2019 (4) TMI 1034 - HC - Income Tax

Sale of carbon credit - Nature of receipt - Capital Receipt - whether the receipts of the Assessee arising out of sale of carbon credit is to be considered as capital receipt and therefore not liable to tax ? - HELD THAT - This issue is considered by the several High Courts starting from the judgment of Andhra Pradesh High Court in the case of Commissioner of Income Tax v/s. My Home Power Ltd reported 2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT holding the receipts to be capital in nature. This was further elaborated by the Division Bench of Karnataka High Court in the case of Commissioner of Income Tax v/s. Subhash Kabini Power Corporation Ltd. 2016 (5) TMI 793 - KARNATAKA HIGH COURT and followed by Allahabad High Court and Rajasthan High Court, (Allahabad High Court decision is in the case of Principal Commissioner of Income Tax v/s. L H Sugar Factory Pvt. Ltd reported in 2016 (9) TMI 152 - ALLAHABAD HIGH COURT

Summary

Issues involved:
Challenge to orders passed by the Income Tax Appellate Tribunal regarding the treatment of receipts from the sale of carbon credits as capital receipt and not liable to tax under the Income Tax Act, 1961.

Analysis:
The High Court considered the appeals filed by the Revenue challenging the orders passed by the Income Tax Appellate Tribunal regarding the treatment of receipts from the sale of carbon credits as capital receipt. The singular issue in question was whether the receipts arising from the sale of carbon credits should be considered as capital receipt and hence not liable to tax. The court referred to various judgments by different High Courts, starting from Andhra Pradesh High Court, which held such receipts to be capital in nature. Subsequently, the Division Bench of Karnataka High Court, Allahabad High Court, and Rajasthan High Court also supported this view. Given the consistent stance of different High Courts on this matter, the Bombay High Court declined to deviate from this established position. Consequently, the court concluded that no question of law arose in these appeals and dismissed the Income Tax Appeals.

This judgment highlights the significance of the treatment of receipts from the sale of carbon credits as a capital receipt and not subject to taxation under the Income Tax Act, 1961. The court's decision was based on the consistent view of various High Courts across the country, emphasizing the capital nature of such receipts. The judgment serves as a precedent reaffirming the position that income generated from the sale of carbon credits should be considered as capital in nature, aligning with the decisions of other High Courts. The court's analysis underscores the importance of legal precedents and the weight given to established interpretations of tax laws by different judicial bodies.