DCIT., Circle-16(1), Hyderabad, Hyderabad V. M/s NSL Renewable Power Private Limited, Hyderabad

ITA 1585/HYD/2014

• Counselvise Citation: 158522514 RSA 2014
• Duration Of Justice: 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 18-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 16-10-2014
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: S RAMA RAO
• Keywords: Capital asset; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER I.T.A NOS. 1584 & 1585/HYD/2014 ASSESSMENT YEARS: 2008-09 & 2009-10 DY. COMMISSIONER OF INCOME TAX, CIRCLE-16(1), HYDERABAD VS M/S. NSL RENEWABLE POWER (P) LTD., (FORMERLY NUZIVEEDU SEEDS LTD.) HYDERABAD [PAN: AABCN6009L] (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI D. SUDHAKAR RAO , D R FOR ASSESSEE : S HRI S. RAMA RAO , A R DATE OF HEARI NG : 1 8 - 0 6 - 201 5 DATE OF PRONOUNCEMENT : 24 - 0 6 - 2015 O R D E R PER B. RAMAKOTAIAH, A.M. : BOTH THESE APPEALS ARE BY REVENUE AGAINST SEPARATE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-V, HYDERABAD D ATED 31-03-2014 FOR THE ASSESSMENT YEARS (AYS) 2008-09 & 2009-10. THE ISSUE INVOLVED IN THESE APPEALS IS WITH REFERENCE TO EXEMPTION CLA IMED ON THE SALE OF CARBON CREDITS IN ASSESSEE'S POWER DIVISION. 2. BRIEFLY STATED, ASSESSEE IS A COMPANY IN WHICH P UBLIC ARE NOT SUBSTANTIALLY INTERESTED AND IS ENGAGED IN THE PROD UCTION OF SEEDS AND WIND POWER. IN THE IMPUGNED ASSESSMENT YEARS, ASSE SSEE HAS SHOWN INCOMES FROM SALE OF CARBON CREDITS OR CERTIFIED EM ISSION REDUCTIONS ITA NOS. 1584 & 1585/HYD/2014 M/S. NSL RENEWABLE POWER P. LTD., (FORMERLY NUZIVEEDU SEEDS LTD) :- 2 -: (CER) IN THE COMPANY'S POWER DIVISION TOTALING TO R S. 6,47,02,202/- AS INCOME IN AY. 2008-09 AND RS. 8,85,56,891/- IN AY. 2009-10. THE ABOVE AMOUNTS WERE CLAIMED AS DEDUCTION U/S. 80IA OF THE INCOME TAX ACT [ACT]. LD. ASSESSING OFFICER (LD.AO) DID NOT A LLOW THE DEDUCTION ON THE REASON THAT THE INCOME FROM SALE OF CARBON CRED ITS HAS NO DIRECT NEXUS TO THE BUSINESS OF POWER GENERATION AND WAS N EVER IN THE FORM OF INCENTIVES LIKE DUTY DRAW BACK/IMPORT ENTITLEMENTS. ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A) CONTESTING THE ACTIO N OF THE AO BUT FILED REVISED/ADDITIONAL GROUNDS CLAIMING THAT THE AMOUNT IS TO BE TREATED AS CAPITAL RECEIPT AND NOT TAXABLE. LD.CIT(A) ALLOWED THE ADDITIONAL GROUNDS AND AFTER CONSIDERING THE SUBMISSIONS FOR ASSESSEE, HELD THAT ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S. 80-IA(1), BUT THE S AID AMOUNTS ARE TO BE TREATED AS A CAPITAL RECEIPTS NOT TAXABLE AS INCOME . THE CIT(A) FOLLOWED THE DECISION OF THE ITAT HYDERABAD BENCH IN THE CAS E OF MY HOME POWER LTD., VS. DCIT IN ITA NO. 1114/HYD/2009 DT. 02-11-2 012. HIS ORDER IN AY. 2008-09 IS EXTRACTED FOR THE SAKE OF RECORD: '4.3. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE ASSESSMENT ORDER. THE APPELLAN T CONTENDED THAT IN CASE THE DEDUCTION U/S. 80IA IS NOT ALLOW ED IN RESPECT OF THE GAIN ON SALE OF CERS, THE APPELLANT WOULD BE ENTIT LED FOR TREATING THE SAME AS CAPITAL RECEIPT. THE APPELLA NT IN THIS REGARD RELIED ON THE DECISION OF THE ITAT, HYDERAB AD BENCH 'B' IN THE CASE OF MY HOME POWER LTD., HYDERABAD VS. DCIT , CENTRAL CIRCLE-7, HYDERABAD VIDE ORDER IN ITA NO. 1114/HYD /2009 DATED 2.11.2012. 4.4 IN SO FAR AS DEDUCTION U/S. 80IA OF RS. 10,02 ,98,827/- IS CONCERNED, THE APPELLANT IS NOT ENTITLED FOR DEDUC TION U/S. 80IA IN VIEW OF THE DECISION OF THE ITAT, HYDERABAD MENTIO NED ABOVE BUT THE SAME IS TO BE TREATED AS A CAPITAL RECEIPT IN VIEW OF THE SAID DECISION. EXTRACT OF THE OPERATIVE PORTION OF THE DECISION OF THE ITAT IS REPRODUCED HEREUNDER: ' WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. CARBON CREDIT IS IN THE NATURE OF 'AN ENT ITLEMENT' RECEIVED TO IMPROVE WORLD ATMOSPHERE AND ENVIRONME NT ITA NOS. 1584 & 1585/HYD/2014 M/S. NSL RENEWABLE POWER P. LTD., (FORMERLY NUZIVEEDU SEEDS LTD) :- 3 -: REDUCING CARBON, HEAT AND GAS EMISSIONS. THE ENTIT LEMENT 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 ENTITLE MENT ONLY DUE TO WORLD CONCERN. THE SOURCE OF CARBON CREDIT IS WORLD CONCERN AND ENVIRONMENT. DUE TO THAT THE ASSESSEE GETS A PRIVILEGE IN THE NATURE OF TRANSFER OF CARBON CRE DITS. THUS, THE AMOUNT RECEIVED FOR CARBON CREDITS HAS NO ELEM ENT OF PROFIT OR GAIN AND IT CANNOT BE SUBJECTED TO TAX IN ANY MA NNER UNDER ANY HEAD OF INCOME. IT IS NOT LIABLE FOR TAX FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IN TERMS OF SE CTIONS 2(24), 28, 45 AND 56 OF THE INCOME-TAX ACT, 1961. CARBON CREDITS ARE MADE AVAILABLE TO THE ASSESSEE ON ACCO UNT 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 ASS ESSEE UNDER THE KYOTO PROTOCOL AND BECAUSE OF INTERNATION AL UNDERSTANDING. THUS, THE ASSESSEES WHO HAVE SURPLU S CARBON CREDITS CAN SELL THEM TO OTHER ASSESSEES TO HAVE C APPED EMISSION COMMITMENT UNDER THE KYOTO PROTOCOL. TRA NSFERABLE CARBON CREDIT IS NOT A RESULT OR INCIDENCE OF ONE 'S BUSINESS AND IT IS A CREDIT FOR REDUCING EMISSIONS. THE PE RSONS HAVING CARBON CREDITS GET BENEFIT BY SELLING THE SAME TO A PERSON WHO NEEDS CARBON CREDITS TO OVERCOME ONE'S NEGATIV E POINT CARBON CREDIT. THE AMOUNT RECEIVED IS NOT RECEIVE D FOR PRODUCING AND/OR SELLING ANY PRODUCT, BI-PRODUCT OR FOR RENDERING ANY SERVICE FOR CARRYING ON THE BUSINESS. IN OUR O PINION,CARBON CREDIT IS ENTITLEMENT OR ACCRETION OF CAPITAL AND HENCE INCOME EARNED ON SALE OF THESE CREDITS IS CAPITAL RECEIPT. FOR THIS PROPOSITION, WE PLACE RELIANCE ON THE JUDGEME NT OF THE SUPREME COURT IN THE CASE OF CIT VS. MAHESHWARI DE VI JUTE MILLS LTD. (57 ITR 36) WHEREIN HELD THAT TRANSFER OF SURPLUS LOOM HOURS TO OTHER MILL OUT OF THOSE ALLOTTED TO THE ASSESSEE UNDER AN AGREEMENT FOR CONTROL OF PRODUCTION WAS C APITAL RECEIPT AND NOT INCOME. BEING SO, THE CONSIDERATI ON RECEIVED BY THE ASSESSEE IS SIMILAR TO CONSIDERATION RECEIV ED BY TRANSFERRING OF LOOM HOURS. THE SUPREME COURT CO NSIDERED THIS FACT AND OBSERVED THAT TAXABILITY OF PAYMENT RECEIVED FOR SALE OF LOOM HOURS BY THE ASSESSEE IS ON ACCOU NT OF EXPLOITATION OF CAPITAL ASSET AND IT IS CAPITAL REC EIPT AND NOT AN INCOME. SIMILARLY, IN THE PRESENT CASE THE ASSESSE E TRANSFERRED THE CARBON CREDITS LIKE LOOM HOURS TO SOME OTHER CONCERNS ITA NOS. 1584 & 1585/HYD/2014 M/S. NSL RENEWABLE POWER P. LTD., (FORMERLY NUZIVEEDU SEEDS LTD) :- 4 -: FOR CERTAIN CONSIDERATION. THEREFORE, THE RECEIPT OF SUCH CONSIDERATION CANNOT BE CONSIDERED AS BUSINESS INC OME AND IT IS A CAPITAL RECEIPT. ACCORDINGLY, WE ARE OF THE O PINION THAT THE CONSIDERATION RECEIVED ON ACCOUNT OF CARBON CREDI TS CANNOT BE CONSIDERED AS INCOME AS TAXABLE IN THE A SSESSMENT YEAR UNDER CONSIDERATION. CARBON CREDIT IS NOT AN OFFSHOOT OF BUSINESS BUT AN OFFSHOOT OF ENVIRONMENT AL CONCERNS. NO ASSET IS GENERATED IN THE COURSE OF BUSINESS BU T IT IS GENERATED DUE TO ENVIRONMENTAL CONCERNS. CREDIT F OR REDUCING CARBON EMISSION OR GREENHOUSE EFFECT CAN B E TRANSFERRED TO ANOTHER PARTY IN NEED OF REDUCTION O F CARBON EMISSION. IT DOES NOT INCREASE PROFIT IN ANY MANN ER AND DOES NOT NEED ANY EXPENSES. IT IS A NATURE OF ENTITLEM ENT TO REDUCE CARBON EMISSION, HOWEVER, THERE IS NO COST OF ACQU ISITION OR COST OF PRODUCTION TO GET THIS ENTITLEMENT. CAR BON CREDIT IS NOT IN THE NATURE OF PROFIT OR IN THE NATURE OF IN COME. FURTHER, AS PER GUIDANCE NOTE ON ACCOUNTING FOR SELF- GENERATED CERTIFIED EMISSION REDUCTIONS (CERS) IS SUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (I CAI) IN JUNE, 2009 STATES THAT CERS SHOULD BE RECOGNISED IN BOOKS WHEN THOSE ARE CREATED BY UNFCCC AND/OR UNCONDITIONALLY AVAILABLE TO THE GENERATING ENTITY. CERS ARE INVENTORIES OF THE GENERATING ENTITIES AS THEY ARE GENERATED AND HELD FOR THE PU RPOSE OF SALE IN ORDINARY COURSE. EVEN THOUGH CERS ARE INT ANGIBLE ASSETS THOSE SHOULD BE ACCOUNTED AS PER AS-2 (VALU ATION OF INVENTORIES) AT A COST OR MARKET PRICE, WHICHEVER IS LOWER. SINCE CERS ARE RECOGNISED AS INVENTORIES, THE GENE RATING ASSESSEE SHOULD APPLY AS-9 TO RECOGNISE REVENUE IN RESPECT OF SALE OF CERS. THUS, SALE OF CARBON CREDITS IS TO BE CONSIDERED AS CAPITAL RECEIPT'. 4.5. IN VIEW OF THE ABOVE, I HOLD THAT THE APPELLAN T IS NOT ENTITLED FOR DEDUCTION U/S. 80IA BUT THE SAID AMO UNT IS TO BE TREATED AS A CAPITAL RECEIPT. THEREFORE, THE ADDIT ION OF RS. 6,47,02,202/- IS DELETED'. 3. AFTER CONSIDERING THE CONTENTIONS OF THE LD. DR AND LD. AR, WE SEE NO REASON TO INTERFERE WITH THE ORDERS OF THE LD.CI T(A). THE CO-ORDINATE BENCH DECISION RELIED UPON BY THE LD.CIT(A) WAS UPH ELD BY THE HON'BLE ITA NOS. 1584 & 1585/HYD/2014 M/S. NSL RENEWABLE POWER P. LTD., (FORMERLY NUZIVEEDU SEEDS LTD) :- 5 -: HIGH COURT OF JUDICATURE AT HYDERABAD FOR THE STATE OF TELANGANA AND STATE OF ANDHRA PRADESH IN THEIR JUDGMENT OF CIT VS . MY HOME POWER LTD., [365 ITR 82 (AP)]. SINCE THE DECISION OF THE CIT(A) IS IN LINE WITH THE DECISION OF THE CO-ORDINATE BENCH AS APPROVED B Y THE HON'BLE JURISDICTIONAL HIGH COURT, WE APPROVE THE SAME. AC CORDINGLY, REVENUE'S GROUNDS ARE REJECTED. 4. IN THE RESULT, BOTH REVENUE APPEALS ARE DISMISSE D. ORDER PRONOUNCED IN OPEN COURT ON 24 TH JUNE, 2015. SD/- SD/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUN TANT MEMBER HYDERABAD, DATED 24 TH JUNE, 2015. TNMM COPY TO : 1. DY. COMMISSIONER OF INCOME TAX, CIRCLE-16(1), RO OM NO. 612, 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2. M/S. NSL RENEWABLE POWER P. LTD., (FORMERLY NUZI VEEDU SEEDS LTD.,) NSL ICON, 4 TH FLOOR, ROAD NO.12, BANJARA HILLS, HYDERABAD. 3. CIT(APPEALS)-V, HYDERABAD. 4. CIT-IV, HYDERABAD . 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.