2020 (1) TMI 258 - HC - Income Tax

Carbon receipts - accrual of income - treatment as capital receipt or revenue receipt - HELD THAT - As decided in own case 2017 (3) TMI 392 - GUJARAT HIGH COURT carbon receipts were neither sold nor transferred by the assessee during the year under consideration and therefore, the same cannot be said to have been included in the income of the assessee in the year under consideration. It cannot be said that the learned CIT(A) as well as the learned Tribunal have committed any error in deleting the addition and holding that as neither the carbon receipts were sold and/or transferred in favour of foreign companies in the year under consideration, the same cannot be included as receipt / income in the year under consideration. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of tax law regarding the treatment of carbon receipts as capital receipts.
2. Determination of whether carbon receipts should be included in the income of the assessee for a specific assessment year.

Issue 1: Interpretation of Tax Law - Treatment of Carbon Receipts

The Tax Appeal under Section 260A of the Income Tax Act, 1961 questions the order of the Income Tax Appellate Tribunal regarding the treatment of carbon receipts as capital receipts. The Appellate Tribunal upheld the order of the CIT(A) deleting the addition of a specific amount, leading to the proposed question of law by the Revenue. The original assessment order by the AO considered the carbon receipt as a capital receipt, leading to the addition to the income of the assessee. However, both the CIT(A) and the Tribunal ruled that since the carbon receipts were neither sold nor transferred during the relevant assessment year, they should not be included in the income. The Tribunal's decision was based on the fact that the income did not accrue to the assessee during that year. The case involved a similar issue for a previous assessment year, and the decision of the Hon'ble Supreme Court in a related case was cited to support the argument that income must be real, not hypothetical, for tax purposes.

Issue 2: Inclusion of Carbon Receipts in Assessee's Income

The appeal raised the question of whether the carbon receipts, which were not sold or transferred during the assessment year, should be considered as part of the assessee's income. The AO had added the amount to the income, but the CIT(A) and the Tribunal disagreed, emphasizing that the income must accrue to the assessee during the relevant year to be included. The decision referenced the Supreme Court's position that income accrues when it becomes due and is accompanied by a corresponding liability of the other party to pay. The court found that since the carbon receipts were not realized or transferred during the assessment year, they should not be treated as income. The judgment highlighted the importance of real income over hypothetical income for tax purposes, emphasizing the need for pragmatism in assessing income inclusion.

In conclusion, the High Court dismissed the Tax Appeal, upholding the decisions of the CIT(A) and the Tribunal regarding the treatment of carbon receipts as capital receipts. The judgment emphasized the need for income to be real and accrued during the relevant assessment year to be considered for taxation, citing relevant legal precedents and the decision of the Hon'ble Supreme Court.