Taxability of dividends received

[Guest]

Cooperative banks have to pay regular income tax.After such payment they distribute dividend.Such dividend should be tax free in the hands of shareholder.Under the basic provision of double taxation such dividends must be tax free.

[DEV KUMAR KOTHARI]

Dividend paid by coop Bank is not covered by S. 115 O or any similar provision. There appears no exemption for such dividend in hands of shareholder u/s 10 . It is in nature of income of share holder as reward for capital invested by him. However, co-op bank can claim the same as business expenditure as bank and its shareholders are different persons, dividend is paid for servicing the existing capital which is raised and used for business of co op bank, dividend is not paid to raise capital, but to serve capital it is not personal exp. of bank, it is not capital expenditure, it is paid on ground of commercial expediency and in usual course of business, it is not covered by S. 30-36 , 40 and 40A it is also not covered by S. 115 O (4) for non allowability. As it satisfy all tests laid down for allowability and not disentitled for deduction one can claim dividend paid by co-op bank to its members as business expenses u/s 37 or u/s 28. However disputes will arise and one has to forcefully and very carefully press claim before authorities/ courts to get a deduction of dividend paid as business expenses.

[DEV KUMAR KOTHARI]

read my article in the Chartered Accountant - November 2008 issue.

AI Summary

Cooperative Bank Dividends Taxable for Shareholders; Not Exempt under Sections 115 O or 10 of Income Tax Act. A discussion on the taxability of dividends received from cooperative banks highlights that such dividends should be tax-free for shareholders to avoid double taxation. However, it is noted that dividends from cooperative banks are not exempt under Section 115 O or Section 10 of the Income Tax Act. These dividends are considered income for shareholders and not covered under certain sections for non-allowability. Cooperative banks can claim dividends as business expenses under Section 37 or Section 28, but disputes may arise, requiring careful presentation before authorities to secure deductions.