After the judgement in the case of Ahmedabad Urban Development Authority, many experts were of the opinion that NGOs/ Trusts could take shelter under 'principle of mutuality' for the non-member part of the income. However, this short but interesting question of law was answered by the Hon'ble Apex Court in the case of SECUNDRABAD CLUB ETC Vs C.I.T.-V ETC [2023-VIL-22-SC-DT]. The interest on 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; the principle of mutuality would not apply and the interest earned from the deposits would be subject to tax under the provisions of the Income Tax Act, 1961.

The High Courts 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. Also, the judgment of the Apex Court in the case of Bangalore Club vs. Commissioner of Income Tax, (2013) 5 SCC 509 ("Bangalore Club") was in favor of the revenue.
However, the question was whether it calls for reconsideration in view of the earlier order of The Apex Court in Commissioner of Income Tax vs. M/s Cawnpore Club Ltd., Kanpur "Cawnpore Club") disposed off on 05.02.1998 reported in (2004) 140 Taxman 378 (SC). While considering the above controversy, the Apex Court disposed of the matter by holding that the judgment in Bangalore Club does not call for reconsideration and disposed off the appeals in terms of the said judgment. Further, 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.

