Arun Textiles Private Limited, Tiruppur V. DCIT, Tiruppur

CO 108/CHNY/2015

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1386 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 27-11-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 23-11-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 16-09-2015
• Court: TRIBUNAL
• Department Lawyers: T BANUSEKAR
• Assessee Lawyers: A V SREEKANTH
• Keywords: Capital receipt

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , ! ' . #$ , % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ ITA NO. 1714/MDS/2015 AND C.O.NO.108/MDS/2015 (IN ITA NO.1714MDS/2015 / ASSESSMENT YEAR : 2011-12 THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-2, 121, SIXTY FEET ROAD, TIRUPUR 641 602. APPELLANT) V. M/S. ARUN TEXTILES PVT. LTD., NO.20, PERUMAL KOIL STREET, TIRUPUR 641 604. PAN AABCA8982D RESPONDENT/CROSS-OBJECTOR) / APPELLANT BY : SHRI A.V.SREEKANTH, JCIT / RESPONDENT BY : SHRI T. BANUSEKAR, FCA ! / DATE OF HEARING : 23.11.2015 '# ! / DATE OF PRONOUNCEMENT: 27.11.2015 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THE APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMM ISSIONER OF INCOME-TAX(APPEALS) DATED 29.05.2015. 2 ITA 1714 & CO 108/MDS/15 2. THE GRIEVANCE OF THE REVENUE IS THAT THE CIT(APP EALS) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF D ISALLOWANCE U/S.80IA AMOUNTING TO ` 4,39,70,580/-. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY ENGAGED IN THE BUSINESS OF SPINNING COTTON YARN AND GENERAT ION OF ELECTRICITY THROUGH WIND MILL FILED ITS RETURN OF INCOME FOR TH E ASSESSMENT YEAR 2011-12 ADMITTING A TOTAL INCOME OF ` 5,99,38,380/- ON 27.9.2011. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT W AS COMPLETED AS UNDER: RETURNED INCOME ` 5,599,38,380/- ADD: DISALLOWANCE OF CARBON CREDIT ` 22,63,123 DEDUCTION U/S.80IA ` 4,39,70,580 ` 4,62,33,703/- INCOME ASSESSED ` 10,61,72,083/- 3.1 THE AO DISALLOWED THE CLAIM OF THE ASSESSEE U/S .80IA OF THE ACT, ON THE REASON THAT THE SPECIAL LEAVE PETITION FILED BY THE REVENUE IS PENDING BEFORE THE APEX COURT AGAINST THE JUDGME NT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. VEL AYUTHASAMY SPINNING MILLS (231 CTR 368). HOWEVER, THE CIT(APPEALS) ALL OWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE JUDGMENT OF THE JURI SDICTIONAL HIGH COURT IN THE CASE OF CIT V. VELAYUTHASAMY SPINNING MILLS CITED SUPRA. 3 ITA 1714 & CO 108/MDS/15 FURTHER, THE AO DISALLOWED THE CLAIM OF THE ASSESSE E IN RESPECT OF CARBON CREDITS TREATING IT AS INCOME OF THE ASSESSE E AND NOT GRANTED DEDUCTION U/S.80IA OF THE ACT. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. ADMITTEDLY, THE ASSESSING OFFICER DISALLO WED THE CLAIM OF THE ASSESSEES U/S 80IA ONLY ON THE GROUND THAT THE SLP IS PENDING BEFORE THE APEX COURT AGAINST THE JUDGMENT OF THE MADRAS H IGH COURT IN VELAYUDHASWAMY SPINNING MILLS P. LTD(SUPRA). IT IS NOT THE CASE OF THE REVENUE THAT THE JUDGMENT OF THE MADRAS HIGH COURT IN VELAYUDHASWAMY SPINNING MILLS P. LTD(SUPRA) IS STAY ED BY THE APEX COURT. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT MERE PENDENCY OF SLP BEFORE THE APEX COURT CANNOT BE A REASON FOR NOT FOLLOWING THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT. IN OTHE R WORDS, THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IS BINDING ON ALL AUTHORITIES IN THE STATES OF TAMILNADU AND PONDICHERRY. THE CIT(A) HAS RIGHT LY ALLOWED THE CLAIM OF THE ASSESSEES BY FOLLOWING THE JUDGMENT O F THE MADRAS HIGH COURT IN VELAYUDHASWAMY SPINNING MILLS P. LTD. (SUP RA). THEREFORE, THIS TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDE RS OF THE CIT(A) AND ACCORDING THE SAME ARE CONFIRMED. 4 ITA 1714 & CO 108/MDS/15 5. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THE CROSS OBJECTION: 2. A) THE HONOURABLE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT THE CDM RECEIPTS AR E NOT CAPITAL RECEIPTS AND CONSEQUENTLY NOT EXEMPT FROM T AX. B) ASSUMING BUT NOT ACCEPTING THAT THE RECEIPTS FR OM CDM ARE NOT CAPITAL BUT REVENUE IN NATURE, THE HONOURABLE COMMISSIONER OF INCOME TAX (APPEALS) OUG HT TO HAVE APPRECIATED THAT CDM RECEIPTS BEING THE ONE WHICH HAS BEEN RECEIVED ON ACCOUNT OF THE POWER GENERATED THROUGH WINDMILLS WOULD ALSO QUALIFY FOR THE BENEFIT U/S.80IA. 3. THE HON. COMMISSIONER OF INCOME TAX (APPEALS) IS RIGHT IN HOLDING THAT IN VIEW OF THE BINDING DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. VELAYUTHASAMY SPINNING MILLS THE CLAIM OF THE APPEL LANT U/S.80IA TO THE EXTENT OF ` 4,39,70,580/- IS ALLOWABLE 6. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OP INION THAT SIMILAR ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.2174/MDS/2015 DATED 19.6.2015 FOR THE ASSESSMENT YEAR 2010-11, WHEREIN IT WAS OBSERVED AS UNDER: 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, CARBON CREDIT IS IN THE NATURE OF AN ENTITLEMENT RECEIVED TO IMPROVE WORL D ATMOSPHERE AND ENVIRONMENT REDUCING CARBON, HEAT AN D GAS EMISSIONS. THE ENTITLEMENT EARNED FOR CARBON C REDITS 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 T O WORLD CONCERN. IT HAS BEEN MADE AVAILABLE ASSUMING CHAR ACTER OF TRANSFERABLE RIGHT OR ENTITLEMENT ONLY DUE TO WO RLD CONCERN. THE SOURCE OF CARBON CREDIT IS WORLD CONC ERN AND 5 ITA 1714 & CO 108/MDS/15 ENVIRONMENT. DUE TO THAT THE ASSESSEE GETS A PRIVI LEGE IN THE NATURE OF TRANSFER OF CARBON CREDITS. THUS, TH E AMOUNT RECEIVED FOR CARBON CREDITS HAS NO ELEMENT OF PROFI T OR GAIN AND IT CANNOT BE SUBJECTED TO TAX IN ANY MANNER UND ER ANY HEAD OF INCOME. IT IS NOT LIABLE FOR TAX FOR THE A SSESSMENT YEAR UNDER CONSIDERATION IN TERMS OF SECTIONS 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 C ONSIDERED AS A BI-PRODUCT. IT IS A CREDIT GIVEN TO THE ASSES SEE UNDER THE KYOTO PROTOCOL AND BECAUSE OF INTERNATIONAL UNDERSTANDING. THUS, THE ASSESSEES WHO HAVE SURPLU S CARBON CREDITS CAN SELL THEM TO OTHER ASSESSEES TO HAVE CAPPED EMISSION COMMITMENT UNDER THE KYOTO CARBON CREDITS CAN SELL THEM TO OTHER ASSESSEES TO HAVE CA PPED EMISSION COMMITMENT UNDER THE KYOTO PROTOCOL. TRANSFERABLE CARBON CREDIT IS NOT A RESULT OR INCID ENCE OF ONES BUSINESS AND IT IS A CREDIT FOR REDUCING EMIS SIONS. THE PERSONS HAVING CARBON CREDITS GET BENEFIT BY SE LLING THE SAME TO A PERSON WHO NEEDS CARBON CREDITS TO OVERCO ME ONES NEGATIVE POINT CARBON CREDIT. THE AMOUNT REC EIVED IS NOT RECEIVED FOR PRODUCING AND/OR SELLING ANY PRODU CT, BI- PRODUCT OR FOR RENDERING ANY SERVICE FOR CARRYING O N THE BUSINESS. IN OUR OPINION, CARBON CREDIT IS ENTITLE MENT OR ACCRETION OF CAPITAL AND HENCE INCOME EARNED ON SAL E OF THESE CREDITS IS CAPITAL RECEIPT. THE SAME VIEW IS SUPPORTED BY THE FOLLOWING JUDICIAL PRECEDENTS, WHICH ARE REL IED ON BY THE LD. AR: 1. CIT V. MY HOME POWER LTD. (2014)[365 ITR 82](AP) 2. MY HOME POWER LTD. V. DCIT [21 ITR(TRIB)186] (HY D) 3. AMBIKA COTTON MILLS LTD. V. DCIT (2013) [27 ITR (TRIB) 44] (CHENNAI) 4. DCIT V. SALONA COTSPIN LTD. IN ITA NO.426/MDS/20 13 FOR AY 2009-10 5. SRI VELAYUDHASWAMY SPINNING MILLS (P) LTD. V. DC IT IN 6 ITA 1714 & CO 108/MDS/15 ITA NO.582/MDS/2013 FOR AY 2009-10 6. SRI MATHA SPINNING MILLS PVT. LTD. V. DCIT IN IT A NO.617/MDS/2013 FOR AY 2009-10 7. SUDHAN SPINNING MILLS PVT. LTD. V. JCIT IN ITA N O. 616/MDS/2013 FOR AY 2009-10 8. PRABHU SPINNING MILLS (P) LTD. & ANR. V. DCIT IN ITA NOS. 651 & 652?MDS/2013 FOR AY 2009-10 9. VEDHA SPINNING MILLS (P) LTD. V. DCIT IN ITA NO.630/MDS/2013 FOR AY 2009-10 10.ADISANKARA SPINNING MILLS (P) LTD. V. DCIT IN IT A NO. 631/MDS/2013 FOR AY 2009-10 11.SRI SHANMUGAVEL MILLS (P) LTD. V. DCIT IN ITA NO. 619/MDS/2013 FOR AY 2009-10 12.ARUN TEXTILES PVT. LTD. V. ACIT IN ITA NO.268/MD S/2014 FOR AY 2009-10 13.INDIA DYEING MILLS PVT. LTD. V. ACIT IN ITA NO.498/MDS/2014 FOR AY 2009-10 14.DCIT V. SREE RAYALASEEMA GREEN ENERGY LTD. (2014 ) [36 ITR (TRIB) 627] (HYD) 15. EASTMAN SPINNING MILLS (P) LTD. V. DCIT IN ITA NO. 1428/MDS/2014 FOR AY 2009-10 5. IN VIEW OF THE ABOVE, WE ARE INCLINED TO HOLD TH AT THE RECEIPT FROM SALE OF CARBON CREDITS HAS TO BE CONSI DERED AS CAPITAL RECEIPT AND ACCORDINGLY, IT IS NOT TAXABLE. THUS, THERE IS NO QUESTION OF CONSIDERING THE SAME FOR DE DUCTION U/S.80IA OF THE ACT. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES 7 ITA 1714 & CO 108/MDS/15 OWN CASE, WE ALLOW THE GROUNDS OF APPEAL TAKEN BY T HE ASSESSEE IN THE CROSS-OBJECTION. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 27 TH OF NOV., 2015 AT CHENNAI. SD/- SD/- ( $ % . & '( ) ( ) * + , ) DUVVURU RL REDDY - ./012304556037- 8 9: /JUDICIAL MEMBER ! 9:;<<5=1>01>?@AB@3 )8 /CHENNAI, C9 /DATED, THE 27 TH NOV. , 2015. MPO* 9D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H- /CIT(A) 4. H /CIT 5. FIJ K /DR 6. J(L /GF.