2014 (9) TMI 922 - AT - Income Tax

Capital receipt or Revenue Receipt - whether the amount received by the assessee on account of clean development mechanism (CDM) is capital or revenue receipt - Held that - Following decision of My Home Power Ltd. v. Dy. CIT 2012 (11) TMI 288 - ITAT HYDERABAD - This decision was upheld by High Court CIT v. My Home Power Ltd. 2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT - amount received by the assessee on account of CDM (carbon credits) is capital in nature - Decided in favour of assessee.

Summary

Issues: Determination of whether the amount received on account of clean development mechanism (CDM) is a capital or revenue receipt for the assessment year 2009-10.

Analysis:
The appeal was filed against the order of the Commissioner of Income-tax (Appeals)-II, Coimbatore, regarding the classification of the amount received by the assessee on account of clean development mechanism (CDM). The Assessing Officer considered it as revenue receipts, while the assessee claimed it to be capital receipts in the return of income for the assessment year 2009-10. The Commissioner of Income-tax (Appeals) upheld the Assessing Officer's decision, leading the assessee to appeal before the Tribunal.

The assessee contended that a previous judgment by the Hyderabad Bench of the Tribunal in the case of My Home Power Ltd. had classified clean development mechanism receipts as capital receipts. This decision was further upheld by the Andhra Pradesh High Court. On the contrary, the Department, represented by the Joint Commissioner of Income-tax, supported the order of the Commissioner of Income-tax (Appeals) and cited a decision of the Cochin Bench of the Tribunal in the case of Apollo Tyres Ltd. to strengthen their argument.

After considering the arguments and examining the decisions referred to by both sides, the Tribunal noted that the Hyderabad Bench had previously held carbon credits as capital receipts in the case of My Home Power Ltd. The Tribunal emphasized that carbon credits are an entitlement received to improve the environment and are not generated due to business activities but due to global environmental concerns. The Tribunal concluded that the amount received for carbon credits is not taxable as income under any heads of income and is, therefore, a capital receipt. This decision was supported by the Andhra Pradesh High Court as well.

Consequently, the Tribunal ruled that the amount received by the assessee on account of clean development mechanism (carbon credits) is capital in nature. The impugned order was set aside, and the appeal was allowed.