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Taxability of bonus received from cooperative society

Sashank Dundu 
on 05 August 2017

LinkedIn


Taxability of bonus in the hands of the members, received from the co-operative society

Brief History:

Even before the Co-operative structures came into existence, the practice of the concept of the co-operative societies was prevalent in various areas of the society. To mark the first instance where the co-operative societies were given a legal recognition was with the advent of The Co-operative Credit Societies Act, 1904. With various developments and growth in the number of Co-operative Societies, The Co-operative Societies Act, 1912, came into existence for providing non-credit facilities as well, to the members.

Definition:

According to ICA(International Co-operative Alliance), "a cooperative is an autonomous association of persons united voluntarily to meet their common, economic, social and cultural/needs and aspirations through a jointly owned and democratically -controlled enterprise"

A Co-operative society is defined in a dictionary as a commercial enterprise owned and managed by and for the benefit of customers or workers. The legal dictionary is not far different from what the general dictionary has to explain. It states that an association or corporation established for the purpose of providing services on a non-profit basis to its shareholders or members who own and control it.

Under the Income Tax Act, 1961, Co-operative Society is defined as under:

S.2(19) : "co-operative society" means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies ;

Under the Co-operative Societies Act, 1912, Co-operative Society is defined as under:

S.2(e) : 'registered society' means a society registered or deemed to be registered under this Act

S.4 : Societies which may be registered.-Subject to the provisions hereinafter contained, a society which has as its object the promotion of the economic interests of its members in accordance with co-operative principles, or a society established with the object of facilitating the operations of such a society, may be registered under this Act with or without limited liability: Provided that unless the [State Government] by general or special order otherwise directs-

(1) the liability of a society of which a member is a registered society shall be limited;

(2) the liability of a society of which the object is the creation of funds to be lent to its members, and of which the majority of the members are agriculturists, and of which no member is a registered society, shall be unlimited.

A Regional Rural Bank shall be deemed to be a co-operative Society if it is covered by the Regional Rural Banks Act, 1976.

After understanding what is a co-operative society and some basics to begin with, we could move on to deal with some of the aspects which may come across as simple yet mind-boggling.

To understand whether income received by the members of a co-operative Society, in the form of Bonus payments, by the co-operative Society, should be taxable in the hands of the members or the co-operative society or in each of their hands separately, we may need to shed light on various aspects like the existing provisions under the Income Tax Act, similar provisions under the Income Tax Act, Principles of dealing with taxability in case no provision is available, etc.

There is partial prohibition but not complete prohibition on the Co-operative Societies from distributing the surplus funds to its members as can be seen from Section 33 of the Co-operative Societies Act, 1912:

'S.33. Funds not to be divided by way of profit.-No part of the funds of a registered society shall be divided by way of bonus or dividend or otherwise among its members: Provided that after at least one-fourth of the net profits in any year have been carried to a reserve fund, payments from the remainder of such profits and from any profits of past years available for distribution may be made among the members to such extent and under such conditions as may be prescribed by the rules or by-laws: Provided also that in the case of a society with unlimited liability no distribution of profits shall be made without the general or special order of the 20 [State Government] in this behalf.'

No provision in the income tax Act specifies or discusses about the taxability or non-taxability of income in the hands of members of a co-operative society. We have Section 80P which speaks about the deductions available to a Co-operative society but not anything related to its members. Section 10 does not provide any exemption in relation to the co-operative society’s income or any exemption w.r.t. the income in the hands of the members of the co-operative society.

Now if we draw an analogy from some of the provisions of the Income tax Act, 1961, which provide for taxing dividend income or bonus income in the hands of the shareholders of a company, we may be able to perceive an idea as to what the statute expects from the taxpayer and how the provisions should be interpreted in order to do justice to both, the taxpayer and the intention of Legislature.

Do all receipts form a part of income as defined under section 2(24) of the Income Tax Act, 1961?

The definition of income is an inclusive one. Which means, any receipt of money which is not a remittance or loan/advance or any other liability may be treated as income.

However, there is a distinction made by the legislation w.r.t. which kind of receipts would come under the purview of tax by default and which receipts would come only if specifically mentioned.

The distinction is w.r.t. Capital Receipt and Revenue Receipt. Revenue receipt is one which is taxable unless specifically stated to be exempt and a Capital Receipt is one which would be exempt unless specifically taxed.

The Supreme Court, in CIT Vs. Prabhu Dayal(1971) 82 ITR 804, has held that the question whether a particular receipt is capital or income is not one of fact though it is dependant to a very great extent on the particular facts of each case, the question does involve conclusion of law to be drawn from those facts.

The CIT Vs. Mahindra Bombay High Court in AndMahindra Ltd. (1973) 91 ITR 130has observed that it is well settled that a receipt is not taxable when it is a fixed capital. It is taxable as a revenue item when it is referred to circulating capital or stock-in-trade. The fixed capital is what the owner turns to profit by keeping it in his own possession. Circulating capital is what he makes profit of by parting with it and letting it change its masters.

However, to prima facie identify a Capital Receipt or a Revenue Receipt, we must see the source of such receipt, the reoccurrence of it, the nature of the transaction entered into, etc.

This may mean that, from the face of it, the receipt of bonus in the hands of the members of the co-operative society will be taxable since it is covered under the definition of receipt. However, whether it is revenue in nature or capital in nature, would differ according to the facts of each situation.

In the author’s opinion, such a receipt being a discretion of the management of the co-operative society, and not recurring in nature or in the nature of any consideration for any work performed or any income whose source is in existence for the sole purpose of deriving such income or in the nature of any investment from whom such income is derived, the said income would be a Capital Receipt. And since no specific tax provision for taxing such a receipt is provided for under the Income Tax Act, 1961, the said receipt i.e. bonus should not be taxable in the hands of the members of the co-operative society.

Understanding the definition of Income and its ambit will not alone decide whether the receipt in the hands of the members of the co-operative society will be taxable; other facets should also be looked into, to have an all-around understand.

Drawing an analogy from the sister-provisions such as Dividends paid to shareholders, bonus paid to employees, bonus shares were given to shareholders, etc, with similarities may help one to form a clearer opinion to come to a conclusion.

The step by step understanding of how dividend income is made taxable by the legislature can be seen below:

Section 2(22) gives us an inclusive definition of receipts as to which kind of receipts shall be included under the term 'Dividends’.

Section 8 of the Income Tax Act provides for the inclusion of Dividend Income in the total income of the Assessee for the purpose of computing tax.

Section 115-O discusses the special provisions which tax the distributed profits of the domestic companies, in the hands of the companies, at the rate of 15% in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year.

A new provision i.e. S.115BBDA has been inserted with effect from 1-4-2017 which states that, 'if any individual or an HUF or a company, receives dividend income in excess of 10,00,000/- from a domestic company, such amount shall be taxed at the rate of 10%. No deduction of any expenditure or set off of loss shall be allowed from such amount.'

Section 56(2)(i) of the Income Tax Act, taxes the income in the form of dividends received in the hands of the assesse, which do not fall under any of the other heads of income.

However, all dividend income received as referred under Section 115-O shall be exempt under section 10(34) i.e. they shall not be included while computing the total income in the hands of the Assessee under the Income tax Act. With effect from 1-4-2017, the dividend income in excess of Rs.10,00,000/- as mentioned u/s 115BBDA shall be excluded for the purposes of interpreting Section 10(34) i.e. while excluding dividend income.

From the above we see that the income has been explicitly included or excluded from the ambit of being taxed under the income tax provisions.

The immediate and important question that arises is what will happen if nothing is specified about the treatment of any income or receipt under the Income Tax Act? Can it be taxed at all? If any receipt is not included under the definition of Income, should such income be kept away from the ambit of taxation statute?

If we take another case w.r.t. bonus treatment in the hands of employees, there is an explanation which includes the term bonus u/s 17 of the Income Tax Act, 1961.

In case of bonus payable to employees by an employer or company, the same is taxable in the hands of the employee i.e. it shall be included in the amount of salary. The same is specifically provided under section 17 explanation 3 of the Income tax act. The income given to the employees is mentioned to be deductible in the hands of the employer or the company u/s 36(1)(ii) of the income tax act.

Hence, as we can see, any receipt is specifically included or excluded under one or the other provision, hence giving the Income Tax Officials a right to Tax the same.

To draw an analogy from a provision, which speaks about taxing an entity closer to a co-operative society, we can take the example of Association of Persons or Body of Individuals. In this regard, there is a peculiar provision inserted w.e.f. 1-4-1989 in the Income Tax Act which is Section 67A. Section 67A talks about a member’s share in the income of Association of Persons or body of individuals wherein the share of such member is determinate and known, the computation is given. But Co-operative societies and companies are specifically excluded which means no provision of the Income Tax Act mentions how to calculate the share of a member of a Co-operative Society.The provision speaks about including bonus while determining the share of a member, apart from the other incomes as specified in the section.

Moving further, Section 40(ba) denies any deduction to Association of Persons or Body of Individuals, excluding Co-operative Societies and companies, where any payment is made in the form of Interest, Salary, Bonus, Commission, etc. by whatever name called, made to the member of such Association of Persons or Body of Individuals.

Section 86 specifically excludes the income of members of an AOP or BOI, as mentioned u/s 67A, to be excluded from payment of any tax on the share of income calculated under such section, provided such tax is paid by the AOP or BOI or no income tax is chargeable on the total income o such AOP or BOI.

From the above we can notice that, even the income of AOP or BOI have been defined quantitatively and specific mention of Deduction, disallowance or exclusion from total income is conspicuously mentioned in the hands of AOP or BOI.

Hence, the intention of the legislation can be understood to have an implication that, any income, when passed through different hands for no consideration in return, shall not be taxed if it had already been taxed once.

In the present case, our question remains as to whether Bonus declared by a co-operative society shall be taxable in the hands of its members or not. In this regard, we shall proceed with attempting to understanding the genesis of the term Bonus i.e. its definition to know whether such a receipt can be termed as income and can be taxable.

No definition of Bonus has been provided to us under the Income Tax Act. To know what does Bonus mean, we may have to look into the Payment of Bonus Act, 1965. Surprisingly, Bonus has not been defined under the Payment of Bonus Act as well.

The term bonus, in general, can be defined as a payment over and above the wage/salary payment given, such as for recognition of exceptional work performance or for a consideration apart from the general pay which is supposed to be given even otherwise to the person so entitled to receive.

The aura of mystery still clouds the question whether bonus can be termed as income or not. However, such bonus shares will be taxable in the hands of the recipient of the shares, when such recipient sells such shares for a consideration.

Can we say that a receipt would be doubly taxed since there is no provision specifically including or excluding such receipt from being included in the total income of an assessee?

In a Supreme Court Case of Union of India v.Dharmendra Textiles Processors and Others [2008] 306 ITR 277 (SC) at page 278, It was held that it was a well-settled principle, in law, that the Court cannot read anything into a statutory provision or a stipulated condition which is plain and unambiguous. A statute is an edict of the Legislature. The language employed in a statute is the determinative factor of the legislative intent.

It can be understood from the above that Tax cannot be imposed by implication even by the Honourable Courts of the country and there has to be a specific provision to levy tax.

If we still assume that even though no provision specifically mentions the taxation of the income, it would still be taxed drawing an understanding from a case law which suggested that even though the income is taxed once in one person’s hands, the moment it changes the hands, it becomes income in the hands of another person and hence it would be taxable.

There is a Supreme Court Judgement which states and explains what is meant by double taxation, with reference to Dividend income being taxed twice i.e. once in the hands of the Company and once in the hands of the Assessee. It was held as under :

'The question of double taxation must be decided having regard to who the assessee is. If the assessee is different, the question of double taxation would not arise. In the instant case, the fact that the company had been made liable to tax on the amount did not mean that the amount, when paid as income to the shareholder, could not be taxed as income in the hands of the shareholder. The character of the amount changed, it being now the income of the shareholder' - [Income-taxOfficer v. S. Radha Krishnan (2002) 254 ITR 561 (SC)/[2002] 174 CTR 410 (SC)]

In the above, such income is taxed since, the corporate entity and the shareholder are two different assesses and the character or the nature of the receipt changes in the hands of each of the above mentioned assessee.

It would be appropriate to mention the taxability in the hands of AOP and its members as well, with the help of a Case law, to understand how an income can be taxable just because it changes hands.

Even though the receipt is taxable, for an AOP, an exception is provided under section 86 which specifically excludes the income of members of an AOP or BOI, as mentioned u/s 67A, to be excluded from payment of any tax on the share of income calculated under such section, provided such tax is paid by the AOP or BOI or no income tax is chargeable on the total income o such AOP or BOI.

In case of an AOP’s income, if taxed in the hands of its members, shall not be taxable by bringing AOP under its ambit. [Commissionerof Income-tax v. HimatlalKapurchand (1996) 88 TAXMAN 420 (GUJ.) (HC)].

Even though AOP and its members and a Company and its shareholders, under the Income Tax Act, are considered as different persons but the tax treatment has been done differently in each case.

But what is common is, there is specific mention of whether anything is taxable or not.

Since an in-depth understanding of receipt and its taxability has arisen, let us also see whether a receipt can be doubly taxed.

What does Double Taxation mean?

Double taxation is a process where the same income is taxed twice in the hands of the same Assessee. This has been dealt with in the case of LaxmipatSinghania v. Commissioner of Income-tax [1969] 72 ITR 291 (SC) where it was held as under:

'It is a fundamental rule of the law of taxation that, unless otherwise expressly provided, income cannot be taxed twice. Again, it is not open to the ITO, if income has accrued to the assessee, and is liable to be included in the total income of a particular year, to ignore the accrual and thereafter to tax it as income of another year on the basis of receipt;

A provision which prevents double taxation in respect of the same income, once at the stage of deemed receipt, and another at the stage of actual receipt, cannot be converted into an enactment enabling taxation at the stage of receipt, if for any reason the income is not taxed in the year in which it was by express injunction of law, required to be assessed under the provisions of the statute.'

We can also see in Double Taxation Avoidance Agreements that a general principle is followed to avoid taxation of the same income twice in the hands of the same Assessee. The Double Taxation Avoidance Agreements(DTAA) have come into play because taxes were paid on the same income in two different countries by the same Assessee in accordance with the Tax Statutes of the respective countries. To avoid such payment of excessive taxes by the cross-country assessees, two countries, with different tax laws, may enter into an agreement w.r.t. how an income in the hands of the residents/non-residents of each respective country would be taxed and which country would tax such individuals and in what proportion.

For a Co-operative society, the Principle of Mutuality also need to be looked into.Firstly we shall try to understand what is the Principle of Mutuality.

The basic principal of Mutuality explains the essence of having complete identity demarcation with respect to the participators and the contributors of the common fund.

As quoted by the judge in the case of CITv. Royal Western India Turf Club Ltd. (1953) 24 ITR 551 (SC):

 Lord Macmillan said at page 447 of the report in Tax Cases:-

'The cardinal requirement is that all contributors to the common fund must be entitled to participate in the surplus and that all the participators in the surplus must be contributors to the common fund; in other words there must be complete identity between the contributors and the participators. If this requirement is satisfied, the particular form which the association takes is immaterial".

It was held in the above case that, for the principle of mutuality to apply, there has to be actual dealing between the members inter se in the nature of mutual insurance contribution to a common fund put up for payment of liabilities undertaken by each contributor to the other contributors, etc. There being no mutual dealing the question as to the complete identity of the contributors and the participators need not be raised or considered.

The Bombay High Court in the case of SuratDistrict Cotton Dealers Association v. CIT [1959] 35 ITR 121 (Bombay) (HC) has however held that identity of contributors and participators does not mean that there must be actual contribution by all members. If there is a mere right to contribute, it shall be enough to have a right to be a participator.

The Supreme Court in the case of CITv. Kumbakonam Mutual Benefit Fund Ltd. (1964) 53 ITR 241 (SC) has held that it is essential to have complete identity between the contributors and the participators. There should be a common fund.

Now a question arises whether the above principles laid down by various Courts apply in a situation where the co-operative society earns money from outsiders and then distributes the money in the form of bonus to its employees?

If we may take Surat District Cotton Dealers Association (Supra) into consideration, we can say that Principal of Mutuality may apply since, the case states that the contributors may not actually contribute but may only have a mere right of contribution, and if such members having a mere right of contribution do not exercise their right but exercise their right to participate in the surplus, the income may be exempt from tax i.e. the principle of Mutuality would be applicable.

However, reliance on the judgement of CITv. Sun Engineering Works (1992) 198 ITR 297 (SC) may be required, where the Supreme Court held:

'It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this court, divorced from the context of the question under consideration and treat it to be the complete 'law’ declared by this court. The Judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions before the court. A decision of this court takes colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the Courts must carefully try to ascertain the true principle laid down by the decision of this court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this court, to support their reasoning.'

If the judgement is perused, with the limited understanding of what the Court had intended, one may be understood to have a closer look into any judgement referred. Since the opinion about bonus received by members may not be taxable, due to the application of Principal of Mutuality, based on Sun Engineering Works (Supra), on reading the facts of the case, we can see that the members were the contributors or had the right to contribute and the same members were the participators, but at the end of the day, they should have been the members irrespective of whether they have contributed or not.

Now the current case is whether bonus declared by the Co-operative Society should be exempt based on Principal of Mutuality. The Bonus in question is the amount of income of the Co-operative societies, which it has earned from services rendered to non-members, which it would distribute to its members.

From the facts, it seems like, the Principle of Mutuality does not apply and the Bonus should be taxable in the hands of the members as well, even though it has already been taxed in the hands of the Co-operative societies. Here, when we say bonus, it is a mere distribution of the income received by the Co-operative society.

There are case laws where the interest income earned by the co-operative society, and then distributed by such society to its members, is not taxable in the hands of the members due to the application of the Principle of Mutuality.

In one of the Cases, w.r.t. the taxability of interest where the surplus from the contributions made by the members, was deposited with banks which were the corporate members of the non-profit club. It was contended that, since the corporate members were the contributors as well, there was complete identity between the contributors and the participants.

It is held that, in plain terms, the principle of Mutuality postulates that, when persons contribute to a common fund in pursuance of a scheme for their mutual benefit, having no dealings or relations with any outside body, they cannot be said to have made a profit when they find they have overcharged themselves and that some portion of their contributions may be safely refunded. If complete identity, between the contributors and the participants or recipients, is established, the surplus generated and returned to the contributors is not regarded as profit for the purpose of charging income-tax.

14. In CIT v. Royal Western India Turf Club Ltd.[1953] 24 ITR 551 (SC), after a review of Styles (supra), Hills (supra), English and Scottish Joint Co-operative Wholesale Society Ltd. (supra) and other cases, the Supreme Court observed that (page 560) : It is held that, if a company makes profit out of its own members, besides making profit from the general non-members, the profit made here, belongs to the members as shareholders and not as members. But if the company collects money from its members and applies for their benefit not as shareholders, but as persons who contributed to the fund, then the company makes no profit.

For example : If a railways company does the business of carrying on transportation business where it makes profit out of providing services of giving transportation facilities, where it charges alike from both members and non-members alike, it is not doing such a business in the interest of the members, but doing it in the interest of business. Hence any profits earned out of such services, shall be distributed to the members, who will be treated as shareholders for the purpose of distributing such profits.

However, if the railway company collects money from the members, in order to benefit the members, and charges differently from the normal customers, then the surplus generated shall be distributed to the members in the capacity of persons who contributed to the common fund and hence the principle of Mutuality would apply.

Should we compare the distribution of bonus with that of the distribution of Bonus shares by the company?

Bonus shares are new shares issued to the existing shareholders. For the company, such issue is out of the undistributed profits on which tax has already been paid by the company. From the Shareholder’s point of view, the cost of acquisition is nil and such bonus shares received shall be taxable in the year of transfer in the hands of the shareholder and not in the year of receipt of the bonus shares. It would be subject to Capital Gain tax i.e. either Long term capital gain tax or short term capital gain tax, as the case may be.

However, for the purpose of being taxable, whether such distribution of bonus shares is a capital expenditure or revenue expenditure in the hands of the company, would depend on the facts of each case. In the case of British Insulated and Helsby Cables Ltd. v. Altherton [1925] 10 TC 155, it was observed that when an expenditure was made, not only once and for all but with a view to bringing into existence an asset of advantage for the enduring benefit of a trade then there was a very good reason for treating such an expenditure as properly attributable not to Revenue but to Capital.

It was finally settled after the case which come up before the Supreme Court in 2006, in the case of Commissioner of Income Tax v.General Insurance Corporation [2006] 286 ITR 232 (SC) that expenditure incurred in connection with issuance of bonus shares is revenue expenditure.

Bonus issue in the form of fully paid share of the company is not income for the assessee for the Income Tax purpose. The undistributed profit of the company is applied and appropriated for the issue of bonus shares.

Definitely, the bonus given to the members of a Co-operative society and the Bonus shares issued by a Company cannot be equated on the same level.

Can Bonus be termed as a casual income and non-recurring in nature? Can it be taxed under Section 2(24) or under Section 45 of the Income Tax Act?

Bonus can be termed as casual i.e. non-recurring in nature, and whether it would come under the ambit of the term 'Income’ has already been discussed in the earlier paragraphs.

However, after perusing all the above facts and substantial principles laid down by various Courts, one can arrive at the conclusion that bonus should not be made taxable in the hands of the members, which would be received from the co-operative society, since it is a Capital Receipt and it is not specifically covered under the Income Tax Act anywhere. One more attributing reason for the non-taxability of bonus in the hands of the members is that, such amount has already been taxed in the hands of the Co-operative Society before distribution.

Based on the following, the opinion of the Author is derived till this point:

• It is a capital receipt;

• The Principal of Mutuality does not apply;

• No provision in the Income Tax Act, 1961 exists to tax such a receipt.

• It cannot be equated on par with dividends since, a shareholder invests in a company with the purpose of earning dividend or for Capital appreciation, however, in case of a Co-operative society, an intention of earning any kind of dividend or bonus does not exist.

Ø Such receipt is already taxed in the hands of the Co-operative Society.

A very interesting section, which has been recently amended in 2017 and effective from 1-4-2017, is section 56(2)(x). It manages to alter the opinion of the author.

The Section taxes every receipt of money or immovable property or movable property, where the amount or value exceeds Rs.50,000/- or the difference in stamp duty value and actual value exceeds Rs.50,000/- for immovable property, wherein the whole amount of the aggregate amount would be taxable.

However, we need to see whether Co-operative societies are also pulled into the arena of Section 56.

Earlier to the introduction of Section 56(2)(x), only Individuals and HUFs and certain specified companies were covered under the provisions of the Section. However, with the latest amendment in section 56, all 'Persons’ are dragged into the quicksand of section 56.

If we look at the intention of the legislature, through the lens of the memorandum explaining the legislature, we find that the objective of bringing in the amendment under section 56(2) is for the anti-abuse of the laws and to have a wider coverage of assessees:

'The existing definition of property for the purpose of this section includes immovable property, jewellery, shares, paintings, etc. These anti-abuse provisions are currently applicable only in case of individual or HUF and firm or company in certain cases. Therefore, receipt of sum of money or property without consideration or for inadequate consideration does not attract these anti-abuse provisions in cases of other assessees.

These amendments will take effect from 1st April, 2017 and the said receipt of sum of money or property on or after 1st April, 2017 shall be chargeable to tax in accordance with the provisions of proposed clause (x) of sub-section (2) of section 56.'

Till now, section 56 was restricted to Individuals and HUF and certain specified firms and companies under sections 56(2)(vii) and (viia) but with the latest amendment in 2017, these sub-clauses are rendered inoperative and with the insertion of the new provision of S.56(2)(x), all assesses have been brought under the ambit by stating the term 'PERSON’. Hence the 'Giver’ and the 'Recipient’, both shall be 'Any Person’ as defined under the Income Tax Act under section 2(31).

A Co-operative society being is 'Giver’, is also covered under the definition of 'Persons’ u/s 2(31) of the Income Tax Act. Support can be drawn from the following case law:

MangalamService Co-operative Bank Ltd. V. ITO 2013] 354 ITR 601 (Kerala)

Where primary co-operative credit society which is registered under Co-operative Societies Act, must be treated as juristic person capable of exercising all rights of natural person.

Looking at these provisions, it seems to have taken the Co-operative society and its members also under its ambit. Which means, the bonus in the hands of the members would become taxable under the newly inserted provision, if the bonus is received by the members after 1-4-2017, even though, the income earned by the co-operative society would have been before 1-4-2017.

Thus, in the author’s opinion, but for the latest amendment, bonus would not have been taxable. However, with the amendment, bonus may become taxable. It could still be argued that taking analogy from various sections, bonus in the hands of the members should not be taxable. And if the Courts are to take a different view due to the plain and strict interpretation of the provisions of the Act, an amendment in the Act may need to be brought in by the legislature to avoid discrepancies.

The law, as it stands now, prima facie suggests that bonus is taxable in the hands of the members of the Co-operative society.

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