Tribunal directs treating bonus as dividend for tax deduction under Income Tax Act

The Tribunal directed the Assessing Officer to treat the bonus received by the assessee from M/s. Karnataka Co-operative Milk Producers' Federation as dividend, allowing deduction under section 80p(2)(d) of the Income Tax Act, 1961. The decision favored the assessee, emphasizing the equivalence of the bonus to dividend in the distribution of net profits by KMF. The judgment underscored the significance of interpreting income nature and relevant statutory provisions governing profit distribution in co-operative societies.

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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.

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