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TMI Blog2021 (3) TMI 442X X X X Extracts X X X X X X X X Extracts X X X X ..... n 10.04.2014 on the following substantial question of law: Whether on the facts and circumstances of the case, the Tribunal was right in holding that the proceeds realized by the assessee on sale of Certified Emission Reduction Credit, which the assessee had earned on the Clean Development Mechanisam in its wind energy operations, is a capital receipt and not taxable? 3.When the appeal is taken up for hearing, Mrs.K.G.Usha Rani, learned Standing Counsel appearing for the appellant/Revenue fairly submitted that the question of law involved in the present appeal is covered by the decision of the Division Bench of this Court dated 19.01.2021 made in T.C.A.No.451 of 2018 [S.P.Spinning Mills Pvt. Ltd., 1/147/104, Cuddalore Main Road, Kariapatti, Salem 636 106 Vs. Assistant Commissioner of Income Tax, Circle I(3), 3 Gandhi Road, Salem 636 007] wherein the Division Bench held as follows: ... 14.With regard to the disallowance on the deduction under Section 80IA of the Act, the CIT(A) noted the decision of the Chennai Tribunal relied on by the assessee in the case of Ambica Cotton Mills Ltd., vs. DCIT [I.T.A.No.1836/Mds/2012, dated 16.04.2013] , wherein it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid at the time of promulgation of the law, the declaration is.........., this was the law, this is the law, this is how the provision shall be construed. Therefore, he cannot plead that the view taken by the Tribunal and upheld by the Hon ble Andhra Pradesh High Court could be considered as if applicable from the date of the decision. In the decision only the position of the law as to how receipts from sale of carbon credits are to be treated, has been explained. One of the argument raised by the DR was that at this stage, the additional ground ought not to be permitted to be raised. It is pertinent to mention here that basically, it is not a separate ground, it is a limb of arguments, which is affecting the ultimate tax liability of the assessee. The Hon ble Supreme Court in the case of NTPC Ltd (Supra) has held that the Tribunal had jurisdiction to examine a question of law which arose from the fact as found by the Income Tax authorities and having a bearing on the tax liability of the assessee. As far as the nature of the receipt from sale of carbon credit is concerned, it is available from the assessment stage. It is not disputed even by the learned Commissioner, the dispute i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount received could be termed as capital receipt or the income out of business. In the said decision, the Apex Court held that the amount received out of sale of loom-hours can be termed as capital receipt and not income out of business. 5.Subsequently, in a later decision of the Apex Court, a question came up for consideration in the case of M/s. Empire Jute Co. Ltd. v. Commissioner of Income Tax [(1980) 4 SCC 25] the question which arose before the Apex Court was, if loom-hours are purchased by the manufacturing mills, whether it can be termed as capital expenditure or revenue expenditure. In the said decision, the earlier decision of the Apex Court in the case of Maheswari Devi Jute Mills (supra) was also relied upon by the Revenue and after considering the same, the Apex Court at paragraph Nos. 4 and 5 observed thus: 4. Now an expenditure incurred by an assessee can qualify for deduction under Section 10(2) (xv) only if it is incurred wholly and exclusively for the purpose of his business, but even if it fulfils this requirement, it is not enough; it must further be of revenue as distinguished from capital nature. Here in the present case it was not contended on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctors. Thereafter, the Apex Court while considering the test to find out as to whether a particular expenditure can be termed as capital or revenue expenditure observed at paragraph Nos. 8 and 9 as under: 8. The decided cases have, from time to time, evolved various tests for distinguishing between capital and revenue expenditure but no test is paramount or conclusive. There is no all embracing formula which can provide a ready solution to the problem; no touchstone has been devised. Every case has to be decided on its own facts keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred. But a few tests formulated by the courts may be referred to as they might help to arrive at a correct decision of the controversy between the parties. One celebrated test is that laid down by Lord Cave, L.C., in Atherion v. British Insulated and Halsby Cables Ltd. where the learned law Lord stated: When an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, there is very good reason (in the absence of special circumstances leading to an opp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the next week. It is, therefore, not possible to say that any advantage of enduring benefit in the capital field was acquired by the assessee in purchasing loom hours and the test of enduring benefit cannot help the Revenue. 9. Another test which is often applied is the one based on distinction between fixed and circulating capital. This test was applied by Lord Haldane in the leading case of John Smith Son v. Moore where the learned law Lord drew the distinction between fixed capital and circulation capital in words which have almost acquired the status of a definition. He said: Fixed capital (is) what the owner turns to profit by keeping it in his own possession; circulating capital (is) what he makes profit of by parting with it and letting it change masters. Now so long as the expenditure in question can be clearly referred to the acquisition of an asset which falls within one or the other of these two categories, such a test would be a critical one. But this test also sometimes break down because there are many forms of expenditure which do not fall easily within these two categories and not infrequently, as pointed out by Lord Radcliffe in Commissioner of Taxes v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court in the case of Commissioner of Income Tax-IV v. My Home Power Ltd. [(2014) 46 Taxmann.com 314 (Andhra Pradesh), at paragraph No. 3 observed thus: 3. We have considered the aforesaid submission and we are unable to accept the same, as the learned Tribunal has factually found that Carbon Credit is not an offshoot of business but an offshoot of environmental concerns. No asset is generated in the course of business but it is generated due to environmental concerns. We agree with this factual analysis as the assessee is carrying on the business of power generation. The Carbon Credit is not even directly linked with power generation. On the sale of excess Carbon Credits the income was received and hence as correctly held by the Tribunal it is capital receipt and it cannot be business receipt or income. In the circumstances, we do not find any element of law in this appeal. The aforesaid shows that the Andhra Pradesh High Court has confirmed the view of the Tribunal that Carbon Credit is not an offshoot of business, but an offshoot of environmental concerns. No asset is generated in the course of business, but it is generated due to environmental concerns. It was al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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