Arun Textiles Private Limited, Tiruppur V. ACIT, Tiruppur

ITA 268/CHNY/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81176 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 11-09-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 04-02-2014
• Court: TRIBUNAL
• Department Lawyers: C V
• Assessee Lawyers: N VIJAY KUMAR
• Keywords: Capital asset; Business income; Capital receipt

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHE NNAI . . . , !' , # $! % BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI VIKAS AWASTHY, JUDICIAL MEMBER . / I.T.A. NO. 268/MDS/2014 / ASSESSMENT YEAR : 2009-10 M/S.ARUN TEXTILES PRIVATE LIMITED, NO.80, PERUMAL KOIL STREET, TIRUPUR 641 604 [PAN: AABCA 8982 D] ( '& /APPELLANT) VS ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE, TIRUPUR ( '('& /RESPONDENT) / APPELLANT BY : SHRI N.VIJAY KUMAR, C.A., / RESPONDENT BY : SHRI C.V.PANAVANA KUMAR, JCIT / DATE OF HEARING : 11-09-2014 ! / DATE OF PRONOUNCEMENT : 12-09-2014 $) / O R D E R PER VIKAS AWASTHY, J.M: THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, COI MBATORE, DATED 11-12-2013 RELEVANT TO THE ASSESSMENT YEAR 2009-10. THE ONLY ISSUE IN APPEAL IS: WHETHER THE AMOUNT OF ` 2,59,64,391/- RECEIVED BY THE ASSESSEE ON ACCOUNT OF CLEAN DEVELOPMENT MEC HANISM (CDM) IS CAPITAL OR REVENUE RECEIPT? 2 I.T.A. NO. 268/MDS/14 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SPINN ING COTTON YARN AND GENERATION OF ELECTRICITY THROUGH WIND ELE CTRICAL GENERATORS. THE ASSESSEE IN ITS RETURN OF INCOME FOR THE ASSESS MENT YEAR 2009- 10 CLAIMED CDM RECEIPTS AS CAPITAL RECEIPTS. THE A SSESSING OFFICER IN SCRUTINY ASSESSMENT HELD CDM RECEIPTS TO BE REVE NUE RECEIPTS UNDER THE HEAD INCOME FROM BUSINESS & PROFESSION. THE ASSESSEE, CARRIED THE ISSUE IN APPEAL BEFORE CIT(AP PEALS). THE CIT(APPEALS), VIDE IMPUGNED ORDER, UPHELD THE FINDI NGS OF A.O. ON THE ISSUE. AGGRIEVED BY THE ORDER OF FIRST APPELLATE AUTHORI TY, THE ASSESSEE HAS COME IN APPEAL BEFORE THE TRIBUNAL. 3. SHRI N. VIJAY KUMAR, CA, APPEARING ON BEHALF OF ASSESSEE, SUBMITTED THAT HYDERABAD BENCH OF THE TRIBUNAL IN T HE CASE OF M/S MY HOME POWER LTD. V. DCIT REPORTED AS 21 ITR (TRIB) 186 (HYD) HAS HELD CDM RECEIPTS AS CAPITAL RECEIPTS. THE DEC ISION OF THE TRIBUNAL HAS BEEN UPHELD BY THE HON'BLE ANDHRA PRAD ESH HIGH COURT. 4. ON THE OTHER HAND, SHRI C.V.PANAVA KUMAR, JCIT, REPRESENTING THE DEPARTMENT STRONGLY SUPPORTED THE ORDER OF CIT(APPEALS). FURTHER, IN ORDER TO SUPPORT HIS SUB MISSIONS THE LD. DR PLACED RELIANCE ON THE DECISION OF COCHIN BENCH OF THE TRIBUNAL 3 I.T.A. NO. 268/MDS/14 IN THE CASE OF APOLLO TYRES LTD. V. ACIT REPORTED AS 31 ITR (TRIB) 477 (COCHIN) . 5. BOTH SIDES HEARD. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND EXAMINED THE DECISIONS ON WHI CH BOTH SIDES HAVE PLACED RELIANCE. THE HYDERABAD BENCH OF THE T RIBUNAL IN THE CASE OF M/S MY HOME POWER LTD. V. DCIT (SUPRA) HAS HELD CARBON CREDIT AS CAPITAL RECEIPTS. THE RELEVANT EXTRACT O F THE FINDINGS OF THE CO-ORDINATE BENCH ARE AS UNDER:- 24. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. CARBON CREDIT IS IN THE NATURE OF 'AN ENTIT LEMENT' RECEIVED TO IMPROVE WORLD ATMOSPHERE AND ENVIRONMENT REDUCING C ARBON, HEAT AND GAS EMISSIONS. THE ENTITLEMENT EARNED FOR CARBO N CREDITS CAN, AT BEST, BE REGARDED AS A CAPITAL RECEIPT AND CANNO T 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 ENTITLEMENT ONLY DUE TO WORLD CONCERN. THE SOURCE OF CARBON CRE DIT IS WORLD CONCERN AND ENVIRONMENT. DUE TO THAT THE ASSESSEE G ETS A PRIVILEGE IN THE NATURE OF TRANSFER OF CARBON CREDITS. THUS, THE 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 ASSESSMENT YEAR UNDER CONSIDERATION IN TERMS OF SECTIONS 2(24), 28, 45 AN D 56 OF THE INCOME-TAX ACT, 1961. CARBON CREDITS ARE MADE AVAIL ABLE TO THE ASSESSEE ON ACCOUNT OF SAVING OF ENERGY CONSUMPTION AND NOT BECAUSE OF ITS BUSINESS. FURTHER, IN OUR OPINION, C ARBON CREDITS CANNOT BE CONSIDERED AS A BI-PRODUCT. IT IS A CREDI T GIVEN TO THE ASSESSEE UNDER THE KYOTO PROTOCOL AND BECAUSE OF IN TERNATIONAL UNDERSTANDING. THUS, THE ASSESSEES WHO HAVE SURPLUS CARBON 4 I.T.A. NO. 268/MDS/14 CREDITS CAN SELL THEM TO OTHER ASSESSEES TO HAVE CA PPED EMISSION COMMITMENT UNDER THE KYOTO PROTOCOL. TRANSFERABLE C ARBON CREDIT IS NOT A RESULT OR INCIDENCE OF ONE'S BUSINESS AND IT IS A CREDIT FOR REDUCING EMISSIONS. THE PERSONS HAVING CARBON CREDI TS GET BENEFIT BY SELLING THE SAME TO A PERSON WHO NEEDS CARBON CR EDITS TO OVERCOME ONE'S NEGATIVE POINT CARBON CREDIT. THE AM OUNT RECEIVED IS NOT RECEIVED FOR PRODUCING AND/OR SELLING ANY PR ODUCT, BI-PRODUCT OR FOR RENDERING ANY SERVICE FOR CARRYING ON THE BU SINESS. IN OUR OPINION, CARBON CREDIT IS ENTITLEMENT OR ACCRETION OF CAPITAL AND HENCE INCOME EARNED ON SALE OF THESE CREDITS IS CAP ITAL RECEIPT. FOR THIS PROPOSITION, WE PLACE RELIANCE ON THE JUDGEMEN T OF THE SUPREME COURT IN THE CASE OF CIT VS. MAHESHWARI DEV I JUTE MILLS LTD. (57 ITR 36) WHEREIN HELD THAT TRANSFER OF SURP LUS LOOM HOURS TO OTHER MILL OUT OF THOSE ALLOTTED TO THE ASSESSEE UN DER AN AGREEMENT FOR CONTROL OF PRODUCTION WAS CAPITAL RECEIPT AND N OT INCOME. BEING SO, THE CONSIDERATION RECEIVED BY THE ASSESSEE IS S IMILAR TO CONSIDERATION RECEIVED BY TRANSFERRING OF LOOM HOUR S. THE SUPREME COURT CONSIDERED THIS FACT AND OBSERVED THAT TAXABI LITY OF PAYMENT RECEIVED FOR SALE OF LOOM HOURS BY THE ASSESSEE IS ON ACCOUNT OF EXPLOITATION OF CAPITAL ASSET AND IT IS CAPITAL REC EIPT AND NOT AN INCOME. SIMILARLY, IN THE PRESENT CASE THE ASSESSEE TRANSFERRED THE CARBON CREDITS LIKE LOOM HOURS TO SOME OTHER CONCER NS FOR CERTAIN CONSIDERATION. THEREFORE, THE RECEIPT OF SUCH CONSI DERATION CANNOT BE CONSIDERED AS BUSINESS INCOME AND IT IS A CAPITA L RECEIPT. ACCORDINGLY, WE ARE OF THE OPINION THAT THE CONSIDE RATION RECEIVED ON ACCOUNT OF CARBON CREDITS CANNOT BE CONSIDERED A S INCOME AS TAXABLE IN THE ASSESSMENT YEAR UNDER CONSIDERATION. CARBON CREDIT IS NOT AN OFFSHOOT OF BUSINESS BUT AN OFFSHOOT OF E NVIRONMENTAL CONCERNS. NO ASSET IS GENERATED IN THE COURSE OF BU SINESS BUT IT IS GENERATED DUE TO ENVIRONMENTAL CONCERNS. CREDIT FOR REDUCING CARBON EMISSION OR GREENHOUSE EFFECT CAN BE TRANSFE RRED TO ANOTHER PARTY IN NEED OF REDUCTION OF CARBON EMISSION. IT D OES NOT INCREASE PROFIT IN ANY MANNER AND DOES NOT NEED ANY EXPENSES . IT IS A NATURE OF ENTITLEMENT TO REDUCE CARBON EMISSION, HOWEVER, THERE IS NO COST 5 I.T.A. NO. 268/MDS/14 OF ACQUISITION OR COST OF PRODUCTION TO GET THIS EN TITLEMENT. CARBON CREDIT IS NOT IN THE NATURE OF PROFIT OR IN THE NAT URE OF INCOME. 6. THE HONBLE ANDHRA PRADESH HIGH COURT IN THE APP EAL OF REVENUE IN I.T.T.A. NO.60 OF 2014 DECIDED ON 19.02. 2014 HAS UPHELD THE VIEW TAKEN BY THE HYDERABAD BENCH IN THE CASE OF M/S MY HOME POWER LTD. (SUPRA). 7. IN VIEW OF THE ABOVE, WE HOLD THAT THE AMOUNT RE CEIVED BY THE ASSESSEE ON ACCOUNT OF CDM (CARBON CREDITS) IS CAPITAL IN NATURE. THE IMPUGNED ORDER IS SET ASIDE, THE APPEA L IS ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 12 TH SEPTEMBER, 2014 AT CHENNAI. SD/- SD/- ( . . . ) ( !' ) (DR. O.K. NARAYANAN) (VIKAS AWASTHY) '#$ / VICE PRESIDENT % &' / JUDICIAL MEMBER (% /CHENNAI, )& /DATED: 12 TH SEPTEMBER, 2014 TNMM &* +,-, /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ./0 /CIT(A) 4. . /CIT 5. ,12 3 /DR 6. 245 /GF