and which income is exempt:

  • Income of the club from FDRs (Fixed deposit receipt) like banks and Government securities, dividend income and profit on the sale of investment is also covered by the doctrine of mutuality and is not taxable.
  • Income from interests of a sports club derived from deposits with the bank is not exempt on the ground of mutuality.
  • Investment of surplus fund with some of the member banks and other institutions in the form of fixed deposits and securities which in turn resulted in earning of huge interest, would not be inclusive of the concept of mutuality, and therefore, such interest income would be liable to be taxed.
  • Investments with banks are not exempted on the principle of mutuality even though the concerned banks are members of the club.
  • Interest on money kept in a savings bank account would be considered a capital receipt and hence aren’t taxable.
  • Interest on investment and dividend of shares earned by a mutual association wouldn’t be taxable.
  • Profits gained from subscriptions are taxable.
  • Charges paid by non-members are taxable.
  • Income derived from capital assets and investments is taxable.
  • Temporary membership, in a scenario where the property cannot be utilized by a non-member for the purpose of the activity (for example- usage of marriage halls by non-members) are taxable.
  • Usage of the premises of a non-member by an assessee for the purpose trading of shares of stocks would be inclusive of tax.
  • A proprietary club formed with the object of making a profit out of the supply of club amenities would be liable to tax.

Mutual Trade Associations

Not all trade associations are mutual. Also, exemptions with regards to the provision of mutuality are void, if its profits are not deposited in a common fund. However, all transactions displaying mutuality would be exempt. In brief, a trade association may or may not be mutual based on its characteristics which depict the scope of its mutuality.

Co-Operative Societies

Section 2(19) of the Income Tax Act, 1961, defines a co-operative society as “A co-operative society registered under the Co-operative Societies, Act, 1912. Let us examine a few important provisions related to co-operative societies, which are classified as a body of individuals:

  • A society with an intention to promote the economic interest of its members in accordance with co-operative principles, or a society with the intention of facilitating the operations of such a society, can be registered under this Act.
  • A registered society shall not provide loans to a non-member, though loans can be provided to other registered societies with the special sanction of a registrar.
  • A co-operative society shall not receive loans and deposits from a non-member.
  • Co-operative societies are not supposed to transact with a non-member.
  • No part of the funds by way of bonus or dividends or otherwise shall be divided among the members of a co-operative society, barring a few exemptions.

The above provisions prove that co-operative societies are established and operated on a mutual basis and hence not taxable.  However, the exemption from taxation will be available only if the society is registered as a charitable trust under Section 11, 12 or 12A of the Act. Even when an exemption is available, the incomes earned by a co-operative society must be added to the gross total income, though not taxable.


Nidhi, in traditional and common Hindu parlance, is known as ‘treasure’. Also referred to as Permanent Fund, Benefit Fund, Mutual Benefit Fund and Mutual Benefit Company, the founding objective of Nidhi is to cultivate a habit of thrift and saving amongst members. Such societies must be recognized by the Central and State Governments. Its primary source of funds comes from within, which implies that the ‘contribution made by its members’ would be the mainstay of such an establishment.

Chit Funds

Chit fund is a kind of a system where a certain number of subscribers combine and each of them contributes a certain fixed sum each month. The subscribers make their payments to the manager of the fund by a certain prescribed date each month, and the total subscriptions are auctioned among the subscribers on a monthly basis. The income derived from a chit company is always taxable, in contrast to other mutual associations.

Pooling Associations

Pooling associations are a type of body of individuals which are formed to maintain prices, open-up markets for goods, or for allocation of areas for trade operations. The activities of such associations cannot be brought under the ambit of taxation.