2016 (9) TMI 152 - HC - Income Tax

Carbon credit receipt - nature of receipt - revenue or capital - Held that - Carbon Credit is capital in nature. See The Commissioner of Income Tax IV, Hyderabad Versus M/s. My Home Power Ltd 2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT

Summary

Issues:
Interpretation of Income Tax Act regarding taxation of Carbon Credits.

Analysis:
The High Court dealt with an appeal under Section 260-A of the Income Tax Act, 1961 arising from a judgment passed by the Income Tax Appellate Tribunal, Lucknow Bench 'B'. The main substantial question of law raised was whether the deletion of an addition made by the Assessing Officer on account of Carbon Credit amounting to ?2,77,08,800 was justified. The appellant contended that Carbon Credit should be treated as a revenue receipt based on a judgment by the Cochin Bench of ITAT. On the other hand, the respondent argued that Carbon Credit should be considered a capital receipt, citing a different view taken by the Hyderabad Bench of ITAT, confirmed by the Andhra Pradesh High Court.

The appellant relied on the Cochin Bench's judgment in Apollo Tyres Ltd. case, asserting that Carbon Credit is a revenue receipt. In contrast, the respondent referred to the Hyderabad Bench's decision in My Home Power Ltd. case, supported by the Andhra Pradesh High Court's ruling, which considered Carbon Credit as a capital receipt. Additionally, the Chennai Bench of ITAT in India Dyeing Mills (P.) Ltd. case also upheld the capital nature of Carbon Credit following the Andhra Pradesh High Court's judgment.

The High Court noted that the appellant failed to present substantial arguments to challenge the view that Carbon Credit should be treated as a capital receipt. Consequently, the Court agreed with the Andhra Pradesh High Court's decision in My Home Power Ltd. case and ruled against the Revenue, in favor of the Assessee. As a result, the appeal was dismissed, affirming the treatment of Carbon Credit as a capital receipt for taxation purposes.