VMD Mills Private Limited, Tiruppur V. ACIT, Tiruppur

ITA 1273/CHNY/2014

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9867 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 25-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 12-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Assessee Lawyers: T BANUSEKAR
• Keywords: Capital receipt

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , ' $ , % ' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NO . 1273/MDS/2014 ( / ASSESSMENT YEAR: 2009-10) M/S. VMD MILLS PVT.LTD., 427-B, POLLACHI MAIN ROAD, KAMANAICKENPALAYAM, PALLADAM-641 658. VS ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE, TIRUPUR. PAN:AAACH2804E ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. T.BANUSEKAR, C.A. /RESPONDENT BY : MR. N.MADHAVAN, JCIT /DATE OF HEARING : 25 TH JUNE, 2015 /DATE OF PRONOUNCEMENT : 26 TH JUNE, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, COIMBA TORE DATED 26.2.2014 FOR THE ASSESSMENT YEAR 2009-10. 2. THE FIRST ISSUE IN THE APPEAL OF THE ASSESSEE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDI NG THAT CDM RECEIPTS ARE NOT IN THE NATURE OF CAPITAL RECEI PTS. ALTERNATIVELY, ASSESSEE CONTENDS THAT HAVING HELD T HAT CDM RECEIPTS ARE REVENUE RECEIPTS, COMMISSIONER OF INCO ME TAX 2 ITA NO.1273/MDS/2014 (APPEALS) OUGHT TO HAVE APPRECIATED THAT CDM RECEIP TS BEING ONE WHICH HAS BEEN RECEIVED ON ACCOUNT OF POWER GEN ERATED THROUGH WINDMILLS WOULD ALSO QUALIFY FOR BENEFIT UN DER SECTION 80IA OF THE ACT. 3. AT THE TIME OF HEARING, AUTHORIZED REPRESENTATI VE FOR THE ASSESSEE SUBMITS THAT THE ISSUE IN APPEAL IS SQ UARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. ARUN TEXTILES VS. DCIT IN ITA NO.2174/MDS/2014 DATED 19.6.2015, WHEREIN THE TRIBU NAL HELD THAT RECEIPTS FROM SALE OF CARBON CREDITS HAVE TO BE CONSIDERED AS CAPITAL RECEIPTS AND ARE NOT TAXABLE. IT WAS FURTHER HELD THAT THERE IS NO QUESTION OF CONSIDERI NG THE SAID RECEIPTS FOR DEDUCTION UNDER SECTION 80IA OF THE AC T. 4. DEPARTMENTAL REPRESENTATIVE PLACES RELIANCE ON T HE ORDERS OF LOWER AUTHORITIES AND THE DECISION OF COC HIN BENCH OF THE TRIBUNAL IN THE CASE OF APOLLO TYRES LTD. VS. ACIT (149 ITD 7). 5. ON HEARING BOTH THE SIDES, WE FIND THAT THE ISSU E IN APPEAL IS SQUARELY COVERED BY THE DECISION OF THE C O-ORDINATE 3 ITA NO.1273/MDS/2014 BENCH OF THE TRIBUNAL IN THE CASE OF M/S. ARUN TEXT ILES IN ITA NO.2174/MDS/2014 DATED 19.6.2015, WHEREIN IT WAS HE LD THAT RECEIPTS FROM SALE OF CARBON CREDIT HAS TO BE CONSI DERED AS CAPITAL RECEIPTS AND NO DEDUCTION IS ALLOWABLE UNDE R SECTION 80IA OF THE ACT. WHILE ARRIVING AT SUCH CONCLUSION, THE TRIBUNAL FOLLOWING THE DECISION OF ANDHRA PRADESH H IGH COURT IN THE CASE OF CIT VS. MY HOME POWER LTD. (365 ITR 82) (AP) AND VARIOUS OTHER DECISIONS OF THE TRIBUNAL O BSERVED AS UNDER:- 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E 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 ACCR UED DUE TO WORLD CONCERN. IT HAS BEEN MADE AVAILABLE ASS UMING 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 G ETS A PRIVILEGE IN THE NATURE OF TRANSFER OF CARBON CRE DITS. THUS, THE AMOUNT RECEIVED FOR CARBON CREDITS HAS N O ELEMENT OF PROFIT OR GAIN AND IT CANNOT BE SUBJECTE D TO TAX IN ANY MANNER UNDER ANY HEAD OF INCOME. IT IS NOT L IABLE FOR TAX FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IN TERMS OF SECTIONS 2(24), 28, 45 AND 56 OF THE INCOM E-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 OP INION, CARBON CREDITS CANNOT BE CONSIDERED AS A BI-PRODUC T. IT IS A CREDIT GIVEN TO THE ASSESSEE UNDER THE KYOTO PRO TOCOL AND BECAUSE OF INTERNATIONAL UNDERSTANDING. THUS, T HE ASSESSEES WHO HAVE SURPLUS CARBON CREDITS CAN SELL THEM TO OTHER ASSESSEES TO HAVE CAPPED EMISSION COMMITMENT UNDER THE KYOTO CARBON CREDITS CAN SELL 4 ITA NO.1273/MDS/2014 THEM TO OTHER ASSESSEES TO HAVE CAPPED EMISSION COMMITMENT UNDER THE KYOTO PROTOCOL. TRANSFERABLE CARBON CREDIT IS NOT A RESULT OR INCIDENCE OF ONES BUSINESS AND IT IS A CREDIT FOR REDUCING EMISSIONS. THE PERSONS HAVING CARBON CREDITS GET BENEFIT BY SELLIN G THE SAME TO A PERSON WHO NEEDS CARBON CREDITS TO OVERCO ME ONES NEGATIVE POINT CARBON CREDIT. THE AMOUNT RECE IVED IS NOT RECEIVED FOR PRODUCING AND/OR SELLING ANY PR ODUCT, BI-PRODUCT OR FOR RENDERING ANY SERVICE FOR CARRYIN G ON THE BUSINESS. IN OUR OPINION, CARBON CREDIT IS ENTITLEM ENT 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, WH ICH ARE RELIED ON BY THE LD. AR: 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/20 13 FOR AY 2009-10 5. SRI VELAYUDHASWAMY SPINNING MILLS (P) LTD. V. D IN 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 NO. 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/ 5 ITA NO.1273/MDS/2014 MDS/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 IT A 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 CONSIDERED AS CAPITAL RECEIPT AND ACCORDINGLY, IT IS NOT TAXABLE.THUS, TH ERE IS NO QUESTION OF CONSIDERING THE SAME FOR DEDUCTION U/S. 80IA OF THE ACT. 6. RESPECTFULLY FOLLOWING THE SAID DECISION, WE HOL D THAT RECEIPTS FROM SALE OF CARBON CREDITS ARE CAPITAL RE CEIPTS NOT LIABLE FOR TAX. SINCE WE ARE HOLDING THAT SUCH REC EIPTS ARE CAPITAL, THE QUESTION OF ALLOWING DEDUCTION UNDER S ECTION 80IA ON SUCH RECEIPTS DOES NOT ARISE. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH JUNE, 2015. SD/- SD/- ( # ) ( & (# ) ( CHANDRA POOJARI ) ( CHALLA NAGENDRA PRASAD ) * / ACCOUNTANT MEMBER ( * / JUDICIAL MEMBER ( /CHENNAI, , /DATED 26 TH JUNE, 2015 SOMU ./ 0/ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 1 () /CIT(A) 4. 1 /CIT 5. / 5 /DR 6. /GF .