2016 (1) TMI 716 - AT - Income Tax

Treatment of carbon credits as Revenue receipts and also not granting deduction u/s.80IA - Held that - As decided in case of Arun Textiles Pvt. Ltd. v. DCIT 2015 (11) TMI 1055 - ITAT CHENNAI 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 of the Act. - Decided in favour of assessee Non- consideration of insurance claim as not eligible for deduction u/s.80IA - Held that - We find that the material brought on record does not show that the insurance claimed by the assessee has direct nexus with the business income of the assessee and the assessee was not able to show that the receipts received is in relation to current assets or in relation to trading assets of the assessee. Being so, placing reliance by the assessee s counsel in the case of CIT vs. Meghalaya Steels Ltd. (2013 (7) TMI 175 - GAUHATI HIGH COURT) has no bearing as it is relating to receipt of interest subsidy and also the decision of the Tribunal, Hyderabad Bench in the case of M/s. Coromandel International Ltd. 2014 (12) TMI 220 - ITAT HYDERABAD is relating to granting of deduction u/s.80IB of the Act, in respect of excise duty refund. Accordingly, this ground of appeal by the assessee is dismissed. - Decided against assessee

Summary

Issues:
1. Treatment of carbon credits as Revenue receipts and deduction u/s.80IA of the Act.
2. Consideration of insurance claim for deduction u/s.80IA of the Act.

Issue 1: Treatment of Carbon Credits and u/s.80IA of the Act

The first issue in the appeal pertains to the treatment of carbon credits as Revenue receipts and the denial of deduction u/s.80IA of the Act. The Tribunal, after considering the arguments, relied on the case of Arun Textiles Pvt. Ltd. v. DCIT and held that carbon credits are akin to an entitlement received to improve the environment and cannot be taxed as a revenue receipt. It was emphasized that carbon credits are not generated due to business activities but are accrued due to global concerns. The Tribunal concluded that the receipt from the sale of carbon credits should be considered a capital receipt and hence not taxable. The decision was supported by various judicial precedents. Consequently, the Tribunal allowed the appeal of the assessee, holding that the receipt from carbon credits is a capital receipt, making it ineligible for deduction u/s.80IA of the Act.

Issue 2: Consideration of Insurance Claim for Deduction u/s.80IA of the Act

The second issue revolves around the non-consideration of an insurance claim for deduction u/s.80IA of the Act. The Assessing Officer disallowed the insurance claim amount in the 80IA computation. The assessee contended that the insurance claim was a reimbursement of expenditure debited to the Profit and Loss Account and not a source of profit. However, the CIT(Appeals) relied on the Supreme Court judgment in Liberty India v. CIT, stating that the origin of the compensation was contractual with the insurer and not directly linked to the industrial activity of the assessee. The Tribunal found that the insurance claim did not have a direct nexus with the business income of the assessee and was not related to current or trading assets. Consequently, the Tribunal dismissed the appeal by the assessee, upholding the decision of the CIT(Appeals) regarding the ineligibility for deduction u/s.80IA of the Act in this regard.

In conclusion, the Tribunal's judgment in this case addressed the issues of treatment of carbon credits and insurance claim deduction under u/s.80IA of the Act. The decision highlighted the distinction between revenue and capital receipts, emphasizing the global environmental nature of carbon credits and the contractual origin of insurance claims. The judgment provided a detailed analysis of the legal principles and precedents guiding the determination of taxability in these specific scenarios, ultimately resulting in the partial allowance of the assessee's appeal.