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Income of Mutual Concern and Taxability under Income tax


                                                                                                  What is Mutual Concern

In short,  a mutual concern is an association of group of people who agree to contribute funds for some common purpose that is to gain mutual benefits.


  • Resident Welfare Associations
  • Bar association
  • Shop owner association
  • Social clubs
  • Sports clubs 


                                                                                    Principle of Mutuality

Income of mutual concern is not taxable if following conditions are satisfied :
(a) There is a complete identity between the contributors and beneficiaries.
(b) The association is formed with objective of mutual benefits.


(i) Profits and gains of any insurance business carried on by mutual insurance company or a co- operative society ( even it is a mutual concern)[ sec 2(24)(vii)]

(ii) Income of trade , professional or similar Association from specific services performed for its member [sec 28(iii)]

(iii) The profit and gains of any business of banking ( including providing credit facilities ) carried on by co-operative society with its member [sec 2(24)]  

Note : Section 44A provides for deduction of deficiency from mutual activities in case of trade professional or other similar associations as follows:

Deduction is allowed to the extent of lower of the followings:-

1.     Amount of deficiency ( receipt from mutual activity less than expenditure on mutual activities)

2.     50% of total income ( all head before deficiency )

Note: if cannot be set off from BP income then It can be set off from other income also


Calculate B.P income ( specific services + service rendered to outsider only because mutual activity  not to be taxed )                                                                                       


Less: B/F loss( not b/f deficiency which will lapse not c/f)


                                                                                        B.P income after B/F loss


Less: Deficiency ( calculated above)


                                                                                                  Income from PGBP


                                                                                                  Add: other income


                                                                                                             Total income



Illustration-1 Compute the total income of a trade association on the basis of the information furnished below :

(a)  Receipt by way of Entrance fees and Annual membership fees from members-Rs. 4,60,000

(b)  Expenditure on members- Rs. 4,90,000

(c)  Receipt  from members for specific services- Rs. 2,30,000

(d)  Expenditure incurred on providing Specific services- Rs. 1,80,000

(e)  Income from other sources(Taxable and Computed)- Rs. 20,000

Other information:

1.     Annual value of the building of the Association, as provision of section 22 to 27, is Rs. 2, 00, 000.

2.     The brought forward business loss of 20021-22 from rendering specific services is Rs. 25,000

3.     Amount of Deficiency in the year 2021-22, which could not be adjusted against income of that year amounts to Rs. 10,000.

Solution:                                                                                                                  Amount(Rs)

1.        Profit and Gains from Business and Profession(2,30,000-1,80,000)


    Less: B/F business Loss of 2021-22


                          Profit after adjustment of B/F Losses


   Less: Deficiency Loss( i. e lower of (a) 4,90,000-4,60,000 or (b) 50% of 45000(25000+20000)


    Profit After deficiency


2.     income from other sources


   Taxable total income of Association


Notes: Annual value of the building of the association is not taxable being income from mutual Activities.


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