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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI CHANDRA POOJARI & SHRI G. PAVAN KUMAR
आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:
The appeal filed by the Department is directed against order of the Commissioner of Income-tax (Appeals)-1, Coimbatore in dated 24.12.2014 for the assessment year 2011- 2012 passed u/s.143(3) and 250 of the Income Tax Act, 1961 (herein after referred to as ‘the Act’).
ITA No.479/Mds/2015 :- 2 -:
The Revenue has raised the following grounds of appeal:- 2.
‘’2. The learned CIT(A) has erred to consider that the Clean Development Mechanism (CDM) receipts are not Subsidies, but a trading receipt. The assessee's power generation from the windmill compared to the Conventional power generation has no emission of C02. This attribute was given an economic value by the issuance of Certified Emission Reduction (CER) by the United Nations Framework Convention on Climate Change (UNFCCC). These CERs are traded in the various climate exchanges or through private quotes to the Annex I countries or the organizations in the Annex I countries.
3. The learned CIT(A) has erred to consider that the Certified Emission Reduction (CER) credits are considered goods, as they have all the attributes thereof. The CERs have a ready market, where transactions happen on arm's-length basis and price quoted fluctuate as per the situation of demand and supply, and also according to the negotiation skills of the two parties.
The learned CIT(A) has erred to consider that the procedure of allotment of CERs shows the CDM receipts are revenue in nature. The CERs are quantified for time duration of 1 year. Before issuing the CERs by the CDM Executive Board, every year power generation data is verified by the Designated Operational Entity (DOE) and a certificate mentioning amount of C02 emission reduced and eligible CERs are issued. Thus the CERs are indirectly quantified upon the actual power generated by the windmills per annum. Thus the income received by selling the CERs is revenue in nature than Capital in nature. The CDM receipts are also not grant towards Capital goods or to any capital expenditure.
ITA No.479/Mds/2015 :- 3 -:
5. The learned CIT(A) has erred to consider that the Carbon Credit incentives were production incentives in the sense that the Wind mills would be entitled to these incentives only after commencement of operation. The scheme was not to make any payment directly or indirectly for setting up of the Wind mills. It was only after the Wind mills installed and production had been commenced that the incentives were to be given.
6. The learned CIT(A) has erred to consider that the CDM receipts are neither subsidies nor capital receipts but incomes from selling of intangible goods called CERs in the market and are taxable as business income under the provisions of Section 28(iv).
The learned Commissioner of Income tax(Appeals), Coimbatore has erred in holding that the assessee is entitled for deduction u/s-80IA.
The learned Commissioner of Income tax-I, Coimbatore has erred to consider that the department has filed a Special Leave Petition (SLP) before the Hon'ble Supreme Court of India which is pending for decision.
The learned Commissioner of Income tax-I, Coimbatore, should have observed that as per the provisions of section- 80IA(2) an assessee can opt for deduction of any ten consecutive years out of fifteen years, reckoned from the first year in which the undertaking enterprise generates power or commences transmission or distributes power, etc.
The learned Commissioner of Income tax-I, Coimbatore, :- 4 -: ought to have appreciated, that as per the provisions of the section-80IA( 5) the eligible undertaking should be treated as only source of income for computing the quantum of deduction allowable u/s-80IA.
The learned Commissioner of Income tax-I, Coimbatore, should have taken note of the fact that the Sec-80IA(5) begins with a non-obstante clause; and, therefore, the restriction therein, shall prevail in computing and allowing the deduction u/s-80IA’’.
After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in the case of Shri. P.K. Ganeshwar vs. DCIT in vide order dated 01.04.2016 wherein held as under:-
We have perused the order of the Co-ordinate Bench in assessee’s own case for assessment year 2010-11. We find that the issue has been decided in favour of the assessee that carbon credit receipts have to be treated as ‘capital’ in nature. While holding so, the Tribunal has observed as under:
“5. In lower appellate proceedings, the assessee contended that his total carbon credit receipts reading ` 1,18,78,061/- comprised of `72,94,322/- in preceding assessment year 2009-10 and `45,83,739/- in the impugned assessment year. He raised an alternative prayer that only in view of deduction claim u/s 80IA, the said carbon credit receipts had been offered as ‘revenue’ receipts. He sought to cancel his action of offering the carbon credit receipts as income as well as deduction claim u/s 80IA in view of the decision of the Chennai 'tribunal' in Ambika Cotton Mills Ltd(supra). We find that the CIT(A) has rejected the same as under:
“ 7.0 Carbon Credit – The Assessing Officer disallowed an amount of Rs.45,83,739/- being carbon credit. However, a perusal of the ITA No.479/Mds/2015 :- 5 -: assessment order and the submissions of the assessee would indicate that the assessee has admitted an amount of Rs.1,18,78,061/- as revenue receipts in their return of income as under: “Receipts in assessment year 2009-10 Rs. 72,94,322 Receipts in assessment year 2010-11 Rs. 45,83,739 ---------------------- Rs.1,18,78,061” ---------------------- The total amount of the said amounts were taken as revenue receipts for the year under consideration and the assessee's claim of 80lA relief for the amount of Rs. 1,18,78,061/-. In appeal claimed that these are capital receipts as per the order of the ITAT "C" Bench Chennai in the case of M/s. Ambilka Cotton Mills Limited. 7.1 In view of the fact that the assessee has already admitted these amounts as revenue receipts, the assessee cannot challenge the same in appeal to treat the same as capital receipts.
7.2 The assessee has admitted receipts from trading of carbon credit as revenue in nature and included them for computation under section 80IA. It is clearly spelt out in the section 80lA that profits and gains derived by undertaking or enterprise from any business referred to in sub section (4) is eligible for quantifying the deduction.
7.3 The qualifying word used is derived, and receipts from trading of carbon credits cannot be considered as derived from the generation of electricity from wind turbine generators. They can at best be considered as attributable to the business of generation of electricity from WTGS for the reason that the energy generated by non- conventional means which includes WTGS go to reduce burning of fossil fuels which in turn result in clean development mechanism. Therefore carbon credits are directly proportionate to the reduction in the amount of carbon-dioxide and other green house gases by using non- conventional means but are not revenue derived from generation of electricity from WTGs. 7.4 It has been held in the case of CIT V Sterling Foods 237 ITR 579 (SC) that the word derived restricts the qualifying profits to the profits arising directly from the particular activity.
ITA No.479/Mds/2015 :- 6 -:
7.5 Hence considering the facts of the case and the decision of the honorable Supreme Court in sterling foods, revenue from sale of carbon credits cannot be treated as eligible for deduction under section 80IA. However, considering the facts and circumstances it indicate that the receipts from sale of carbon credit cannot be treated as derived from the undertaking and also the apex court decision in the case of Sterling foods reiterated in Liberty India Vs. Commissioner of Income Tax (317 ITR 218) the claim of the 80lA cannot stand the test of law and hence disallowed. 7.6 Regarding the quantum of relief the Assessing Officer may examine whether receipts from 2009- 10 is to be taken in the relevant year and not in assessment year 2010-11. 8.0 In the result the appeal is partly allowed.” Therefore, the assessee is in appeal.
We have heard both parties and gone through the case file. There is no dispute about the nature of receipts arising from sale of carbon credits as the decision of the Hyderabad bench of the 'tribunal' in My Home Power Ltd vs DCIT (supra) has been upheld by the hon'ble Andhra Pradesh high court vide order dated 19.2.2014 holding therein that the same are not an offshoot of business but arise from environmental concerns. Their lordships have also observed that these carbon credits are not directly linked with power generation. In other words, it has been held as ‘capital’ and not a revenue receipt. It is to be seen that the CIT(A) applies ‘estoppel’ principle against the assessee. The assessee had declared the carbon credit sale receipts as income due to the fact that it is otherwise entitled for section 80IA deduction. In the lower appellate proceedings, it had sought to withdraw the said declaration. The CIT(A) has not quoted any specific provision barring such an alternative plea. In these facts only, we observe that as the substantial question of law has been settled against the Revenue about nature of the receipt, the assessee is entitled for acceptance of its alternative claim. So, we accept the relevant grounds and hold that carbon credit receipts have to be treated as ‘capital’ in nature. So far as the assessee’s alternative ground No.7 is concerned that the CIT(A) ought to have given a specific direction to the Assessing Officer for excluding receipts of ₹72,94,322/- from sale of carbon ITA No.479/Mds/2015 :- 7 -:
credits pertaining to assessment year 2009-10, the issue has only been restored back. So, we leave it open for the learned Assessing Officer to adjudicate upon the same as per law.” 6. Following the said order of the Tribunal, we hold that the income from sale of carbon credits is ‘capital’ in nature and the said income is not eligible for deduction u/s 80IA of the Act. We order accordingly. 7. In the result, the appeal of the assessee is partly allowed’’.
We respectfully following Co-ordinate Bench decision of this 4. Tribunal cited (supra) , we dismiss the grounds of the Revenue. In the result, the appeal of the Revenue is dismissed. 5. Order pronounced on Thursday, the 28th day of July, 2016, at Chennai.