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2021 (4) TMI 587 - AT - Income TaxReceipt on sale of carbon credit - Capital Receipt OR revenue receipt - HELD THAT - CIT(A) has allowed claim of the assessee for exclusion of receipt from sale of CERs (carbon credit) as capital receipt by following the decision in the case of M/s. My Home Power Ltd. 2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT held that carbon credit not being an offshoot of business, but an offshoot of environmental concern, amount received on transfer had no element of profit or gain. The Hon'ble Jurisdictional High Court of Madras in the case of Ambika Cotton Mills Vs ACIT 2014 (3) TMI 428 - ITAT CHENNAI had considered an identical issue and held that sale of carbon credit is to be considered as capital receipt. The Hon'ble High Court of Madras in the case of M/s. S.P. Spinning Mills Pvt.Ltd. 2021 (1) TMI 1081 - MADRAS HIGH COURT had once again reiterated its earlier findings in the case of Ambika Cotton Mills Vs ACIT 2014 (3) TMI 428 - ITAT CHENNAI and held that receipt by way of sale of carbon credit will not fall within the definition of total income and the same cannot be included u/s. 80IA of the Act. The sum and substance of ratios of the Hon ble High Courts are that receipt by way of sale of carbon credit is a capital receipt and cannot be included in taxable income. The learned CIT(A) after considering relevant facts and also by following certain judicial precedents has rightly directed the Assessing Officer to treat sale of carbon credit as capital receipt and not liable for tax. Appeal filed by the revenue is dismissed.
Issues Involved:
- Appeal filed by Revenue against CIT(A) order regarding treatment of sale of carbon credit as capital receipt for taxation purposes. Analysis: 1. Issue of Delay in Filing Appeal: The Revenue's appeal was initially barred by a 7-day limitation, but the delay was condoned upon submission of a petition with valid reasons. The Tribunal accepted the explanation provided by the Revenue for the delay and admitted the appeal for adjudication. 2. Assessment Year 2009-10: The assessee, engaged in power generation through non-conventional sources, filed its return for the assessment year 2009-10. The assessment was completed under section 143(3) of the Act, determining the total income after various additions. The matter was taken to the CIT(A) by the assessee. 3. Treatment of Sale of Carbon Credit: The key issue revolved around the treatment of sale of Certified Emission Reductions (CERs), also known as carbon credits, as either a capital or revenue receipt for taxation. The CIT(A) allowed the additional ground filed by the assessee, directing the Assessing Officer to treat the sale of carbon credit as a capital receipt and not liable for taxation. 4. Arguments by Revenue and Assessee: The Revenue contended that the carbon credit sale should be considered a revenue receipt, highlighting it as compensation for extra costs in using alternate fuel and a benefit for carrying out business. The Revenue also emphasized that the entitlement to Certified Emission Reduction is similar to taxable revenue receipts. On the other hand, the assessee argued that the sale of carbon credit should be treated as a capital receipt, citing legal precedents supporting this position. 5. Decision and Rationale: After considering the arguments from both sides and reviewing relevant legal precedents, the Tribunal upheld the CIT(A)'s decision. The Tribunal noted that the CIT(A) correctly directed the Assessing Officer to treat the sale of carbon credit as a capital receipt based on judicial precedents, including decisions from the Hon'ble High Courts of Andhra Pradesh and Madras. The Tribunal agreed that the receipt from the sale of carbon credit is a capital receipt and cannot be included in taxable income. 6. Conclusion: The Tribunal ultimately dismissed the appeal filed by the Revenue, affirming the CIT(A)'s decision regarding the treatment of sale of carbon credit as a capital receipt. The judgment was pronounced on 12th April 2021 by the Appellate Tribunal ITAT Chennai, with detailed analysis and legal reasoning provided for the decision.
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