2015 (12) TMI 821 - AT - Income Tax

Amount received on account of Clean Development Mechanism (CDM) - capital or revenue receipt - Held that - The amount received by the assessee on account of CDM (carbon credits) is capital in nature. See case of M/s My Home Power Ltd. 2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT . The impugned order is set aside the appeal is allowed. Decided against Revenue.

Summary

Issues:
Whether the amount received by the assessee on account of Clean Development Mechanism (CDM) is a capital or revenue receipt.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals)-II, Coimbatore, for the assessment year 2009-10. The only issue in appeal was the nature of the amount received by the assessee on account of CDM. The assessee claimed the CDM receipts as capital receipts, while the Assessing Officer considered them to be revenue in nature. The CIT(Appeals) upheld the AO's findings, leading to the appeal before the Tribunal.

The assessee argued that various decisions by the Tribunal had consistently treated CDM receipts as capital receipts. The Tribunal examined these decisions and noted that the Hyderabad Bench had previously held carbon credits as capital receipts. The Tribunal emphasized that carbon credits are an entitlement received for environmental concerns, not generated from business activities. Therefore, the amount received for carbon credits was deemed as a capital receipt and not taxable as income.

The Department, represented by JCIT, supported the CIT(Appeals)'s order. After hearing both sides and reviewing the previous decisions, the Tribunal concurred with the assessee's argument. It held that the amount received on account of CDM (carbon credits) was capital in nature. The Tribunal set aside the impugned order and allowed the appeal in favor of the assessee.

The judgment was pronounced on August 18, 2014, at Chennai. The decision was based on the understanding that carbon credits are not a result of business activities but stem from environmental concerns. Therefore, the receipt of consideration for carbon credits was considered a capital receipt, not taxable as income. The Tribunal's decision aligned with previous rulings and upheld the assessee's claim regarding the nature of the CDM receipts.