2020 (8) TMI 564 - AT - Income Tax

Deduction u/s 80P(2)(d) - bonus received by the assessee from M/s. Karnataka Co-operative Milk Producers Federation (KMF) - interest or dividend derived by the Co-operative Society from its investments with any other Co-operative Society - HELD THAT - Bye Laws of KMF, it is seen that every member is entitled to receive some amount as bonus and some amount as dividend as distribution of net profit by KMF on the basis of computing the allowable to be paid by the KMF is different. Bonus is payable for the members with the transaction with KMF and this is the restriction that it should not exceed 25% of the remaining profit after transfer to reserve fund and contribution to Cooperative Education Fund. The dividend is payable as percentage of investment of members out of remaining profit after deducting all other payments to be made such as transfer to reserve fund, contribution to Cooperative Education Fund, Bonus to Members, contribution towards infrastructure fund, contribution towards Nandini Dairy Farmers welfare trust, contribution towards development of affiliated milk union, contribution towards the co-operative propaganda fund, contribution towards Bad Debt Fund and contribution towards charitable fund and dividend is payable only if there is remaining profit after these transfers as noted above and such dividend should not exceed 25% of share investment. It is seen that the computation mechanism for payment of bonus and dividend are different but both are towards distribution of net profit of KMF. This is also accepted legal position that divided is only distribution of net profits. Under these facts, we find force in the argument of assessee that the nature of bonus received by the assessee from KMF is nothing but dividend only although the mechanism of its computation is different because both bonus and dividend are paid to the assessee as distribution of net profit only. Direct the AO to consider the amount of bonus received by the assessee from KMF as dividend received from KMF and allow deduction under section 80P(2)(d) of the Act in respect of receipt of bonus also. - Decided in favour of the assessee.

Summary

Issues:
1. Dispute over rejection of assessee's claim for deduction under section 80p(2)(d) of the Income Tax Act, 1961 for bonus received from M/s. Karnataka Co-operative Milk Producers' Federation (KMF).

Analysis:
The appeal was filed against the order of CIT(A) for Assessment Year 2014-15, focusing on the rejection of the deduction claim under section 80p(2)(d) for the bonus received from KMF. The assessee argued that the bonus should be considered as dividend under section 80p(2)(d) due to the nature of the distribution of profits by KMF. The AR highlighted the investments of the assessee society in KMF and the receipt of bonus and dividend from KMF. The Revenue supported the CIT(A)'s decision. The provisions of section 80p(2)(d) were examined, emphasizing income by way of interest or dividends derived by a co-operative society from its investments with another co-operative society.

The relevant Bye Laws of KMF were analyzed, specifically focusing on the distribution of profits where 25% is transferred to a reserve fund, and bonus and dividend are distributed to members based on specific criteria. The Tribunal noted that both bonus and dividend are paid as distribution of net profit, albeit through different computation mechanisms. It was established that while the computation methods differ, both bonus and dividend are part of the distribution of net profit by KMF. Therefore, the nature of the bonus received by the assessee from KMF was deemed equivalent to dividend, making it eligible for deduction under section 80p(2)(d) of the Act.

Consequently, the Tribunal directed the AO to consider the amount of bonus received by the assessee from KMF as dividend and allow deduction under section 80p(2)(d) of the Act. The issue was decided in favor of the assessee, and the appeal was allowed. The judgment highlighted the importance of understanding the nature of income and the specific provisions of the Act and Bye Laws governing the distribution of profits within co-operative societies.