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2017 (10) TMI 1458 - HC - Income TaxNature of expenditure - compensation paid to land owners/farmers for using their land for extraction of minerals - Contribution by the assessee to State Renewal Fund and Social Welfare Activities u/s 37(1) - Revenue or capital expenditure - HELD THAT - Issue decided in M/S RAJ STATE MINES AND MINERAL LTD 2017 (10) TMI 1457 - RAJASTHAN HIGH COURT as held that the expenses which gives fruitful result require to be done according to the necessity of relevant time and development with the nature of expenses. It cannot be capital expenses and is to be considered as revenue expenses. - Decided in favour of the assessee. Sale proceeds received by the company from the sale of Certified Emission Reduction (CER) pertaining to Carbon Credit - Revenue or capital receipt - HELD THAT - We find that the Appellate Tribunal in My Home Power Ltd. Vs. DCIT 2012 (11) TMI 288 - ITAT HYDERABAD have, after detailed examination, concluded that the receipts from Carbon credit are capital in nature. We are inclined to follow the said decision and the other two decisions of Chennai Tribunal in Sri Velayudhaswamy Spinning Mills (P.) Ltd. Vs. DCIT 2015 (4) TMI 132 - ITAT CHENNAI and Ambika Cotton Mills Ltd. Vs.DCIT 2016 (9) TMI 394 - ITAT CHENNAI where also it has been held that receipt on account of Carbon Credit is capital in nature neither chargeable to tax under the head Business Income nor liable to tax under the head Capital Gains. Provision for Mines Closure - Deduction in respect of Mines Closure Expenses - the said expenditure was not even debited in the books of accounts and is also not an ascertained liability - ITAT allowed the deduction - HELD THAT - It is not reflected in the books of accounts without taking closure of a mining is a statutory liability and the same is for the subsequent year reflected, therefore, in view of the decision rendered by the tribunal BHARAT EARTH MOVERS VERSUS COMMISSIONER OF INCOME-TAX 2000 (8) TMI 4 - SUPREME COURT we are of the opinion that the tribunal has not committed any error.
Issues Involved:
1. Classification of compensation paid to landowners for mineral extraction as revenue expenditure. 2. Deduction of contribution to the State Renewal Fund. 3. Deduction of contributions to Social Welfare Activities under Section 37(1) of the Income Tax Act. 4. Classification of income from the sale of Carbon Emission Reduction Certificates (CERs) as capital income. 5. Allowability of deduction for Mines Closure Expenses. Detailed Analysis: Issue 1: Classification of Compensation Paid to Landowners for Mineral Extraction as Revenue Expenditure The appellant challenged the tribunal's decision to classify the compensation of ?1,67,47,786/- paid to landowners for mineral extraction as revenue expenditure. The court referred to a previous decision in ITA No.147/2015, which had already addressed this issue. The tribunal's classification was upheld, indicating that the compensation was correctly treated as revenue expenditure. Issue 2: Deduction of Contribution to the State Renewal Fund The tribunal had deleted the disallowance of ?10,00,000/- contributed by the assessee to the State Renewal Fund. The court again referred to the decision in ITA No.147/2015, affirming the tribunal's stance that the contribution was allowable as a deduction. Issue 3: Deduction of Contributions to Social Welfare Activities Under Section 37(1) The tribunal had allowed the deduction of ?2,34,990/- for contributions to Social Welfare Activities under Section 37(1) of the Income Tax Act. This issue was also covered by the prior decision in ITA No.147/2015, which supported the tribunal's decision to permit the deduction. Issue 4: Classification of Income from Sale of Carbon Emission Reduction Certificates (CERs) The tribunal had classified the income from the sale of CERs amounting to ?36,24,742/- as capital income. The court cited ITA No.85/2014, where it was established that receipts from Carbon Credit are capital in nature, supported by the Supreme Court's decision in Vodafone International Holdings Vs. UOI. The tribunal's decision was upheld, affirming that such receipts are not taxable under the Income Tax Act as business income or capital gains. Issue 5: Allowability of Deduction for Mines Closure Expenses The tribunal had allowed the deduction of ?2,94,04,000/- for Mines Closure Expenses. The court examined the observations of the Assessing Officer (AO) and the tribunal's findings. The AO had disallowed the claim, stating that the expenditure was not debited in the books of accounts and was a contingent liability. However, the tribunal noted that the liability for mine closure was ascertainable and mandated by guidelines from the Ministry of Coal. The tribunal relied on the Supreme Court's judgments in Bharat Earth Movers and Kedarnath Jute Mfg Co. Ltd., which supported the allowance of such provisions as they were not contingent but ascertained liabilities. The court agreed with the tribunal's reasoning and upheld the deduction. Conclusion: The court concluded that the tribunal had not committed any errors in its judgments on all the issues. Consequently, the appeal was dismissed, and all issues were resolved in favor of the assessee and against the department.
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