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TMI Blog2021 (12) TMI 713X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances of the case and in law, the Tribunal is legally correct in holding that the sale of Carbon Emission Reduction (CER) also known as Carbon Credits is to be considered as capital receipt and not liable to tax? 2.Heard the learned counsel appearing for both sides, who jointly submitted that the issue raised in this appeal has already been decided in favour of the assessee, by a decision of this court in S.P. Spinning Mills (P) Ltd. v. Assistant Commissioner of Income Tax [(2021) 433 ITR 61 (Mad) , the relevant passage of which is profitably, extracted below: 28.Insofar as substantial question of law no.4 is concerned, it deals with carbon credit. The question, as to the manner in which carbon credit receipt has to be treated, has been considered by several High Courts and it has been held that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is, whether it has been derived from the eligible industrial undertaking for qualifying the grant of deduction u/s 80IA. The learned Commissioner felt that this receipt has not been derived from the industrial undertaking which will be eligible for grant of deduction u/s 80IA and the Assessing Officer committed an error in including the receipt in the eligible profit. Those facts are already on the record. It is to be seen, whether the receipt is of capital nature or of a revenue nature. Even in case the order of the CIT is upheld, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 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 behalf of the Revenue that the sum of ₹ 2,03,255 was not laid out wholly and exclusively for the purpose of the assessee s business but the only argument was and this argument found favour with the High Court, that it represented capital expenditure and was hence not deductible under Section 10(2) (xv). The sole question which therefore arises for determination in the appeal is whether the sum of ₹ 2,03,255 paid by the assessee represented capital expenditure or revenue expenditure. We shall have to examine this question 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned 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 opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital. This test, as the parenthetical clause shows, must yield where there are special circumstances leading to a contrary conclusion and, as pointed out by Lord Radcliffe in Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd., it would be misleading to suppose that in all cases, securing a benefit for the business would be prima facie capital expenditure so long as the benefit is not so 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 ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Nchanga Consolidated Copper Mines Ltd., the line of demarcation is difficult to draw and leads to subtle distinctions between profit that is made out of assets and profit that is made upon assets or with assets. Moreover, there may be cases where expenditure, though referable to or in connection with fixed capital, is nevertheless allowable as revenue expenditure. An illustrative example would be of expenditure incurred in preserving or maintaining capital assets. This test is therefore clearly not one of universal 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 capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 also found that the carbon credit is not even directly linked with the power generation and the income is received by sale of the excess carbon credits. It was found that the Tribunal has rightly held that it is capital receipt and not business income. 7. As such, in our view, when the issue is already covered by the decision of the Andhra Pradesh High Court, wherein the view taken by the Tribunal of Hyderabad Bench has been followed in the present case, one may say that no substantial question of law would arise for consideration. 29.The Hon'ble Division Bench of this Court in the case of PCIT vs. Arun Textiles Pvt. Ltd.,[T.C.A.No.606 of 2016, dated 29.8.2016], after referring to the decision in My Home Power Ltd., (supra), dismissed the appeal filed by the Revenue and confirmed the order passed by the ITAT holding that sale of carbon credits has to be considered as capital receipt and accordingly, it is not taxable. 30. The argument of Ms.V.Pushpa, learned Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books, the Tribunal made out a new case inconsistent with the assessee's own plea. In any event, the Tribunal is not precluded from adjusting the tax liability of the assessee in the light of its findings merely because the findings are inconsistent with the case pleaded by the assessees. 33.In Mahalakshmi Textile Mill's case, it was held as hereunder:- Under sub-s. (4) of s. 33 of the Indian Income-tax Act, 1922, the Appellate Tribunal is competent to pass such orders on the appeal as it thinks fit . There is nothing in the Income-tax Act which restricts the Tribunal to the determination of questions raised before the departmental authorities. All questions whether of law or of fact which relate to the assessment of the assessee may be raised before the Tribunal. If' for reasons recorded by the departmental authorities in rejecting a contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the departmental authorities and the Tribunal, and indeed they would be under a duty to grant that relief. The right of the assessee to relief is not restricted to the plea raised by him. 34.After referring to the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other authorities under the tax code cannot be pursued by drawing a parallel to civil litigation with particular reference to appeal from decrees, and the like. Further, it was pointed out that in the case of Mahalakshmi Textile Mills Ltd., the Hon'ble Supreme Court observed that the Tribunal is not precluded from adjusting the tax liabilities of the assessee in the light of its findings merely because, the findings are inconsistent with the case pleaded by the assessee. The decision of the Hon'ble Full Bench of this Court in the case of State of Tamil Nadu vs. Arulmurugan Co., [(1982) 51 STC 381] was referred to wherein, it was held that the Appellate Authorities perform precisely the same functions, as the assessing authority. The above decision and the findings rendered are a clear answer to the arguments raised before us by the Revenue contending that substantial question of law no.4, as framed has to be decided against the assessee. We, thus, have no hesitation to hold that the Tribunal failed to exercise its power in a proper prospective as a final fact finding authority and examining as to whether there is any adjustment required to be made in the assessee&# ..... X X X X Extracts X X X X X X X X Extracts X X X X
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