2021 (11) TMI 75 - AT - Income Tax

Nature of receipt - receipt in respect of Renewal Energy Certificates akin to carbon receipts - revenue or capital receipt - HELD THAT - Hon ble Jurisdictional High Court in the case of CIT v. Ambika Cotton Mills Ltd. 2021 (3) TMI 442 - MADRAS HIGH COURT has held that the proceeds received by the assessee company carrying on business of power generation on sale of certified emission reduction credit (carbon credit) is a capital receipt and not business income as carbon credit is not an offshoot of business, but an offshoot of environmental concerns. We hold that the proceeds received by the assessee is capital receipt. No reason to interfere with the order of the ld. CIT(A) and accordingly, the ground raised by the Revenue is dismissed. Belated payment towards PF ESI contribution - AO disallowed the same on the ground that the payment was delayed, which cannot be allowed under section 43B - HELD THAT - As appellant has made the remittance of employees contribution towards PF/ESI account before the due date of filing of the Return of Income u/s 139(1) of the Act and, therefore, it is held that no disallowance can be made u/s 43B - As gone through the assessment order and appellate order and find no infirmity in the order passed by the ld. CIT(A). Accordingly, this ground of appeal of the Revenue is dismissed.

Summary

Issues:
1. Whether the receipt in respect of Renewal Energy Certificates akin to carbon receipts is a capital receipt or revenue receipt.
2. Whether belated payment towards PF & ESI contribution can be allowed as a deduction under section 43B of the Income Tax Act.

Analysis:

Issue 1:
The main issue in this appeal is whether the receipt in respect of Renewal Energy Certificates (RECs) akin to carbon receipts amounts to a capital receipt or a revenue receipt. The Assessing Officer initially held that the REC receipt is taxable as a revenue receipt under the head 'business and profession.' However, on appeal, the Commissioner of Income Tax (Appeals) relied on a decision by the Hon'ble High Court of Andhra Pradesh, which concluded that carbon credits are not an offshoot of business but of environmental concerns, making them a capital receipt. The Tribunal, following a decision by the Hon'ble Jurisdictional High Court, held that the proceeds received by the assessee are indeed a capital receipt. The Tribunal dismissed the Revenue's appeal, upholding the decision of the Commissioner of Income Tax (Appeals).

Issue 2:
Regarding the belated payment of PF & ESI contribution, the Assessing Officer disallowed the payment under section 43B of the Act due to the delay. However, the Commissioner of Income Tax (Appeals) allowed the deduction after considering various legal provisions and precedents. The Commissioner referred to a decision by the Hon'ble Supreme Court and Circular No.22/2015 of the CBDT to support the allowability of the deduction. The Tribunal found no infirmity in the decision of the Commissioner of Income Tax (Appeals) and dismissed the Revenue's appeal on this ground as well.

In conclusion, the Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) on both issues, ruling in favor of the assessee on the nature of the receipt in respect of RECs and allowing the belated payment of PF & ESI contribution as a deduction under section 43B of the Income Tax Act.