2015 (12) TMI 1852 - AT - Income Tax

Treatment of carbon credit receipts - revenue or capital receipts - HELD THAT - As decided in M/S. ARUN TEXTILES PRIVATE LIMITED VERSUS ASST. COMMISSIONER OF INCOME TAX COMPANY CIRCLE TIRUPUR 2014 (9) TMI 922 - ITAT CHENNAI we are inclined to hold that the receipt from sale of carbon credits has to be considered as capital receipt and accordingly it is not taxable. Thus there is no question of considering the same for deduction u/s.80IA. Deduction u/s.80IA - Whether depreciation of earlier years which have been absorbed cannot be notionally carried forward and considered in computing the quantum of deduction u/s.80IA? - HELD THAT - This issue is covered by this Tribunal in favour of the assessee in the case of M/s. Ambika Cotton Mills Ltd. Others 2015 (12) TMI 1851 - ITAT CHENNAI mere pendency of Special Leave Petition before the Apex Court cannot be a reason to take a different view. The judgment of Madras High Court is binding on all the authorities in the State of Tamil Nadu and Union Territory of Pondicherry. Commissioner of Income Tax (Appeals) has rightly allowed the claim of the assessee by following the binding judgment of Madras High Court in Velayudhaswamy Spinning Mills (P) Ltd 2010 (3) TMI 860 - MADRAS HIGH COURT - Decided against revenue.

Summary

Issues:
1. Treatment of carbon credit receipts.
2. Deduction u/s.80IA of the Act.

Analysis:

Issue 1: Treatment of carbon credit receipts
The Tribunal considered the nature of carbon credits as an entitlement received to improve the world atmosphere and environment, reducing carbon, heat, and gas emissions. It was held that carbon credits are akin to a capital receipt and cannot be taxed as a revenue receipt. The Tribunal emphasized that carbon credits are not generated due to business activities but accrue due to global environmental concerns. Therefore, the amount received for carbon credits does not constitute profit or gain and is not taxable under any head of income. The Tribunal cited various judicial precedents to support its view that income earned from the sale of carbon credits is a capital receipt. Consequently, the Tribunal allowed the appeal of the assessee, ruling that the receipt from the sale of carbon credits should be treated as a capital receipt and is not taxable.

Issue 2: Deduction u/s.80IA of the Act
Regarding the Revenue's appeal on the deduction under section 80IA of the Act, the Tribunal referred to a previous case involving Ambika Cotton Mills Ltd. & Others where a similar issue was considered. The Tribunal noted that the Department had filed a Special Leave Petition against a judgment of the Madras High Court, but the Commissioner of Income Tax (Appeals) had allowed the claim of the assessees based on the High Court's ruling. The Tribunal held that the pendency of the Special Leave Petition before the Apex Court does not justify a different view, emphasizing that the judgment of the Madras High Court is binding on all authorities in Tamil Nadu and Pondicherry. Consequently, the Tribunal confirmed the decision of the Commissioner of Income Tax (Appeals) in favor of the assessee, dismissing the Revenue's appeal.

In conclusion, the Tribunal allowed the appeal of the assessee concerning the treatment of carbon credit receipts and dismissed the Revenue's appeal regarding the deduction under section 80IA of the Act. The order was pronounced on December 31, 2015, in Chennai.