M/S.APOLLO TYRES LTD vs. THE ASSISTANT COMMISSIONERE OFINCOME TAX

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ITA/168/2014HC KeralaKLHC01026734201403 August 2021Author: HONOURABLE MR.JUSTICE S.V.BHATTI,HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS7 pages
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What did the High Court hold?

The High Court addressed the issues as follows: For Question Nos. 1 and 2, concerning whether carbon credit realisations are revenue or capital receipts, the Court noted the preponderance of views from various High Courts, including Andhra Pradesh, Karnataka, Bombay, Madras, and Allahabad. After independently appreciating the nature of the receipt, the Court found that the Tribunal had erred in its findings. Consequently, Question Nos. 1 and 2 were answered in favour of the assessee and against the revenue, setting aside the Tribunal's findings. For Question No. 3, which was dependent on the outcome of the first two questions, the Court stated that it need not be considered as the findings were in favour of the assessee. For Question Nos. 4 and 5, relating to the disallowance of part depreciation on the Gurgaon office building, the Court referred to its own prior judgment in ITA No. 26 of 2013 for assessment year 2003-2004, which had answered the issue in favour of the revenue and against the assessee. By analogy, Question Nos. 4 and 5 were answered in favour of the revenue and against the assessee. The appeal was allowed in part.

What were the facts?

The assessee, Apollo Tyres Ltd., filed an appeal before the High Court of Kerala challenging an order of the Income Tax Appellate Tribunal (ITAT), Cochin Bench. The appeal pertains to the assessment year(s) not explicitly stated but implied to be covered by the ITAT order dated March 7, 2014. The core dispute revolves around the tax treatment of carbon credit realisations and the disallowance of part depreciation on a building. The ITAT had previously held that carbon credit realisations were revenue receipts and had sustained the disallowance of depreciation on a portion of the Gurgaon office building let out to Apollo International Ltd. The assessee contested these findings, arguing that carbon credit realisations were capital receipts and that depreciation should be allowed on the entire building, considering the block of assets concept.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether carbon credit realisations are revenue receipts covered under Section 2(24) of the Income Tax Act, 1961. 2. Whether the Tribunal was justified in not following a co-ordinate bench's decision holding carbon credits as capital receipts, in violation of High Court and Supreme Court precedents. 3. If carbon credit realisations are revenue receipts, whether they are profits derived from the Gas Turbine undertaking eligible for deduction under Section 80IA. 4. Whether the Tribunal was justified in sustaining the disallowance of part depreciation on the Gurgaon office building let out to Apollo International Ltd. 5. Whether the Tribunal was justified in sustaining the disallowance of part depreciation by ignoring the concept of block of assets. Assessee's Contentions: - Carbon credit realisations are capital receipts, not revenue receipts, possibly representing environmental goodwill. - The Tribunal erred in not following binding precedents on the nature of carbon credits. - Depreciation should be allowed on the entire building, considering the block of assets concept. Revenue's Contentions: - The nature of the receipt justifies the Tribunal's finding that it is a revenue receipt. - The disallowance of depreciation is justifiable.

Which sections of the Income-tax Act were involved?

Section 2(24),Section 80IA

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
ITA No.168 of 2014 1 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS TUESDAY, THE 3RD DAY OF AUGUST 2021 / 12TH SRAVANA, 1943 ITA NO. 168 OF 2014 AGAINST THE ORDER/JUDGMENT IN OTHERS 4/2013 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/S: M/S.APOLLO TYRES LTD 6TH FLOOR, CHERUPUSHPAM BUILDINGS, KOCHI - 31, REP. BY ITS DIRECTOR, MR.U.S.OBEROI (PAN NO.AAACA 6990 Q) BY ADVS. SRI.JOSEPH MARKOSE (SR.) SRI.V.ABRAHAM MARKOS SRI.ABRAHAM JOSEPH MARKOS SRI.ABRAHAM VARGHESE THARAKAN SRI.TOM THOMAS KAKKUZHIYIL RESPONDENT/S: THE ASSISTANT COMMISSIONERE OFINCOME TAX CIRCLE 1(1), ERNAKULAM, KOCHI - 682 018. THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 03.08.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA No.168 of 2014 2

JUDGMENT S.V.Bhatti, J. Appolo Tyres Ltd./assessee is the appellant. The Asst.Commissioner of Income Tax/Revenue is the respondent. The assessee challenges the order of ITAT, Kochi Bench, Kochi in IT(TP)A No.04/Coch/2013 dated 7.3.2014. The appeal raises the following substantial questions of law: 1) Whether on the facts and in the circumstances of the case, the learned Tribunal is justified in law in holding that carbon credit realisations are of the nature of revenue receipts covered under Section 2(24) of the Income Tax Act 2) Whether on the facts and in the circumstances of the case, the learned Tribunal is justified in law in not following the decisionof a co-ordinate bench of the Tribunal on the same issue of carbon credits as being capital receipts in clear violation of the binding decision of the jurisdictional High Court in CIT v Travancore Titanium Products Ltd. 265 ITR 526 (Ker) and Supreme Court decision in S.I.Rooplal v Lt.Governor (2000) I SCC 644. 3) If answer to Question No.1 is yes, whether on the facts and in the circumstances of the case, carbon credit realisations are profits derived from the Gas Turbine undertaking eligible for deduction u/s 80IA.

ITA No.168 of 2014 3 4) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law and on facts in sustaining the disallowance of part depreciation of Gurgaon office building aggregating to Rs.16,29,673/- in relation to let out portion to Apollo International Ltd. 5) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law and on facts in sustaining the disallowance of part depreciation ignoring the fact tht concept of block of assets had been inserted in the Act and individual items included int he block are not to be considered separately for the purposes of granting depreciation."

2.

Question Nos.1 and 2 deal with whether the income on sale of certified emission reduction/carbon credit would form part of revenue receipts or capital receipts. The Tribunal through the order impugned in the appeal disallowed the claim of assessee by holding that the income derived from the sale of carbon credit is a capital receipt and not a revenue receipt.

3.

Senior Adv.Mr.Joseph Markose relies on judgments in support of his argument that the sale of carbon credit by the assessee could be in the nature of acquiring environmental goodwill and realising receipts from sale of such carbon credit cannot be treated as revenue receipt simplicitor.

ITA No.168 of 2014 4

1.

Andhra Pradesh – CIT v My Home Power Ltd. - (2014) 365 ITR 82(AP)

1.

Karnataka – CIT v Subhash Kabini Power (2016) 385 ITR 592 (Karn)

2.

Bombay – PCIT v Dodson Lindblom Hydro Power (2019-TIOL-531-HC-MUM)

3.

Madras – CIT v Ambika Cotton Mills Ltd. (TCA 986 of 2013) - S.P.Spinning Mills v ACIT (TCA No.451 of 2018)

5.

Allahabad – PCIT v LH Sugar Factory (2016-TIOL-1942-HC-ALL)

4.

Learned Standing Counsel Mr.Christopher Abraham argues that from the nature of the receipt, the finding recorded by the Tribunal that it is a revenue receipt is justifiable.

5.

We would prefer to avoid reproducing important extracts from all the judgments relied on by the appellant. We have noted the reasoning and the conclusion recorded by the Madras High Court in CIT v Ambika Cotton Mills Ltd. and S.P.Spinning Mills v ACIT; and the consideration of very same issue by the Karnataka High Court in CIT v Subhash Kabini Power and finally the judgment of Andhra Pradesh High Court in My Home Power Ltd. case. After taking note of the preponderance of view of various High Courts in this behalf and also independently appreciating the nature of receipt in the hands of assessee, we are of the view that the Tribunal while dealing with these two questions fell in error of law and fact and the findings recorded by the Tribunal warrant

ITA No.168 of 2014 5 interference, hence are set aside by following the judgments referred to supra. Question Nos.1 and 2 are answered in favour of the assessee and against the revenue.

6.

Substantial question No.3 is dependent on the outcome of the substantial question Nos.1 and 2. The finding on question Nos.1 and 2 since is in favour of the assessee, it is stated that in such an eventuality substantial question No.3 need not be considered by this Court. The statement made in this behalf is noted.

7.

Question Nos.4 and 5 deal with the depreciation disallowed in respect of a portion of a Gurgaon building rented out by the assessee to one of its sister concerns. The very same questions have fallen for consideration in ITA No.26 of 2013 filed for the assessment year 2003- 2004. This Court vide judgment dated 29.7.2021 answered the issue in favour of revenue and against the assessee. By following the same analogy, instant question Nos.4 and 5 are answered in favour of revenue and against the assessee.

8.

Having regard to the above discussion, the appeal is allowed in part by answering Question Nos.1 and 2 in favour of the assessee and against the revenue. Question Nos.4 and 5 in favour of revenue and against the assessee. Question No.3 does not arise for consideration,

ITA No.168 of 2014 6

hence not adverted to or decided to. Appeal allowed in part as indicated above. S.V.BHATTI Judge BECHU KURIAN THOMAS Judge css/

ITA No.168 of 2014 7

Appendix — schedule of exhibits
APPENDIX OF ITA 168/2014 PETITIONER ANNEXURE ANNEXURE 1 TRUE COPY OF DRAFT ASSESSMENT ORDER DATED 29/12/2011 OF THE RESPONDENT. ANNEXURE 2 TRUE COPY OF THE REGULAR ASSESSMENT ORDER DATED 17/12/2012 OF THE RESPONDENT. ANNEXURE 3 TRUE COPY OF THE ORDER DATED 26/09/2012 OF THE DISPUTE RESOLUTION PANEL, BANGALORE. ANNEXURE 4 CERTIFIED COPY OF IMPUGNED ORDER DATED 07/03/2014 OF THE INCOME TAX APPELLATE TRIBUNAL, KOCHI BENCH IN IT (TP) A NO.04/COCH/2013.

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