Sri Ganapathy Murugan Spinning Mills (P) Ltd., Somanur V. DCIT, Tiruppur

ITA 1274/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96344 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 27-10-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 12-05-2014
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: N VIJAY KUMAR
• Keywords: Business income; Capital receipt

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , ! ' ! # . $% , & '( BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ ITA NO. 1274/MDS/2014 / ASSESSMENT YEAR : 2010-11 M/S. SRI GANAPATHY MURUGAN SPINNING MILLS (P) LTD., NO.83, B POWER HOUSE ROAD, SOMANUR 641 668. PAN AAACS2342C APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE, TIRUPUR. RESPONDENT) / APPELLANT BY : SHRI N. VIJAYKUMAR, CA / RESPONDENT BY : SHRI P. RADHAKRISHNAN, JCIT ! / DATE OF HEARING : 27.10.2015 '# ! / DATE OF PRONOUNCEMENT: 06.11.2015 ) / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DATED 24 .3.2014 FOR THE ASSESSMENT YEAR 2010-11. - - ITA 1274/14 2 2. THE FIRST ISSUE IN THIS APPEAL IS WITH REGARD TO TREATMENT OF CARBON CREDITS AS REVENUE RECEIPTS AND ALSO NOT GRA NTING DEDUCTION U/S.80IA OF THE ACT. 3. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OP INION THAT THIS ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN THE C ASE OF ARUN TEXTILES PVT. LTD. V. DCIT IN ITA NO.2174/MDS/2014 DATED 19.6.2015, WHEREIN IT WAS HELD AS UNDER : 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, CA RBON CREDIT IS IN THE NATURE OF AN ENTITLEMENT RECEIVE D TO IMPROVE WORLD ATMOSPHERE AND ENVIRONMENT REDUCING CARBON, HEAT AND GAS EMISSIONS. THE ENTITLEMENT EA RNED FOR CARBON CREDITS CAN, AT BEST, BE REGARDED AS A C APITAL RECEIPT AND CANNOT BE TAXED AS A REVENUE RECEIPT. IT IS NOT GENERATED OR CREATED DUE TO CARRYING ON BUSINES S 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. DU E TO THAT THE ASSESSEE GETS A PRIVILEGE IN THE NATURE OF TRANSFER OF CARBON CREDITS. THUS, THE AMOUNT RECEI VED FOR CARBON CREDITS HAS NO ELEMENT OF PROFIT 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 A SSESSMENT YEAR UNDER CONSIDERATION IN TERMS OF SECTIONS 2(24) , 28, 45 AND 56 OF THE INCOME-TAX ACT, 1961. CARBON CRED ITS ARE MADE AVAILABLE TO THE ASSESSEE ON ACCOUNT OF SA VING OF ENERGY CONSUMPTION AND NOT BECAUSE OF ITS BUSINE SS. FURTHER, IN OUR OPINION, CARBON CREDITS CANNOT BE CONSIDERED AS A BI-PRODUCT. IT IS A CREDIT GIVEN T O THE ASSESSEE UNDER THE KYOTO PROTOCOL AND BECAUSE OF INTERNATIONAL UNDERSTANDING. THUS, THE ASSESSEES W HO HAVE SURPLUS CARBON CREDITS CAN SELL THEM TO OTHER - - ITA 1274/14 3 ASSESSEES TO HAVE CAPPED EMISSION COMMITMENT UNDER THE KYOTO CARBON CREDITS CAN SELL 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 C REDIT FOR REDUCING EMISSIONS. THE PERSONS HAVING CARBON CRED ITS GET BENEFIT BY SELLING THE SAME TO A PERSON WHO NEE DS CARBON CREDITS TO OVERCOME ONES NEGATIVE POINT CAR BON 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 ACCRET ION OF CAPITAL AND HENCE INCOME EARNED ON SALE OF THESE CR EDITS IS CAPITAL RECEIPT. THE SAME VIEW IS SUPPORTED BY THE FOLLOWING JUDICIAL PRECEDENTS, WHICH 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/2013 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 IN - - ITA 1274/14 4 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 I N 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 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 TAXAB LE. THUS, THERE IS NO QUESTION OF CONSIDERING THE SAME FOR DEDUCTION U/S.80IA OF THE ACT. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. 4. IN VIEW OF THE ABOVE, WE ARE INCLINED TO DECIDE THE ISSUE IN SIMILAR LINE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 5. NEXT GROUND IN THIS APPEAL IS WITH REGARD TO NON - - - ITA 1274/14 5 CONSIDERATION OF INSURANCE CLAIM AS NOT ELIGIBLE FO R DEDUCTION U/S.80IA OF THE ACT. 6. THE FACTS OF THE ISSUE ARE THAT T HE ASSESSING OFFICER HAS DISALLOWED AN AMOUNT OF ` 5,34,448/- BEING INSURANCE CLAIM BY THE ASSESSEE FROM THE 80LA COMPUTATION. DU RING THE COURSE OF HEARING BEFORE THE LOWER AUTHORITIES, THE ASSESSEE HAS STATED THAT THERE IS NO PROFIT ELEMENT INCLUDED IN THE TOTAL PROFIT AS INSURANCE CLAIM REC EIVED WAS IN LIEU OF HIGHER EXPENDITURE INCURRED ON THE SAME ITEMS IN THE PROFIT & LOSS ACCOUNT. A PERUSAL OF THE ASSESSEE'S SUBMISSIONS INDICATED THAT THE ASSESSEE HAS SPENT A N AMOUNT OF ` 8,84,520/- AS PURCHASE PRICE AND THE CLAIM OF INSURANCE RECEIPT OF DAMAGES WAS ONLY ` 5,34,448/-. IN OTHER WORDS THE ASSESSEE CLAIMS THAT RECEIPT IS IN NATURE OF REIMBURSEMENT OF THE EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE SUBMISSION IS THAT DUTY DRAWBACK/DEPB BENEFIT RECEIVED HAD TO BE CREDITED A GAINST THE COST OF MANUFACTURE OF GOODS/PURCHASES DEBITED TO T HE PROFIT & LOSS ACCOUNT. THAT SUCH CREDIT WAS NOT AN INDEPENDENT SOURCE OF PROFIT. FURTHER, THE SUBMISSION OF THE ASSESSEE I S THAT PAYMENT - - ITA 1274/14 6 OF EXCISE DUTY/CUSTOMS DUTY ON INPUTS CONSUMED IN M ANUFACTURE OF GOODS BY AN INDUSTRIAL UNDERTAKING ELIGIBLE FOR DEDUCTION UNDER SECTION 80-1B WAS INEXTRICABLY LINKED TO THE MANUFACTURING OPERATIONS OF THE ELIGIBLE UNDERTAKING WITHOUT WHIC H MANUFACTURING OPERATIONS CANNOT BE UNDERTAKEN, HENC E, THE DUTY, WHICH WAS PAID IN THE FIRST INSTANCE AND WHIC H HAD DIRECT NEXUS TO THE MANUFACTURING ACTIVITY WHEN RECEIVED B ACK, HAD FIRST DEGREE NEXUS WITH THE INDUSTRIAL ACTIVITY OF THE EL IGIBLE UNDERTAKING AND CONSEQUENTLY THE REIMBURSEMENT OF T HE SAID AMOUNT CANNOT BE TREATED AS INCOME OF THE ASSESSEE DE HORS THE EXPENSE ORIGINALLY INCURRED BY WAY OF PAYMENT O F DUTY. CONSEQUENTLY, ACCORDING TO THE ASSESSEE, RECEIPT OF DUTY DRAW BACK/DEPB STOOD LINKED DIRECTLY TO THE MANUFACTURE/PRODUCTION OF GOODS AND THEREFORE HAD TO BE REGARDED AS PROFITS DERIVED FROM ELIGIBLE UNDERTAKING QUALIFYING FOR DEDUCTION UNDER SECTION 80-IB OF THE I.T. ACT, 1961. 7. THE CIT(APPEALS) CONSIDERED THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF LIBERTY INDIA V. CIT (317 ITR 218) AND OBSERVED THAT T HE SUPREME COURT DID NOT ACCEPT THIS CONTENTION OF THE ASSESSEE AND HELD DEPB AND DUTY - - ITA 1274/14 7 DRAWBACK ARE ONLY INCENTIVES AND THAT THE ORIGIN OF THE SAID RECEIPT IS ON ACCOUNT OF THE STATUTORY/POLICY PROVI SIONS IN THE CUSTOMS ACT/SCHEME FRAMED BY THE GOVERNMENT OF INDIA AND NOT IN THE INDUSTRIAL' ACTIVITY OF THE AS SESSEE. HE FURTHER OBSERVED THAT THE SAME ANALOGY IS APPLICABL E TO THE FACTS OF THE PRESENT CASE ALSO. THE ORIGIN OF THE COMPENSATION IS OUT OF A CONTRACTUAL OBLIGATION OF THE INSURER WITH THE ASSESSEE . SINCE THE IMMEDIATE ORIGIN OF THE RECEIPT IS FROM THE POLICY WITH THE INSURANCE C OMPANY, THE COMPENSATION RECEIVED IS ONE STEP REMOVED FROM INDUSTRIAL ACTIVITY. THEREFORE, THE CIT(APPEALS) RE LYING ON THE JUDGMENT OF THE SUPREME COURT IN LIBERTY INDIA (SUPRA), HELD THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTIO N U/S.80IA OF THE ACT. AGGRIEVED, THE ASSESSEE IS IN APPEAL B EFORE US. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE MATERIAL BROU GHT ON RECORD DOES NOT SHOW THAT THE INSURANCE CLAIMED BY THE ASSESSEE HAS DIRECT NEXUS WITH THE BUSINESS INCOME OF THE ASSESSEE AND THE ASSESSEE WAS NOT ABLE TO SHOW THAT THE RECEIPTS RECEIVED IS IN RELATION TO CURRENT ASSETS OR IN - - ITA 1274/14 8 RELATION TO TRADING ASSETS OF THE ASSESSEE. BEING SO, PLACING RELIANCE BY THE ASSESSEES COUNSEL IN THE C ASE OF CIT VS. MEGHALAYA STEELS LTD. (356 ITR 235) HAS NO BEARING AS IT IS RELATING TO RECEIPT OF INTEREST SU BSIDY AND ALSO THE DECISION OF THE TRIBUNAL, HYDERABAD BENCH IN THE CASE OF M/S. COROMANDEL INTERNATIONAL LTD. IN ITA N O.1147 & 1157/HYD/2014 DATED 21.11.2014 IS RELATING TO GRA NTING OF DEDUCTION U/S.80IB OF THE ACT, IN RESPECT OF EXC ISE DUTY REFUND. ACCORDINGLY, THIS GROUND OF APPEAL BY THE ASSESSEE IS DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 6 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 6 TH NOV., 2015. MPO* - - ITA 1274/14 9 9D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H- /CIT(A) 4. H /CIT 5. FIJ K /DR 6. J(L /GF.