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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 ..... DGMENT (JUDGMENT WAS DELIVERED BY M.DURAISWAMY, J.) Challenging the order passed in C.O.No.109/Mds/2014 in I.TA.No.2166/Mds/2014 on the file of the Income Tax Appellate Tribunal, Chennai, C Bench in respect of the Assessment Year 2010-11, the Revenue has filed the above appeal. 2.The above appeal was admitted on the following substantial questions of law: 1)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 Mechanism in its wind energy operations, is a capital receipt and not taxable? 2)Whether in the facts and circumstances 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 g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the receipt should be treated as a capital receipt. In this regard, it would be beneficial to refer to the decision in the case of CIT vs. Subhash Kabini Power Corporation Ltd., [(2016) 385 ITR 0592 (Karn.)] . In the said decision, the Karnataka High Court approved the view taken by the ITAT, Hyderabad Bench, which decision was upheld by the High Court of Andhra Pradesh in the case of CIT vs. My Home Power Ltd. [(2014) 365 ITR 0082 (AP)] , which was subsequently followed by the ITAT, Chennai and Jaipur Benches. The operative portion of the judgment reads as follows:- 11.The decision has been upheld by the Hon ble Andhra Pradesh High Court. This decision has been subsequently followed by the ITAT Chennai and Jaipur Benches. There is no decision either from the Hon 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld, then, in law, it will affect the computation of income, ultimately because the receipt will not be taxable, it will not come under the ambit of computation of income. Simultaneously it will be excluded from the deduction u/s 80IA as well as of the total income. The result will remain as it is. It is a revenue neutral case. Therefore, in view of the ratio laid down by the Hon ble jurisdictional High Court in the case of Gopala Gowda (Supra), the second condition for taking action u/s 263 does not exist. The assessment order is not prejudicial to the interests of the Revenue. In view of the above discussion, we allow the appeal of the assessee and quash the impugned order of the learned CIT passed u/s 263 of the Income Tax Act. The aforesaid shows that, so far as the 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion on principle but before we do so, we must refer to the decision of this Court in Maheshwari Devi Jute Mills case since that is the decision which weighed heavily with the High Court, in fact, compelled it to negative the claim of the assessee and hold the expenditure to be on capital account. That was a converse case where the question was whether an amount received by the assessee for sale of loom hours was in the nature of capital receipt or revenue receipt. The view taken by this Court was that it was in the nature of capital receipt and hence not taxable. It was contended on behalf of the Revenue, relying on this decision, that just as the amount realised for sale of loom hours was held to be capital receipt, so also the amount paid for purchase of loom hours must be held to be of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .tn.gov.in/judis/ T.C.A.No.451 of 2018 transitory as to have no endurance at all . There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature, acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee s trading operations or enabling the management and conduct of the assessee s business to be carried on more efficiently 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 we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l application. But even if we were to apply this test, it would not be possible to characterise the amount paid for purchase of loom hours as capital expenditure, because acquisition of additional loom hours does not add at all to the fixed capital of the assessee. The permanent structure of which the income is to be the produce or fruit remains the same; it is not enlarged. We are not sure whether loom hours can be regarded as part of circulating capital like labour, raw material, power etc., but it is clear beyond doubt that they are not part of fixed capital and hence even the application of this test does not compel the conclusion that the payment for purchase of loom hours was in the nature of capital expenditure. After making the aforesaid observation, at paragraph No. 10, the Apex Court, on 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration. ... 41.In the result, the tax case appeal is allowed to the extent indicated hereinbelow:- (i) Substantial question of law nos.1 and 2 are left open and the issue with regard to the disallowance under Section 14A of the Act read with Rule 8D of the Rules is remanded to the Assessing Officer for fresh decision on merits and in accordance with law, after opportunity to the assessee; (ii) Substantial question of law no.3 is not pressed by the assessee, as pursuant to the order of remand passed by the Tribunal, the Assessing Officer has allowed the relief to the assessee. Accordingly, this question is not required to be answered; and (iii) For the reasons assigned in the preceding paragraphs, substantial question of law no.4 is answered in favour of the assessee. No costs. 4.On a reading of the judgment cited supra, it is clear that the question of law involved in the present appeal is covered by the said judgment. Hence, following the ratio laid down in the judgment dated 19.01.2021 made in T.C.A.No.451 of 2018, the question of law is decided against the Revenue and in favour of the assessee. Accordingly, the Tax Case Appeal is dismissed. No costs. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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