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TMI Blog2021 (5) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case and in law, the Appellate Tribunal is correct in holding that sale of Carbon Credits is to be considered as Capital Receipt and not liable for tax under any head of income under the Income Tax Act, 1961? 3)Whether on the facts and circumstances of the case and in law, Income Tax Appellate Tribunal is correct in holding that there is no cost of acquisition or cost of production to get entitlement for the Carbon Credits, without appreciating that generation of Carbon Credits is intricately linked to the machinery and processes employed in the production process by the assessee?" 3.When the appeal is taken up for hearing, Mr.T.R.Senthil Kumar, learned Senior Standing Counsel appearing for the appellant/Revenue fairly submitted that the Division Bench of this Court in the judgment reported in [2021] 125 taxmann.com 206 (Madras) [Commissioner of Income Tax, Chennai Vs. Ambika Cotton Mills Ltd.], by following the decision of a 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Supreme Court or from the Hon'ble jurisdictional High Court. These decisions indicate that sale of carbon credit would result capital receipt which is not taxable. When we confronted the learned DR with regard to this position, it was contended that the position as on the day when the assessment order was passed, is to be seen and on that day these orders were not available. Therefore, the assessee cannot claim the benefit of these orders. However, we do not concur with this proposition of the learned CIT, because the Full Bench of the Hon'ble Punjab & Haryana High Court in the case of Aruna Luthra reported in 254 ITR 76 has held that a Court decide a dispute between the parties. The case can involve decision on facts. It can also involve a decision on point of law. Both may have bearing on the ultimate result of the case. When a Court interprets a provision, it decides as to what is the meaning and effect of the words used by the Legislature, it is the declaration regarding the statute. In other words the judgment declares as to what the legislature had said at the time of promulgation of the law, the declaration is.........., this was the law, this is the law, this is how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he question as to whether, the income by sale of carbon credit could be termed as capital receipt or profit, is concerned, the Tribunal has considered the decision of the Hyderabad Bench and it has further taken note of the fact that decision of the Tribunal of Hyderabad Bench was carried before the Andhra Pradesh High Court and the said decision was not interfered with. The Tribunal, in its decision has also referred to the decision of the Apex Court with regard to power under Section 263 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") of the revisional authority. 4. In our view, the principal question, which may arise is, as to whether by sale of carbon credit capital receipt is generated or a profit out of the business activity of the assessee. More or less, in a similar case, the Apex Court had an occasion to consider such an issue in the case of Commissioner of Income Tax v. Maheshwari Devi Jute Mills Ltd. [(1965) 57 ITR 36 (SC)], wherein the question came up for consideration before the Apex Court as to whether by sale of loom-hours, the amount received could be termed as capital receipt or the income out of business. In the said decision, the Apex Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f capital nature. But this argument suffers from a double fallacy. 5. In the first place it is not a universally true proposition that what may be capital receipt in the hands of the payee must necessarily be capital expenditure in relation to the payer. The fact that a certain payment constitutes income or capital receipt in the hands of the recipient is not material in determining whether the payment is revenue or capital disbursement qua the prayer. It was felicitously pointed out by Macnaghten, J. in Racecourse Betting Control Board v. Wildthat a "payment may be a revenue payment from the point of view of the payer and a capital payment from the point of view of the receiver and vice versa". Therefore, the decision in Maheshwari Devi Jute Mills case cannot be regarded as an authority for the proposition that payment made by an assessee for purchase of loom hours would be capital expenditure. Whether it is capital expenditure or revenue expenditure would have to be determined having regard to the nature of the transaction and other relevant factors." Thereafter, the Apex Court while considering the test to find out as to whether a particular expenditure can be termed as ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is therefore not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. But even if this test were applied in the present case, it does not yield a conclusion in favour of the Revenue. Here, by purchase of loom hours no new asset has been created. There is no addition to or expansion of the profit-making apparatus of the assessee. The income-earning machine remains what it was prior to the purchase of loom hours. The assessee is merely enabled to operate the profit-making structure for a longer number of hours. And this advantage is clearly not of an enduring nature. It is limited in its duration to six months and, moreover, the additional working hours per week transferred to the assessee have to be utilised during the week and cannot be carried forward to the next week. It is, therefore, not possible to say that any advantage of enduring benefit in the capital field was acquired by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis of the facts of the said case concluded as under: "Similarly, if payment has to be made for securing additional power every week, such payment would also be part of the cost of operating the profit-making structure and hence in the nature of revenue expenditure, even though the effect of acquiring additional power would be to augment the productivity of the profit-making structure. On the same analogy payment made for purchase of loom hours which would enable the assessee to operate the profit-making structure for a longer number of hours than those permitted under the working time agreement would also be part of the cost of performing the income-earning operations and hence revenue in character." Accordingly, the payment made for purchase of loomhours by Jute Mill Company was held to be Revenue expenditure. 6. At this stage, we may also refer to the decision of the Andhra Pradesh High Court, which has been relied upon by the Tribunal in the impugned order. More or less, identical question was raised and the Andhra Pradesh High 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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