COMMISSIOER OF INCOME TAX vs. M/S. ARUN TEXTILES PVT LTD

TCA/160/2015HC Madras04 September 2019Bench: Hon`ble Dr Justice VINEET KOTHARI4 pages

AI SummaryDismissed

What did the High Court hold?

The High Court did not decide the substantial questions of law on merits. The learned Senior Standing Counsel for the Department brought to the notice of the Court a Circular Instruction issued by the Central Board of Direct Taxes (CBDT) vide Circular No.17/2019, dated 8th August 2019. This circular stipulates that appeals shall not be filed or pursued by the Department before the High Court in cases where the tax effect does not exceed Rs.1,00,00,000/- (Rupees One Crore only). In the instant case, the tax effect was stated to be less than this monetary limit. Consequently, the High Court dismissed the appeal filed by the Revenue as not pressed. The substantial questions of law were kept open for determination in appropriate cases. No costs were awarded.

What were the facts?

The Revenue, Commissioner of Income Tax, Coimbatore, filed an appeal before the High Court of Madras against an order of the Income Tax Appellate Tribunal (ITAT), Madras 'B' Bench. The appeal, filed under Section 260A of the Income Tax Act, 1961, challenged the ITAT's decision regarding the taxability of proceeds realized by the assessee, M/s. Arun Textiles Pvt. Ltd., from the sale of Certified Emission Reduction (CER) Credits. These credits were earned by the assessee from its wind energy operations under the Clean Development Mechanism. The assessment years are not explicitly stated in the provided text. The dispute centers on whether these proceeds constitute a capital receipt or a revenue receipt.

What were the issues?

The High Court was asked to decide 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 circumstance 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 Income Tax Act, 1961? 3. Whether, in the facts and circumstances of the case and in law, ITAT 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? Contentions: Assessee: The judgment does not record specific contentions made by the assessee. The ITAT's order, which is under challenge, held the proceeds to be a capital receipt and not taxable. Revenue: The Revenue argued that the sale of Carbon Credits should be considered a capital receipt and not liable for tax, and that there was no cost of acquisition or production, linking it to the machinery and processes used by the assessee. The Revenue relied on the ITAT's decision in its appeal.

Which sections of the Income-tax Act were involved?

Section 260A

AI-generated summary — verify with the full judgment below

TCA.No.160 of 2015 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 09.09.2019 CORAM

THE HON'BLE DR.JUSTICE VINEET KOTHARI AND THE HON'BLE MR.JUSTICE C.SARAVANAN Tax Case Appeal No.160 of 2015 Commissioner of Income Tax No.63, Race Course Road Coimbatore. .. Appellant Vs. M/s.Arun Textiles Pvt. Ltd. No.80, Perumal Koil street Tirupur – 641 604. PAN:AABCA8982 D .. Respondent Tax Case Appeal filed under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Madras 'B' Bench, dated 12.09.2014 made in ITA No.268/Mds/2014. For Appellant : Mr.T.R.Senthil Kumar Senior Standing Counsel assisted by Ms.K.G.Usha Rani Junior Standing Counsel For Respondent : Mr.N.V.Balaji 1/4 http://www.judis.nic.in TCA.No.160 of 2015 J U D G M E N T (Delivered by DR.VINEET KOTHARI,J) This Tax Case Appeal has been filed by the Revenue calling in question the correctness of the order passed by the Income Tax Appellate Tribunal, Madras 'B' Bench, dated 12.09.2014 in ITA No.268/Mds/2014, by raising 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 circumstance 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 Income Tax Act, 1961? 3. Whether, in the facts and circumstances of the case and in law, ITAT 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 2/4 http://www.judis.nic.in TCA.No.160 of 2015 the machinery and processes employed in the production process by the assessee?” 2. When the matter is taken up for hearing, the learned Senior Standing Counsel for the Department brought to our notice the Circular instruction issued by the Central Board of Direct Taxes vide Circular No.17/2019, dated 8th August 2019, wherein, it is stipulated that appeals shall not be filed/pursued by the Department before the High Court in cases where the tax effect does not exceed Rs.1,00,00,000/- (Rupees One Crore only). 3. In the instant case, the tax effect is said to be less than the monetary limit imposed and therefore, the Appeal filed by the Revenue is dismissed, as not pressed, keeping open the substantial questions of law for determination in appropriate cases. No costs.

(V.K.,J.) (C.S.N.,J.)

09.09.2019 Index : Yes/No Internet : Yes/No kj 3/4 http://www.judis.nic.in TCA.No.160 of 2015 DR.VINEET KOTHARI, J. and MR.C.SARAVANAN,J. kj To 1.M/s.Arun Textiles Pvt. Ltd. No.80, Perumal Koil street Tirupur – 641 604. 2.Income Tax Appellate Tribunal Madras 'B' Bench, Chennai. TCA No.160 of 2015 09.09.2019 4/4 http://www.judis.nic.in

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