DCIT, Trichy V. Muthu Export House, Karur

ITA 1154/CHNY/2015

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9930 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2015
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 15-05-2015
• Court: TRIBUNAL
• Assessee Lawyers: E PASS ROAD KARUR PAN AAAFMA
• Keywords: Capital receipt

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . !' , # $% BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ./ ITA NO. 1154/MDS/2015 / ASSESSMENT YEAR : 2010-11 THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-2(1), TRICHY 620 001. APPELLANT) V. M/S. MUTHU EXPORT HOUSE, NO.25, NEW SALEM BYE PASS ROAD, KARUR- 639 006. PAN AAAFM8638A RESPONDENT) / APPELLANT BY : SHRI P. RADHAKRISHNAN, JCIT / RESPONDENT BY : SHRI N. QUADIR HOSEYN, ADVOCATE ! / DATE OF HEARING : 30.06.2015 '# ! / DATE OF PRONOUNCEMENT: 09.07.2015 & / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DATED 5. 2.2015. - - ITA 1154/15 2 2. THE FIRST GROUND IN THIS APPEAL IS WITH REGARD T O GRANTING OF DEDUCTION U/S.80IA OF THE ACT IN RESPECT OF INCOME FROM WINDMILL BUSINESS WITHOUT SETTING OFF OF LOSS FOR THE EARLIE R ASSESSMENT YEARS. 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IN OUR OPINION, THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE JURIS DICTIONAL HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD. VS. ACIT (340 ITR 477). THE LD. DR IS NOT ABLE TO PLAC E BEFORE US ANY JUDGMENT CONTRARY TO THE JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS PVT. L TD. (SUPRA). BEING SO, IN OUR OPINION, THE ISSUE, AS OF NOW, IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE AFORESAID DECISION OF THE JURISDICTIONAL HIGH COURT CITED SUPRA, WHICH IS BINDING TO THE PRECEDENT TO BE FOLLOWED. ACCORDINGLY, WE ARE INCL INED TO DISMISS THE GROUND TAKEN BY THE REVENUE. 4. THE NEXT GROUND IN THIS APPEAL IS WITH REGARD TO TREATING CARBON CREDIT AS CAPITAL RECEIPT. 5. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE HAS INCLUDED ` 1,69,234/- BEING CARBON CREDIT PROCEEDS IN THE PRO FIT DERIVED - - ITA 1154/15 3 FROM THE WINDMILL UNDERTAKING, WHICH WAS NOT ACCEPT ED BY THE ASSESSING OFFICER. THE TREATMENT OF CARBON CREDIT AND THE PROCEEDS OF THE SAME OF ` 1,69,234/- BY THE AO AS INCOME ON THE GROUND THAT THE SAME IS TO DERIVED BY THE WINDM ILL UNDERTAKING IS ALSO CONTESTED BY THE ASSESSEE IN TH IS GROUNDS OF APPEAL. THE ASSESSEE IN HIS SUBMISSIONS REQUESTED THAT IN CASE CARBON CREDITS IS NOT TREATED AS INCOME FROM WINDMI LL UNDERTAKING, IT SHOULD BE TREATED AS CAPITAL RECEIP TS AND NOT AS REVENUE RECEIPTS AS HELD IN THE CASE OF M/S. HOME P OWER LTD. V. DCIT (HYD.) BY THE ITAT, B BENCH IN TIOL-637(HYDERA BAD) 2012. THE ASSESSEE ENGAGED IN THE BUSINESS OF POWE R GENERATION WHERE IN THE PROCESS RECEIVED CARBON CRE DITS FOR PROJECT ACTIVITY OF SWITCHING OFF FOSSIL FUEL FROM NAPTHA AND DIESEL TO BIOMASS, CARBON CREDITS NOT BEING LINKED TO POWE R GENERATION, AMOUNT RECEIVED ON THEIR TRANSFER DID NOT HAVE ELEM ENT OF PROFIT OR GAIN AND THEREFORE, IT WAS HELD IN THE CASE OF M Y HOME POWER LTD. MENTIONED SUPRA THAT IT WAS NOT TAXABLE. THE TRIBUNAL HELD THE ABOVE CASE REFERRED TO THAT CARBON CREDIT NOT B EING AN OFFSHOOT OF BUSINESS BUT AN OFFSHOOT OF ENVIRONMENT AL CONCERNS, AMOUNT RECEIVED ON THEIR TRANSFER HAD NO ELEMENT OF PROFIT OR - - ITA 1154/15 4 GAIN HENCE NOT TAXABLE. KEEPING IN VIEW THE ABOVE JUDGMENT OF THE TRIBUNAL, WHICH IS SQUARELY APPLICABLE TO THE F ACTS OF THE PRESENT CASE, THE CIT(APPEALS) HELD THAT CARBON CRE DIT PROCEEDS ARE CAPITAL RECEIPTS AND NON TAXABLE. AGAINST THI S, THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD. IN OUR OPINION, CARBON CREDIT IS IN THE NATURE OF AN ENTITLEMENT RECEIVED TO IMPROVE WORLD ATMOSPHERE A ND 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 REVEN UE RECEIPT. IT IS NOT GENERATED OR CREATED DUE TO CARRYING ON BUSI NESS BUT IT IS ACCRUED DUE TO WORLD CONCERN. IT HAS BEEN MADE A VAILABLE ASSUMING CHARACTER OF TRANSFERABLE RIGHT OR ENTITLE MENT ONLY DUE TO WORLD CONCERN. THE SOURCE OF CARBON CREDIT IS W ORLD CONCERN AND ENVIRONMENT. DUE TO THAT THE ASSESSEE GETS A P RIVILEGE 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 UNDER ANY HEAD OF INCOME. IT IS NOT LIABLE FOR TAX FOR THE ASSESSMEN T YEAR UNDER - - ITA 1154/15 5 CONSIDERATION IN TERMS OF SECTIONS 2(24), 28, 45 AN D 56 OF THE INCOME-TAX ACT, 1961. CARBON CREDITS ARE MADE AVAI LABLE 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 CRED IT GIVEN TO THE ASSESSEE UNDER THE KYOTO PROTOCOL AND BECAUSE OF IN TERNATIONAL UNDERSTANDING. THUS, THE ASSESSEES WHO HAVE SURPLU S CARBON CREDITS CAN SELL THEM TO OTHER ASSESSEES TO HAVE CA PPED EMISSION COMMITMENT UNDER THE KYOTO CARBON CREDITS CAN SELL THEM TO OTHER ASSESSEES TO HAVE CAPPED EMISSION COM MITMENT UNDER THE KYOTO PROTOCOL. TRANSFERABLE CARBON CRED IT IS NOT A RESULT OR INCIDENCE OF ONES BUSINESS AND IT IS A C REDIT FOR REDUCING EMISSIONS. THE PERSONS HAVING CARBON CRED ITS GET BENEFIT BY SELLING THE SAME TO A PERSON WHO NEEDS C ARBON CREDITS TO OVERCOME ONES NEGATIVE POINT CARBON CRE DIT. THE AMOUNT RECEIVED IS NOT RECEIVED FOR PRODUCING AND/O R SELLING ANY PRODUCT, BI-PRODUCT OR FOR RENDERING ANY SERVICE FO R CARRYING ON THE BUSINESS. IN OUR OPINION, CARBON CREDIT IS ENT ITLEMENT OR ACCRETION OF CAPITAL AND HENCE INCOME EARNED ON SAL E OF THESE CREDITS IS CAPITAL RECEIPT. THE SAME VIEW IS SUPPO RTED BY THE - - ITA 1154/15 6 FOLLOWING JUDICIAL PRECEDENTS. 1. CIT V. MY HOME POWER LTD. (2014)[365 ITR 82](AP ) 2. MY HOME POWER LTD. V. DCIT (2013)[21 ITR(TRIB) 186] (HYD) 3. AMBIKA COTTON MILLS LTD. V. DCIT (2013) [27 ITR (TRIB) 44] (CHENNAI) 4. DCIT V. SALONA COTSPIN LTD. IN ITA NO.426/MDS/2 013 FOR AY 2009-10 5. SRI VELAYUDHASWAMY SPINNING MILLS (P) LTD. V. D CIT IN ITA NO.582/MDS/2013 FOR AY 2009-10 6. SRI MATHA SPINNING MILLS PVT. LTD. V. DCIT IN I TA NO.617/MDS/ 2013 FOR AY 2009-10 7. SUDHAN SPINNING MILLS PVT. LTD. V. JCIT IN ITA NO. 616/MDS/2013 FOR AY 2009-10 8. PRABHU SPINNING MILLS (P) LTD. & ANR. V. DCIT I N ITA NOS. 651 & 652?MDS/2013 FOR AY 2009-10 9. VEDHA SPINNING MILLS (P) LTD. V. DCIT IN ITA N O.630/MDS/ 2013 FOR AY 2009-10 10.ADISANKARA SPINNING MILLS (P) LTD. V. DCIT IN ITA 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/ MDS/2014 FOR AY 2009-10 13.INDIA DYEING MILLS PVT. LTD. V. ACIT IN ITA NO .498/MDS/2014 FOR AY 2009-10 - - ITA 1154/15 7 14.DCIT V. SREE RAYALASEEMA GREEN ENERGY LTD. (20 14) [36 ITR (TRIB) 627] (HYD) 15. EASTMAN SPINNING MILLS (P) LTD. V. DCIT IN IT A NO. 1428/ MDS/2014 FOR AY 2009-10 7. 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 DEDUCTION U /S.80IA OF THE ACT. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON THURSDAY, THE 9 TH OF JULY, 2015 AT CHENNAI. SD/- SD/- ( . $ % ) ( & ' ( ) ) *+,-./01023 45067.082290.:3 ; $< /JUDICIAL MEMBER ! $<=>>2-6?06?@ABCA. &; /CHENNAI, D$ /DATED, THE 9 TH JULY, 2015. MPO* $E FGHG /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. I3 /CIT(A) 4. I /CIT 5. GJ% K /DR 6. %LM /GF.