Section 80P Deduction eligible on Bonus in the nature of dividend
The Relevant Text of the Order as follow :
5. From the provisions of section 80p(2)(d) of the Act reproduced above, it comes out that the dividend and interest received by a society from its investment in any other society is eligible for deduction under section 80p(2)(d) of the Act and this is the stand of the AO and the CIT(A) that out of the dividend received by the assessee from KMF is eligible for deduction under section 80p(2)(d) of the Act but the amount of bonus received by the assessee from KMF is not eligible for deduction under section 80p(2)(d) of the Act.
Hence, we have to decide this aspect as to whether the nature of bonus income received by the assessee from KMF can be considered as dividend received from KMF or not. In this regard, we find that Rules 33 and 34 of the Bye-Law. Rule of the KMF as reproduced above are relevant in this regard.
We find that as per these Rules, 25% of the profit is to be transferred to reserve fund and 25% to be transferred to Co-operative Education Fund which is payable to Karnataka State Co-operative Society F deration and out of the remaining profit, bonus is payable to the members not exceeding 25% of their business transaction with federation and from other payment to be made to Nandini Dairy Farmers Welfare Trust towards development of affiliated milk union, Co-operative propaganda fund and out of the remaining profit dividend is to be given to the members not exceeding 25% of the share investments.
In view of these 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. Hence, 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 learned AR of the 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. We, therefore, 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. Accordingly, this issue is decided in favour of the assessee.
6. In the result, assessee’s appeal is allowed.
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