2015 (5) TMI 809 - AT - Income Tax

Disallowance from the sale of carbon credit u/s 80lA - sale of carbon credit - Held that - There is no dispute about the nature of receipts arising from sale of carbon credits as the decision of My Home Power Ltd vs DCIT (2012 (11) TMI 288 - ITAT HYDERABAD) has been upheld 2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT holding therein that the same are not an offshoot of business but arise from environmental concerns. Their lordships have also observed that these carbon credits are not directly linked with power generation. It has been held as capital and not a revenue receipt. It is to be seen that the CIT(A) applies estoppel principle against the assessee. The assessee had declared the carbon credit sale receipts as income due to the fact that it is otherwise entitled for section 80IA deduction. In the lower appellate proceedings, it had sought to withdraw the said declaration. The CIT(A) has not quoted any specific provision barring such an alternative plea. In these facts only, we observe that as the substantial question of law has been settled against the Revenue about nature of the receipt, the assessee is entitled for acceptance of its alternative claim. So, we accept the relevant grounds and hold that carbon credit receipts have to be treated as capital in nature.

Summary

Issues involved:
1. Disallowance of claim of Rs. 45,83,739 from the sale of carbon credit under section 80IA of the Income-tax Act.
2. Treatment of receipts from transfer of carbon credit as revenue or capital receipts.
3. Challenge to the treatment of carbon credit receipts as income for deduction claim under section 80IA.
4. Exclusion of receipts of Rs. 72,94,322 pertaining to the assessment year 2009-10 in computing the total income for the present year.

Detailed Analysis:
1. The appellant contested the disallowance of the claim of Rs. 45,83,739 from the sale of carbon credit under section 80IA. The Assessing Officer held that the receipts were attributable to the windmills but not directly derived from them, leading to the rejection of the claim. The appellant argued that previous tribunal decisions supported treating carbon credit receipts as capital receipts. The Commissioner (Appeals) upheld the disallowance, emphasizing that the receipts were revenue in nature and not directly derived from the generation of electricity from wind turbine generators (WTGs), as required by section 80IA.

2. The issue revolved around whether the receipts from the transfer of carbon credits should be treated as revenue or capital receipts. The appellant claimed that the carbon credit receipts should be considered capital receipts based on tribunal decisions and sought to challenge the treatment of these receipts as income for the deduction claim under section 80IA. The Commissioner (Appeals) maintained that the receipts were revenue in nature and not directly linked to the generation of electricity from WTGs, thus disallowing the claim under section 80IA.

3. The appellant raised an alternate claim regarding the exclusion of receipts of Rs. 72,94,322 from the sale of carbon credits pertaining to the assessment year 2009-10 in computing the total income for the present year. The Commissioner (Appeals) rejected this claim, stating that the appellant had already admitted these amounts as revenue receipts and could not challenge their treatment as capital receipts. The appellant's argument that the receipts should be considered capital in nature based on tribunal decisions was not accepted, leading to the disallowance of the claim under section 80IA.

4. The judgment highlighted the nature of carbon credit receipts as capital rather than revenue, as established by tribunal decisions and upheld by the high court. The appellant's declaration of these receipts as income for section 80IA deduction did not preclude them from later seeking to treat the receipts as capital. The judgment allowed the appellant's claim that carbon credit receipts should be treated as capital and directed the Assessing Officer to reconsider the exclusion of receipts from the previous assessment year, leaving the issue open for further adjudication.

In conclusion, the judgment addressed the treatment of carbon credit receipts, the eligibility for deduction under section 80IA, and the distinction between revenue and capital receipts, providing a detailed analysis of each issue raised by the appellant.