Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI D. KARUNAKARA RAO & SHRI SANDEEP GOSAIN
PER D. KARUNAKARA RAO, AM: There are four appeals under consideration involving the assessment years 2007-08; 2008-09 and 2009-10. Out of the four appeals, ITA No.5933/M/2012; ITA No.7716/M/2011 and C.O. No.128/M/2011 are filed by the assessee and the appeal ITA No.5932/M/2010 is filed by the Revenue. Since, the issues raised in these appeals are inter-connected and some issues are identical, therefore, for the sake of convenience, they are clubbed, heard together and disposed of in this consolidated order. Appeal wise adjudication is given in the following paragraphs of this order. Appeals for the AY 2007-2008
This appeal filed by the Revenue on 28.7.2010 is against the order of the CIT (A)-16, Mumbai dated 15.3.2010 for the assessment year 2007-2008. In this appeal, Revenue raised the following ground which reads as under: “On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in deleting the disallowances of claim u/s 80IA of the IT Act, 1961 amounting to Rs. 6,73,46,337/-, made by the AO in respect of the sale of Carbon Credit, without appreciating the facts and circumstances of the case and in law.”
At the outset, Ld Counsel for the assessee submitted that the issue contested both by the assessee and the Revenue relates to the allowability of claim of deduction u/s 80IA of the Act in respect of the receipts earned by the assessee on sale of „carbon credits‟. Referring to the impugned order of the CIT (A), Ld Counsel for the assessee submitted that the assessee earned revenue from the sale of Carbon Emission Reductions (CERs) amounting to Rs. 6,73,46,337/-. Assessee claimed deduction in this regard u/s 80IA of the Act in respect of these receipts as these receipts are the integral part of the power generation project. CIT (A) granted the deduction relying on the judgment of the Hon‟ble Supreme Court in the case of Liberty India vs. CIT (317 ITR 218). While grating deduction, CIT (A) held that the carbon credit is a by product of generation of hydro electric power and the same is eligible for deduction u/s 80IA(4) of the Act. The contents of para 1.5 of the CIT (A)‟s order are relevant in this regard. On these facts, both the parties brought our attention to the judgment of the Hon‟ble High Court of Andhra Pradesh in the case of CIT vs. My Home Power Ltd [2014] 365 ITR 82 (AP) and mentioned that the income derived from the sale of carbon credits is considered as a „capital receipt‟ and not „business receipt‟ and the same is not liable for tax under the Act. To that extent, as per the law standing today, the receipts on sale of the carbon credits fall in the capital zone.
On the other hand, Ld DR for the Revenue relied on the decision of the Cochin Bench of the Tribunal in the case of Appollo Tyres Ltd vs. ACIT [2014] 149 ITD 756, wherein a contrary view was taken by the ITAT. Referring to this decision, Ld Counsel for the assessee mentioned that the said decision was considered by the Chennai Bench of the Tribunal in the case of Arun Textiles (P) Ltd s. ACIT [2014] 36 ITR (T) 300 and held that the receipts on sale of carbon credits are capital in nature. In the process, the Chennai Bench relied on the judgment of the Hon‟ble High Court of Andhra Pradesh in the case of My Home Power Ltd (supra). Thus, such receipts are now outside the scope of income chargeable to tax. In view of this, the order of the CIT (A) is required to be reversed to that extent.
We have heard both the parties and perused the orders of the Revenue Authorities as well as the decisions cited before us on the issue relating to the chargeability of receipts on sale of carbon credits. In this regard, we have perused the said judgment of the Hon‟ble High Court of Andhra Pradesh in the case of My Home Power Ltd (supra) and for the sake of completeness of this order, held portion of the said judgment is extracted as under: “ITAT have considered the aforesaid submission and ITAT are unable to accept the same, as the learned Tribunal has factually found 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”. ITAT agree with this factual analysis as the assessee is carrying on the business of power generation. The Carbon Credit is not even directly linked with power generation. On the sale of excess carbon credits, the income was received and hence as correctly held by the Tribunal it is capital receipt and it cannot be business receipt or income. In the circumstances, we do not find any element of law in this appeal.”
We have also perused the decision of the ITAT, Cochin Bench in the case of Arun Textiles (P) Ltd (supra), wherein the Tribunal extracted the relevant para from the above said judgment of the Hon‟ble High Court of Andhra Pradesh (supra) in para 6 of its order and held that such receipts fall in capital zone. For the sake of completeness of this order, relevant lines from para 6 of the said Tribunal‟s order dated 12.9.2014 are extracted as under:
“6. Both sides heard. We have perused the orders of the authorities below and examined the decisions on which both sides have place reliance. The Hyderabad Bench of the Tribunal in the case of My Home Power Ltd (supra) has held carbon credit as capital receipts. The relevant extract of the findings of the coordinate Bench are as under: “We have heard both the parties and perused the material on record. Carbon credit is in the nature of „an element‟ received to improve world atmosphere and environment reducing carbon heat and gas emissions. The entitlement earned for carbon credits can, at best, be regarded as a capital receipt and cannot be taxed as a revenue receipt. It is not generated or created due to carrying on business but it is accrued due to „world concern‟. It has been made available assuming character of transferable right or entitlement only due to world concern. The source of carbon credit is world concern and environment. Due to that the assessee gets aprivilege in the nature of transfer of carbon credits. Thus, the amount received for carbon credits has no element of profit or gain and it cannot be subjected to tax for the assessment year under consideration in terms of section 2(24), 28, 45 and 56 of the Income Tax Act, 1961. Carbon credits are made available to the assessee on account of saving of energy consumption and not because of its business. Further, in our opinion, carbon credits cannot be considered as a bi-product. It is a credit given to the assessee under the Kyoto Protocol and because of international understanding. Thus, the assssees who have surplus carbon credits can sell them to other assessees to have capped incidence of one‟s business and it is a credit of reducing emission. The persons having carbon credits get benefit by selling the same to a person who needs carbon credits to overcome one‟s negative point carbon credit. The amount received is not received for producing and / or selling any product, bi- product or for rendering any service for carrying on the business. In our opinion, carbon credit is entitlement or accretion f capital and hence income earned on sale of these credits is capital receipt. For this proposition, we place reliance on the judgment of the Supreme Court in the case of CIT vs. Maheshwari Devi Jute Mills Ltd [1965] 57 ITR 36 (SC) .............In the present case, the assessee transferred the carbon credits like loom hours to some other concerns for certain consideration. Therefore, the receipt of such consideration cannot be considered as business income and it is a capital receipt. Accordingly, we are of the opinion that the consideration received on account of carbon credits cannot be considered as income taxable in the assessment year under consideration. ...............However, there is no cost of acquisition or cost of production to get this entitlement. Carbon credit is not in the nature of profit or in the nature of income.”
The Hon‟ble Andhra Pradesh High Court in the appeal of the Revenue in ITTA No.60 of 2014 decided on February 19, 2014 My Home Power Ltd (supra) has upheld the view taken by the Hyderabad Bench in the case of My Home Power Ltd (supra).”
Therefore, considering the above, it is now settled proposition in law that in principle the receipts on sale of carbon credits should not brought into the „Profit & Loss Account‟ and it relates to the „balance sheet‟ item. Consequently, the question of making a claim u/s 80IA(4) of the Act, allowability of the same or otherwise becomes an academic exercise. In view of the above, the questions raised by the Revenue in its appeal and the cross objections raised by the assessee are required to be dismissed as academic. We order accordingly.
C.O. No.128/M/2011 (By assessee)
This Cross Objection (CO) is filed by the assessee on 11.8.2011 and it arose out of the Revenue‟s appeal ITA No.5932/M/2010. In this CO, assessee raised the following ground of cross objection. “The respondent submits that if the DCIT‟s stand that income from sale of carbon credit do not qualify for deduction under section 80IA(4) is accepted, then the expenditure incurred for earning the carbon credit should also be reduced in computing the profit of the eligible undertaking.”
During the proceedings before us, assessee also raised an additional ground and the same reads as under:- “1. Without prejudice to Ground no.1 of cross objections, the Respondent submit that the income from sale of carbon credit is in the nature of capital receipt and therefore, not chargeable to tax. The appellants pray that the AO be directed to exclude the same in computing their total income.
The respondent craves leave to add to and / or amend and / or modify and / or alter and / or delete the afore said additional ground of appeal.
The aforesaid additional ground of cross objections are without prejudice to the original grounds of cross objections.”
From the above, assessee requested for excluding the said receipts earned on sale of carbon credits from the computation of total income consequent to the finding of the Hon‟ble High Court of Andhra Pradesh in the case of My Home Power Ltd (supra). Considering the fact that the relevant facts are already available on record, we find the issue does not call for any investigation. Therefore, we admit the said additional ground and direct the AO to exclude the relevant receipts earned on sale of carbon credits from the zone of computation of total income. Accordinlgy, Grounds raised by the Revenue and the cross objections raised by the assessee are dismissed. The additional ground raised by the assessee is admitted and allowed in favour of the assessee.
In the result, the appeal of the Revenue is dismissed and the assessee’s CO is partly allowed. (By assessee)
This appeal filed by the assessee on 15.11.2011 is against the order of the CIT (A)-16, Mumbai dated 22.8.2011 for the assessment year 2008-2009. 13. In this appeal, the issue raised in the grounds relates to the allowability of the claim of deduction u/s 80IA(4) of the Act in respect of the receipts earned on sale of carbon credits. On this issue, during the first appellate proceedings, unlike in the AY 2007-2008, CIT (A) directed the AO to exclude the said receipts on the ground that the same are not derived from the eligible undertaking. CIT (A) denied the benefit of deduction u/s 80IA(4) of the Act. Now, the allowability or otherwise of the claim of deduction was already discussed by us while dealing with the similar issue raised in the AY 2007-2008. After hearing both the parties and on perusal of the relevant orders and the cited judgment of the Hon‟ble High Court of Andhra Pradesh in the case of My Home Power Ltd (supra), we held that the receipts on sale of carbon credits is outside the scope of chargeability to tax as the same constitutes „capital receipt‟. For this, we relied on the said judgment of the High Court of Andhra Pradesh (supra). Therefore, the issue raised by the assessee in the Ground no.1 is required to be dismissed, in principle.
Before us, Ld Counsel for the assessee brought our attention to the additional ground, identically worded as in the AY 2007-2008, which was already extracted and adjudicated in the above paragraphs of this order. While adjudicating the said additional ground for the AY 2007-2008, we shave admitted the additional ground and allowed the same in favour of the assessee. Considering the commonality of the issue raised in the additional grounds for the AYs 2007-08 and 2008-09, our decision given therein for the AY 2007-08 squarely applies to the instant additional ground too. Accordingly, additional ground is admitted and allowed in favour of the assessee.
In the result, appeal of the assessee is partly allowed. (By assessee)
This appeal filed by the assessee on 28.9.2012 is against the order of the CIT (A)-16, Mumbai dated 19.7.2012 for the AY 2009-2010. 17. In this appeal, the issue raised in the grounds relates to the allowability of the claim of deduction u/s 80IA(4) of the Act in respect of the receipts earned on sale of carbon credits. On this issue, during the first appellate proceedings, unlike in the AY 2007-2008, CIT (A) directed the AO to exclude the said receipts on the ground that the same are not derived from the eligible undertaking. CIT (A) denied the benefit of deduction u/s 80IA(4) of the Act. Now, the allowability or otherwise of the claim
of deduction was already discussed by us while dealing with the similar issue raised in the AY 2007-2008. After hearing both the parties and on perusal of the relevant orders and the cited judgment of the Hon‟ble High Court of Andhra Pradesh in the case of My Home Power Ltd (supra), we held that the receipts on sale of carbon credits is outside the scope of chargeability to tax as the same constitutes „capital receipt‟. For this, we relied on the said judgment of the High Court of Andhra Pradesh (supra). Therefore, the issue raised by the assessee in the Ground no.1 is required to be dismissed, in principle.
Before us, Ld Counsel for the assessee brought our attention to the additional ground, identically worded as in the AY 2007-2008, which was already extracted and adjudicated in the above paragraphs of this order. While adjudicating the said additional ground for the AY 2007-2008, we shave admitted the additional ground and allowed the same in favour of the assessee. Considering the commonality of the issue raised in the additional grounds for the AYs 2007-08 and 2009-10, our decision given therein for the AY 2007-08 squarely applies to the instant additional ground too. Accordingly, additional ground is admitted and allowed in favour of the assessee.
In the result, appeal of the assessee is partly allowed.
Conclusively, Revenue’s appeals is dismissed. Two appeals and the Cross Objection of the assessee are partly allowed. Order pronounced in the open court on 13th January, 2016. (SANDEEP GOSAIN) ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक 13.1.2016 व.नन.स./ OKK , Sr. PS आदेश की प्रतिलऱपि अग्रेपिि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A)- 3. 4. आमकय आमुक्त / CIT
8 ववबागीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / DR,
ITAT, Mumbai गार्ड पाईर / Guard file. 6. सत्मावऩत प्रनत ////
आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt.