Doctrine of Mutuality

Doctrine of Mutuality

It’s a well-known fact that the income earned by a person or an entity comes into the purview of the Income Tax Act, 1961. Section 2(24) of the said act says that any kind of receipt, by whatever name attributable, qualifies to be an income, unless proved contrary. Such income is taxable.

However, money pooled through contributions from individuals or entities to form not-for-profit recreational or societal organizations, can be immune to taxation, if it falls within the ambit of Doctrine of Mutuality.

Doctrine of Mutuality is based on the principle of natural justice, which enumerates that no one can make profit from himself or trade with himself.

The Doctrine of Mutuality is invoked when the surplus money that is left after all the intended activities are completed using the common pool of funds, is distributed back to the contributors/participants in the ratio of contributions or utilised for their benefit only.

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