The Supreme Court has made a significant ruling regarding the taxation of interest income earned on fixed deposits (FDs) by Clubs in banks that are members of those Clubs. The Court, consisting of Justices B.V. Nagarathna and Prashant Kumar Mishra, held that such interest income should be treated as regular income under Section 2(24) of the Income Tax Act, 1961, rather than being protected under the principle of mutuality. This decision effectively means that interest earned by Clubs on FDs with both corporate and non-corporate member banks is subject to income tax.

The Court rejected the argument that a previous ruling in Bangalore Club vs. Commissioner of Income Tax (2013) was not binding and should be reconsidered. In the 2013 ruling, it was established that surplus contributions from members were tax-exempt due to mutuality, but interest earned from surplus funds invested in FDs with corporate member banks was not.

The Court dismissed arguments based on other cases and clarified that brief orders lacking reasoning, like in Commissioner of Income Tax vs. M/s Cawnpore Club Ltd. (2004), do not hold binding precedent. The Court analyzed the concept of "ratio decidendi" and determined that orders lacking proper reasoning cannot carry precedential value. The Court found that the earlier decision in Cawnpore Club (2004) did not provide a clear basis for mutuality's application and was not a binding precedent.

Furthermore, the Court emphasized that once surplus funds are invested in fixed deposits in banks, the principle of mutuality is breached since the bank's dealings with third parties compromise complete identity between contributors and beneficiaries. As a result, any income earned from non-members would be taxable.

The Court's ruling clarifies the tax treatment of interest income from FDs for Clubs and solidifies the binding nature of its previous judgments on the matter.