2016 (1) TMI 117 - AT - Income Tax

Entitlement to deduction u/s.80IA - whether two power generating units situated in the main manufacturing plants producing news print and writing paper, set up for captive consumption as they did not qualify to be considered as separate industrial undertakings within the meaning of clause (iv) of sub-section (4) of sec 80IA? - Held that - Eligible business were the only source of income during the previous year relevant to initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business, Once the set off is taken place in earlier year against the other income of the assessee, the Revenue can not rework the set off amount and bring it notionally. Fiction created in sub-section does not contemplate to bring set off amount notionally. Fiction is created only for the limited purpose and the same can not be extended beyond the purpose for which it is created . See Velayudhaswamy Spinning Mills (P) Ltd. v. ACIT - 2010 (3) TMI 860 - Madras High Court - Decided against revenue. Incentive on carbon credit - whether is capital in nature? - Held that - Similar issue was decided by the Andhra Pradesh High Court in the case of CIT v. My Home Power Ltd. (2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT), wherein it was held that income received from sale of carbon credit is considered as capital receipt and not business receipt and not liable for tax under the Act. Accordingly, we agree with the finding of the Commissioner of Income-tax(Appeals) on this ground and dismiss the ground of appeal taken by the Revenue. - Decided against revenue.

Summary

Issues Involved:
1. Entitlement to deduction under Section 80IA for power generating units.
2. Definition of "initial assessment year" under Section 80IA(5).
3. Nature of incentive on carbon credit.

Detailed Analysis:

1. Entitlement to Deduction Under Section 80IA for Power Generating Units:
The Revenue's appeal contested the CIT(Appeals)'s decision that the assessee was entitled to deduction under Section 80IA for two power generating units set up for captive consumption. The Revenue argued that these units did not qualify as separate industrial undertakings under clause (iv) of sub-section (4) of Section 80IA. The DR emphasized that the units were part of the main manufacturing process and not distinct undertakings. The Tribunal, however, upheld the CIT(Appeals)'s decision, referencing its own earlier ruling in the assessee's case where it was determined that the power produced, even if used captively, qualified for the deduction. The Tribunal noted that the power units, though part of the main facility, were separate undertakings generating electricity, and any surplus power was sold to the Tamil Nadu Electricity Board, reinforcing their status as separate undertakings eligible for deduction under Section 80IA.

2. Definition of "Initial Assessment Year" Under Section 80IA(5):
The Revenue also challenged the CIT(Appeals)'s interpretation of "initial assessment year" under Section 80IA(5), arguing it should be the first year of the deduction claim, not the commencement of operations. The DR contended that unabsorbed depreciation and losses from earlier years should be carried forward for deduction computation. The Tribunal, referencing the Madras High Court's decision in Velayudhaswamy Spinning Mills (P) Ltd. v. ACIT, upheld the CIT(Appeals)'s view that the "initial assessment year" is the first year the deduction is claimed, not the year operations began. The Tribunal agreed that losses set off in earlier years should not be notionally carried forward, as the fiction created in sub-section (5) does not extend to reworking set-off amounts.

3. Nature of Incentive on Carbon Credit:
The Revenue's final ground was against the CIT(Appeals)'s ruling that income from carbon credits is capital in nature. The DR cited the Supreme Court's decision in M/s. Liberty India, arguing that such incentives should not qualify for deductions under Section 80IA. The Tribunal, however, sided with the Andhra Pradesh High Court's decision in CIT v. My Home Power Ltd., which held that income from the sale of carbon credits is a capital receipt, not a business receipt, and thus not taxable under the Act. Consequently, the Tribunal dismissed the Revenue's appeal on this ground.

Cross-Objection:
The assessee's cross-objection, delayed by 27 days, was admitted after considering the reasons for the delay. However, since the issue regarding carbon credit receipt was already decided in favor of the assessee in the Revenue's appeal, the cross-objection was dismissed as infructuous.

Conclusion:
The Tribunal dismissed the Revenue's appeal on all grounds and the assessee's cross-objection as infructuous. The order was pronounced on October 16, 2015, at Chennai.