2015 (6) TMI 512 - AT - Income Tax

Income from sale of carbon credits - Capital receipts vs Revenue receipts - Amount credited in p&l a/c of sister concern, SRGS - SRGS was not registered with UNFCCC, the international body for accreditation for carbon credits - Held that - The Commissioner of Income-tax (Appeals) has followed the order of the jurisdictional High Court in the case of CIT v. My Home Power Ltd. 2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT in which it was held that carbon credit is not an offshoot of business but an offshoot of environmental concerns. No asset is generated in the course of business but it is generated due to environmental concerns. We agree with this factual analysis as the assessee is carrying on the business of power generation. The carbon credit is not even directly linked with power generation. On the sale of excess carbon credits the income was received and hence as correctly held by the Tribunal it is capital receipt and it cannot be business receipt or income. - Decided against the revenue.

Issues:
1. Taxability of income from the sale of carbon credits under section 80-IA of the Income Tax Act, 1961.
2. Crediting income from carbon credits to a sister concern instead of the profit and loss account.
3. Exclusion of profit on the sale of assets from deduction claimed under section 80-IA.

Analysis:

*Issue 1: Taxability of income from the sale of carbon credits under section 80-IA*
The case involved the assessment of income from the sale of carbon credits by the assessee, a power generation company. The Assessing Officer disputed the treatment of the income as capital in nature and brought it to tax. The assessee contended that the income was intricately connected to the business of power generation and hence eligible for deduction under section 80-IA. The Commissioner of Income-tax (Appeals) dismissed the grounds of appeal, stating that the sale receipts for carbon credits were not based on business considerations and were rightfully the assessee's receipts. The High Court's decision in a similar case was cited, emphasizing that carbon credits are not directly linked with power generation and are capital receipts. Consequently, the Commissioner held that the income from the sale of carbon credits was a capital receipt, partly allowing the appeal.

*Issue 2: Crediting income to a sister concern*
The Assessing Officer raised concerns about the crediting of income from carbon credits to the assessee's sister concern instead of the profit and loss account. The officer deemed this accounting treatment as incorrect and brought the income to tax. The Commissioner upheld this decision, noting the lack of evidence regarding any agreement for the transfer of income to the sister concern. The absence of a business basis for transferring the income to the sister concern led to the conclusion that the income rightfully belonged to the assessee. The appeal on this issue was dismissed.

*Issue 3: Exclusion of profit on the sale of assets from deduction claimed under section 80-IA*
The Assessing Officer proposed to exclude the profit on the sale of assets from the deduction claimed under section 80-IA since it was not derived from the sale of power. The company did not object to this exclusion, and the exclusion was upheld. The appeal on this matter was not specifically addressed in the final judgment but was likely dismissed based on the lack of objection from the company and the Assessing Officer's decision.

In conclusion, the judgment upheld the taxability of income from the sale of carbon credits as a capital receipt, dismissed the appeal on the crediting of income to a sister concern, and likely upheld the exclusion of profit on the sale of assets from the deduction claimed. The decision was based on the High Court's ruling and confirmed by the Appellate Tribunal, resulting in the dismissal of the Revenue's appeal.

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