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TMI Blog2015 (3) TMI 760X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that the machinery was put to use for less than 180 days. The remaining depreciation has to be allowed during the year under consideration. Learned counsel submitted that the very same issue came before this Tribunal in the assessee's own case for the assessment year 2007-08 in I. T. A. No. 616/Coch/2011. We heard Shri M. Anil Kumar, the learned Departmental representative also. 4. As rightly submitted by learned counsel for the assessee, the very same issue of additional depreciation came up before this Tribunal in the assessee's own case in I. T. A. No. 616/Coch/2011 for the assessment year 2007-08. This Tribunal, after considering the decision of the co-ordinate Bench of this Tribunal found that the assessee is entitled for additional depreciation at 20 per cent. and that since 10 per cent. was allowed in the earlier assessment year, the remaining 10 per cent. has to be allowed in the subsequent assessment year. In fact, this Tribunal has observed as follows in the order dated December 20, 2013, in I. T. A. No. 616/Coch/2011 : "9. We have considered the rival submissions on either side and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngaged in the manufacture of article or thing. Therefore, the assessee is eligible for additional depreciation which is equivalent to 20 per cent. of the actual cost of such machinery. The dispute is the year in which the depreciation has to be allowed. The assessee has already claimed 10 per cent. of the depreciation in the earlier assess ment year since the machinery was used for less than 180 days and claiming the balance 10 per cent. in the year under consideration. Section 32(1)(iia) does not say that the year in which the additional depreciation has to be allowed. It simply says that the assessee is eli gible for additional depreciation equal to 20 per cent. of the cost of the machinery provided the machinery or plant is acquired and installed after March 31, 2005. Proviso to section 32(1)(iia) says that if the machinery was acquired by the assessee during the previous year and has put to use for the purpose of business less than 180 days, the deduction shall be restricted to 50 per cent. of the amount calculated at the prescribed rate. Therefore, if the machinery is put to use in any particular year, the assessee is entitled for 50 per cent. of the pre scribed rate of additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sonably, liberally and purposive to make the provision meaningful while granting the additional allowance. This additional benefit is to give impetus to industrialisation and the basic intention and purpose of these provisions can be reasonably and liberally held that the assessee deserves to get the benefit in full when there is no restriction in the statute to deny the benefit of balance of 50 per cent. when the new plant and machinery were acquired and used for less than 180 days. One time benefit extended to the assessee has been earned in the year of acquisition of new plant and machinery. It has been calculated at 15 per cent but restricted to 50 per cent. only on account of usage of these plant and machinery in the year of acqui sition, in section 32(1)(iia), the expression used is "shall be allowed". Thus, the assessee had earned the benefit as soon as he had pur chased the new machinery and plant in full but it is restricted to 50 per cent. in that particular year on account of period usages. Such restrictions cannot divest the statutory right. Law does not prohibit that balance 50 per cent. will not be allowed in succeeding year. The extra depreciation allowable under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r additional depreciation at 10 per cent. during the year under consideration. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to allow 10 per cent. of the balance depreciation. 6. The next ground of appeal is with regard to disallowance of share issue expenditure incurred in respect of equity shares and fee paid to the Registrar of Companies for increasing the authorised capital. 7. Shri Ajay Vora, learned counsel for the assessee submitted that during the year under consideration the assessee paid fee to the Registrar of Companies and incurred expenditure of Rs. 1,29,71,451 for increasing the authorised capital. Learned counsel submitted that an identical issue came up before this Tribunal in I. T. A. No. 616/Coch/2011 for the assessment year 2007-08. We heard Shri M. Anil Kumar, the learned Departmental representative also. 8. As rightly submitted by learned counsel for the assessee the very same issue came up for consideration in the assessee's own case for the assessment year 2007-08 and this Tribunal has observed as follows : & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tunity to the assessee." 9. The facts and circumstances are stated to be identical. Therefore, the decision rendered for the assessment year 2007-08 equally holds good for the assessment year under consideration also. As such, consistent with the decision taken earlier for the assessment year 2007-08 we remit the matter back to the file of the Assessing Officer with similar directions. The Assessing Officer shall reconsider the issue afresh after considering the contentions of the assessee that the expenditure was incurred to expand its business globally by acquiring a company which is doing a similar business as that of the assessee. We make it clear that we are not expressing any opinion on merit. It is for the Assessing Officer to examine the issue independently on merit and take a decision in accordance with law after giving a reasonable opportunity to the assessee. 10. The next issue arises for consideration is disallowance of additional weighted deduction of 50 per cent. to the extent of Rs. 5,37,11,851. 11. We heard the parties and find that this issue has also been considered by this Tribunal for the assessment year 2007-08 in the assessee's own case in I. T. A. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel further submitted that the Assessing Officer has misconstrued himself by observing that the pre-operative expenses are related to construction and erection of plant and machinery and building at Chennai. According to learned counsel, expenses in question relates to salary, travelling, conveyance, provident fund, postage and miscellaneous expenses incurred by the head office for the purpose of exploratory work done by the project division. According to learned counsel, no plant and machinery has been acquired for the unit during the year under consideration. No construction was made during the year under consideration at Madras. The capital asset, viz., the land was acquired at Chennai for Rs. 13.79 crores which was duly reflected in the balance-sheet. The expenses incurred for salary, provident fund, travelling, conveyance, rent and miscellaneous expenses are administrative expenses incurred by the head office which are revenue in nature. These expenses have not resulted in acquisition of any capital asset. Therefore, according to learned counsel, this has to be allowed under section 37 of the Act. Learned counsel placing his reliance on the judgment of the Delhi High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... division which are in the nature of administrative expenses which need to be allowed under section 37 of the Act. For this proposition learned counsel relied upon a plethora of judgments. The assessee also claims that no deduction was claimed during the year under consideration. The cost of land acquired to the extent of Rs. 13.79 crores was claimed to be capitalised in the balance-sheet. Therefore, there was a factual misconception as claimed by the assessee. If there is no purchase of plant and machinery and construction during the year under consideration, there is no question of treating the expenditure as capital in nature. However, the matter needs to be verified by the Assessing Officer whether the expenditure was incurred for purchase and erection of plant and machinery or it is only administrative expenses as claimed by the assessee. This factual aspects need to be verified by the Assessing Officer. Accordingly, the orders of the lower authorities are set aside and the issue is restored to the file of the Assessing Officer. The Assessing Officer shall re-examine the issue and find out whether any plant and machinery was purchased or acquired during the year under consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical/manufacturing process being followed for manufacturing of tyres by DTIPL and Apollo Tyres KFT the assessee has deputed some of its employees to South Africa during the year under consideration. The deputed employees remained on the payroll of the assessee but worked for DTIPL. The salary of these employees were paid by the assessee. However, the same was subsequently recovered from DTIPL without a mark up by way of a debit note. The Transfer Pricing Officer (TPO) found that the aforesaid expenditure was for the services rendered by way of deputation of employees by the assessee to DTIPL, therefore, it is an international transaction. Accordingly, the Transfer Pricing Officer found that the assessee ought to have charged a mark up of 5 per cent. in addition to reimbursement of actual expenses. The Transfer Pricing Officer made adjustment of Rs. 1,41,07,356 on the total reimbursement from DTIPL. 23. Shri Ajay Vora, learned counsel for the assessee has further submitted that the Dispute Resolution Panel (DRP) upheld the adjustment made by the Transfer Pricing Officer. According to learned counsel, the Dispute Resolution Panel misunderstood the facts and observed that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of section 92C(2) of the Income-tax Act. Therefore, the adjustment made by the Assessing Officer even otherwise is liable to be deleted. Learned counsel placed reliance on the decision of the Delhi Bench of this Tribunal in SMCC Construction India Ltd v. Addl CIT I. T. A. No. 4333/Del/2009 and the Mumbai Bench of this Tribunal in Ratilal Becharlal and Sons v. Joint CIT I. T. A. No. 7876/Mum/2011, copies of which are available on paper book. 25. On the contrary, Shri M. Anil Kumar, the learned Departmental representative submitted that the assessee claimed the expenditure reimbursed by DTIPL and Apollo Tyres KFT as expenditure. According to the learned Departmental representative, the Transfer Pricing Officer examine the nature of transaction and found that the amount received by the assessee from its associate enterprises, viz., DTIPL and Apollo Tyres KFT were not mere reimbursement of expenses incurred, but it has been coloured so. The Transfer Pricing Officer has found that the amount received by the assessee from its associate enterprises were for the purpose of commercial benefit, the learned Departmental representative further submitted, that the Dispute Resolut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufficient technical training on its own expenditure. The very fact that the expenditure in the nature of salary, travelling allowance, etc., was reimbursed by the associate enterprises clearly shows that the employees of the assessee has rendered some kind of services to the associate enterprises. Unless there is a commercial value in the services rendered by the employees deputed by the assessee, there is no occasion for the associate enterprises to reimburse the expenditure incurred by the assessee. Therefore, the contention of the assessee that the employees were deputed only for the purpose of learning the technique of the associate enterprises may not be justified. 27. We have carefully gone through the decision of the Bangalore Bench of this Tribunal in IDS Software Solutions India P. Ltd. [2009] 122 TTJ (Bang) 410. In the case before the Bangalore Bench of this Tribunal, the assessee- company entered into an agreement with parent company in the U. S. A for securing the services of certain personnel from parent company to assist the assessee in its business. As per the agreement, the U. S. A. company agreed to second one employee to the assessee during the secondment period. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment towards reimbursement of the expenditure incurred by the associate enterprises. In this case, the assessee received the amount from DTIPL on account of reimbursement. That shows that the assessee deputed its employees to DTIPL to render service. Once the assessee rendered services to an associate enterprise outside the country, the associate enterprise company has to reimburse the expenditure incurred by the assessee. Therefore, this Tribunal is of the considered opinion that this is not a simple case of deputing the employees for learning techniques of tyre manufacture in the associate enterprises but it is a case of rendering services to the associate enterprises. Moreover, the marking up of 5 per cent. under section 92C(2) is not the subject-matter before the Bangalore Bench of this Tribunal. The Bangalore Bench simply found that there was employee employer relationship and the payment does not fall within the term "technical services". Other than that the Bangalore Bench had no occasion to decide the provisions of section 92C(2) of the Act. Therefore, this Tribunal is of the considered opinion that the decision of the Bangalore Bench of this Tribunal in IDS Software Solut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 106 of the paper book. In the case before the Delhi Bench of this Tribunal in SMCC Construction India Ltd. the assessee, a joint venture of Sumitomo Mitsui Construction Co. Ltd., Japan. SMCL, Japan is one of the leading company and its presence in India was through the assessee- company. During the year under consideration, the assessee before the Delhi Bench of this Tribunal entered into international transaction in respect of import of design and drawing, import of technical know-how, royalty and rent received. The assessee computed the international transaction by adopting transactional net margin method. While computing the arm's length price, the Assessing Officer by taking average operating margin of operating income based on 2005-06, data of various comparable cases arrived at arithmetic mean of 6.30 per cent. The assessee contended before the authorities that the working capital requirement should be considered as a factor as the assessee has to incur expenditure on that account. The contention of the assessee was rejected by the Assessing Officer ; however, the Assessing Officer granted adjustment to the extent of 1 per cent. and the net comparable margin was applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the reimbursement received by the assessee is not consistent with the arm's length price, then, he ought to have compared the case as per the proper method as provided in the Act. If the Assessing Officer found that there are more than one price as per the computation made by the most appropriate methods, then he may determine the arithmetic mean of such prices. In this case, without considering any comparables and without determining more than one price, the Transfer Pricing Officer made adjustment of 5 per cent. mark up. Unless and until more than one price is determined after considering comparables on the basis of the most appropriate method, this Tribunal is of the considered opinion that adjustment of 5 per cent. is not permissible. Therefore, before making any adjustment the services rendered by similarly placed industries needs to be determined on the basis of the appropriate method prescribed in the Income-tax Act. Since the lower authorities have not considered the comparable cases the orders of the lower authorities are set aside and the matter is remanded back to the file of the Assessing Officer. The Assessing Officer shall consider the comparable cases and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne of carbon dioxide in the atmosphere. To meet the target, 41 developed countries, in turn, set limits on the green house gas emission by their local business entities. Learned counsel further submitted that several projects were undertaken to reduce the green house gas emission in the atmosphere by the developed countries. Several mechanisms were also created to control the green house gas emission in the atmosphere. Non-polluting companies from less developed countries can sell the quantity of carbon dioxide emission which they have reduced and earn income in the process of their regular business activity. This mechanism of generating and selling carbon credit is known as carbon trading. An entity desirous to generate carbon credit can earn revenue by following the procedure prescribed by the United Nations. According to learned counsel, carbon credit should be treated as capital receipts for the purpose of taxation. The issue of carbon credit arises from the undertaking of the developed countries to reduce global warming and climate change mitigation across the world. The signatories to the Kyoto Protocol has to meet their emission norms by either reducing their own emission or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital receipt" is understood by the apex court as an amount received on capital account, e.g., loss of capital or transfer of capital asset. Learned counsel submitted that the apex court explained the distinction between income and capital receipt. Income is something which flows from the property. However, the capital receipt is something received in place of a property. In view of this judgment of the apex court, according to learned counsel, a capital receipt does not form part of income within the meaning of section 2(24) of the Income-tax Act. 37. Referring to the judgment of the Bombay High Court in Cadell Weaving Mill Co. P. Ltd. v. CIT [2001] 249 ITR 265 (Bom), learned counsel submitted that section 2(24) is an inclusive definition. A capital receipt does not fall within the term "income" under section 2(24) of the Act. That is why the Legislature has expressly stated in section 2(24)(vi) that income shall include any capital gain chargeable under section 45 of the Act. Learned counsel submitted that the Legislature has not included all capital gain or all capital receipt in the term "income". What is included is the capital gain chargeable under section 45 of the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tative, there is no sterilisation of any capital asset. The assessee admittedly generated power by using gas turbine. Due to incentive given by the United Nations Framework Convention on Climate Change, the assessee was entitled to sell the carbon credit to other concern. Therefore, according to learned counsel, what was given to the assessee is an incentive in the course of its regular business. Therefore, the income received by the assessee on sale of carbon credit has to be treated as revenue receipt. Hence, the Dispute Resolution Panel and the Assessing Officer has rightly rejected the claim of the assessee. 40. Referring to the alternative claim of the assessee, the learned Departmental representative submitted that the income on sale of carbon credit isnot derived from industrial undertaking. There may be a nexus between the business of the assessee and the receipt of income on sale of carbon credit. For the purpose of claiming deduction under section 80-IA, according to learned counsel, the income has to be necessarily derived from the industrial undertaking. In this case, the income was derived because of the scheme of the United Nations Framework Convention on Climate Cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imilarly, if the industry reduces other green house gases in equivalent terms, the necessary credit would also be given. Therefore, the carbon credit is nothing but an incentive given to the industrial undertaking for reducing the emission of green house gases including carbon dioxide. There are several ways for reducing the emission of green house gases. The different ways are switch over to wind and solar energy, forest regeneration, installation of energy efficient machinery and land fill methane capture. 42. Now carbon credits are stored electronically so as to market the same globally. There are several organisations which deal with carbon credit. Presently carbon prices are quoted in Euros and they are traded in European Climate Exchange, NASDAQ OMX Commodities Europe, PowerNext, Commodity Exchange Bratislava and the European Energy Exchange. There are two kinds of carbon credits. One is certified emission reduction and the other is verified emission reduction. In the case of certified emission reduction, the carbon credits are generated under the United Nations Framework Convention on Climate Change approved by mechanism such as clean development mechanism (CDM). However, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jute Mills Ltd. [1965] 57 ITR 36 (SC). From the above decision of the Hyderabad Bench of this Tribunal it is obvious that the amount received on sale of carbon credit is on sale of entitlement conferred on the assessee by the United Nations Framework Convention on Climate Change under Kyoto Protocol. This entitlement or certificate of emission reduction of green house cases was given only under the scheme framed under Kyoto Protocol. Sale of carbon credit or the certificate of emission reduction does not result in sterilisation of any capital asset. 45. We have carefully gone through the judgment of the apex court in the case of Maheshwari Devi Jute Mills Ltd. [1965] 57 ITR 36 (SC) which was relied upon by the Hyderabad Bench of this Tribunal. In the case before the apex court, surplus loom-hours were transferred to another mill under an agreement. The assessee before the apex court carried on the business of manufacturing jute goods and was a member of jute mill association. The members of the jute mill association entered into an agreement that the first working term agreement restricting the hours of work. The object of entering into the agreement is to protect the members agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs were accepted by the Revenue as an asset belonging to each member. At the Supreme Court level only the Revenue contended that the loom hour is a privilege to each member and not an asset. This contention of the Revenue before the apex court was found to be not justified. On these facts, the apex court found that the surplus loom hours were asset and once it is disposed no interest remained thereon and there was no exploitation of the loom hours by permitting user while retaining the ownership. Therefore, the receipt on sale of loom hours must be regarded as capital receipt and not as income. The fact that the loom hours was considered to be an asset right from the level of the Assessing Officer up to the level of the High Court was not brought to the notice of the Hyderabad Bench of this Tribunal. Once it is accepted as an asset, the sale consideration received on disposal of such an asset has to be necessarily treated as capital gain. The apex court in the very same judgment has also observed as follows at page 40 of the ITR while pointing out the distinction between the revenue and capital receipt : "Distinction between revenue and capital in the law of Income-tax is fundamen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of manufacture of tyres and marketing the same. For the purpose of captive consumption, the assessee is generating electric power by using gas turbine. In the process of generation of the power, the assessee reduced the emission of carbon dioxide in the atmosphere ; therefore, certified emission reduction/carbon credit was given to the assessee by the United Nations Framework Convention on Climate Change. Hence, it is obvious that the certified emission reduction/carbon credit was obtained by the assessee in the course of its business activity. The certified emission reduction/carbon credit also has a market in carbon trade exchange. When the carbon credit is an entitlement or privilege accrued to the assessee in the course of carrying on the manufacturing, it cannot be said that such carbon credit is an accretion of capital asset. The sale of certified emission reductions/ carbon credit constitutes profit and gains of the business under section 28(iv) read with section 2(24)(vd) of the Act. As such, the certified emission certificate/carbon credit cannot be considered as a capital asset within the meaning of section 2(14) of the Act. Moreover, carbon credit is not a fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of the judgment of the jurisdictional High Court in the case of O. K. Industries v. CIT [1987] 163 ITR 51 (Ker), this Tribunal is of the considered opinion that the decision of the Hyderabad Bench of this Tribunal in the case of My Home Power Ltd. [2013] 21 ITR (Trib) 186 (Hyd) may not be applicable to the facts of this case. 52. The next question arises for consideration is whether the income on sale of certified emission reduction/carbon credit would form part of the taxable income under the Income-tax Act. 53. The main contention of the assessee is that "income" as defined in section 2(24) of the Income-tax Act is an inclusive definition and the income on sale of the receipt would not fall within the definition of section 2(24) of the Act, therefore, the income on sale of the certified emission reduction/ carbon credit is not taxable under the Income-tax Act. We are unable to accept the contention of the assessee. Section 28(iv) clearly says that value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession would form part of the profit and gains of business. For the purpose of clarity, we are reproducing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1991] 189 ITR 774 (Bom) ; and Bharat Seats Ltd v. Joint CIT [2002] 120 Taxman 210 (Delhi) (Mag.). In all these cases the subsidy was given for new industrial unit or substantial expansion of the industrial unit. In some cases, subsidy was for replacement of rubber plantation. In the case before us, it is not for establishment of new industry or its expansion. It is also not for replacement of any capital asset. The carbon credit is given depending upon the performance/function in reducing the green house gas in the atmosphere, in measurable terms. Therefore, the above judgment is not applicable to the facts of this case. 57. The alternative ground of the assessee is that the assessee is entitled for deduction under section 80-IA of the Act. 58. We have carefully gone through the provisions of section 80-IA of the Act which reads as follows: "Deduction in respect of profit and gains from industrial under takings or enterprises engaged in infrastructure development, etc. 80-IA.(1) Where the gross total income of the assessee includes any profits and gains derived by an undertaking or an enterpris ..... X X X X Extracts X X X X X X X X Extracts X X X X
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