DCIT 9(1)(2), MUMBAI V. ASCENT HYDRO PROJECTS LTD, MUMBAI

ITA 3283/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8001 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 10-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTALDR
• Assessee Lawyers: SHRI
• Keywords: Capital asset; Business income; Cost of acquisition; Capital receipt
• Section: 80IB

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ITA NO.3283/MUM/2016 ASSESSMENT YEAR: 2012-13 DCIT-9(1)(2), R. NO.260A, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 / VS. M/S ASCENT HYDRO PROJECTS LIMITED, 6-SHIV WASTU, TEJPAL SCHEME, ROAD NO.5, VILE PARLE (E), MUMBAI-400057 ( / REVENUE) ( ! /ASSESSEE) PAN. NO. AAFCA1454N / REVENUE BY SHRI RAJAT MITTAL-DR ! / ASSESSEE BY SHRI PANKAJ JAIN ' # $ ! % / DATE OF HEARING : 20/12/2017 $ ! % / DATE OF ORDER: 20/12/2017 M/S ASCENT HYDRO PROJECTS LTD. ITA NO.3283/MUM/2016 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATED 18/02/2016 OF THE LD. FIRST APPELLATE AUTHORI TY, MUMBAI, IN TREATING CER AS CAPITAL RECEIPT TREATING CERTIFIED EMISSION REDUCTION/CARBON CREDIT AS ENTIT LEMENT OR PRIVILEGE GENERATED IN THE COURSE OF BUSINESS A CTIVITY AND FURTHER TREATING CER AS CAPITAL RECEIPT AND THU S NON- TAXABLE WITHOUT APPRECIATING THE FACT THAT CARBON C REDIT IS AN ENTITLEMENT OR PRIVILEGE, WHICH ACCRUES IN THE C OURSE OF CARRYING ON THE MANUFACTURING AND THUS IT CANNOT BE SAID THAT SUCH CARBON CREDIT IS AN ACCRETION OF CAPITAL ASSET WITHIN THE PURVIEW OF SECTION 28(IV) R.W.S 2(24)(V D) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT). 2. DURING HEARING, THE LD. DR, SHRI RAJAT MITTAL ADVANCED ARGUMENTS, WHICH IS IDENTICAL TO THE GROUN D RAISED BY CONTENDING THAT THE LD. COMMISSIONER OF I NCOME TAX (APPEAL) IGNORED THE DECISION OF THE TRIBUNAL I N THE CASE OF APOLLO TYRES VS ACIT 47 TAXMAN 416, WHEREIN , CER RECEIPTS WERE HELD TO BE REVENUE IN NATURE AND THUS M/S ASCENT HYDRO PROJECTS LTD. ITA NO.3283/MUM/2016 3 NOT ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. ON THE OTHER HAND, SHRI PANKAJ JAIN, LD. COUNSEL FOR THE ASSESSE E CONTENDED THAT THE IMPUGNED ISSUE IS COVERED BY THE DECISION IN THE CASE OF CIT VS SUBHASH KABINI POWER CORPORATION LTD. (2016) 69 TAXMAN.COM 394 (KARN.), DCIT VS DODSON LINDBLOM HYDRO POWER LTD. (ITA NO.5932/MUM/2010) ORDER DATED 13/02/2016 AND ANOTHER DECISION IN THE CASE OF CIT VS MY HOME POWE R LTD. (2014) 46 TAXMAN.COM 314(A.P.), ORDER DATED 19/02/2014. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE A LSO PERUSED THE ORDERS CITED BEFORE US BY THE LD. RESPE CTIVE REPRESENTATIVE WITH RESPECT TO CHARGEABILITY OF REC EIPTS ON SALE OF CARBON CREDITS. IN THIS REGARD, WE HAVE PER USED THE SAID JUDGMENT OF THE HON BLE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF MY HOME POWER LTD (SUPRA) AN D FOR THE SAKE OF COMPLETENESS OF THIS ORDER, HELD PORTIO N OF THE SAID JUDGMENT IS EXTRACTED AS UNDER: M/S ASCENT HYDRO PROJECTS LTD. ITA NO.3283/MUM/2016 4 ITAT HAVE CONSIDERED THE AFORESAID SUBMISSION AND ITAT ARE UNABLE TO ACCEPT THE SAME, AS THE LEARNED TRIBU NAL HAS FACTUALLY FOUND THAT CARBON CREDIT IS NOT AN OFFSHOOT OF BUSINESS BUT AN OFFSHOOT OF ENVIRONMENTAL CONCERNS . NO ASSET IS GENERATED IN THE COURSE OF BUSINESS BUT IT IS GENERATED DUE TO ENVIRONMENTAL CONCERNS. ITAT AGREE WITH THIS FACTUAL ANALYSIS AS THE ASSESSEE IS CARRYING ON THE BUSINESS OF POWER GENER ATION. THE CARBON CREDIT IS NOT EVEN DIRECTLY LINKED WITH POWER GENERATION . ON THE SALE OF EXCESS CARBON CREDITS, THE INCOME WAS RECEIVED AND HENCE AS CORRECTLY HELD BY THE TRIBUNAL IT IS CAPITAL RECEIPT AND IT CANNOT BE BUSINESS RECEIPT OR INCOME . IN THE CIRCUMSTANCES, WE DO NOT FIND ANY ELEMENT OF LAW IN THIS APPEAL. 2.2. WE HAVE ALSO PERUSED THE DECISION OF THE ITA T, COCHIN BENCH IN THE CASE OF ARUN TEXTILES (P) LTD ( SUPRA), WHEREIN THE TRIBUNAL EXTRACTED THE RELEVANT PARA FR OM THE ABOVE SAID JUDGMENT OF THE HON BLE HIGH COURT OF ANDHRA PRADESH (SUPRA) IN PARA 6 OF ITS ORDER AND HELD THA T SUCH RECEIPTS FALL IN CAPITAL ZONE. FOR THE SAKE OF COMP LETENESS OF THIS ORDER, RELEVANT LINES FROM PARA 6 OF THE SA ID TRIBUNAL S ORDER DATED 12.9.2014 ARE EXTRACTED AS UNDER: 6. BOTH SIDES HEARD. WE HAVE PERUSED THE ORDERS O F THE AUTHORITIES BELOW AND EXAMINED THE DECISIONS ON WHICH BOTH SIDES HAVE PLACE RELIANCE. THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF MY HOME POWER LTD (SUPRA) HAS HELD CARBON CREDIT AS CAPITAL RECE IPTS. THE RELEVANT EXTRACT OF THE FINDINGS OF THE COORDIN ATE BENCH ARE AS UNDER: WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. CARBON CREDIT IS IN THE NATURE OF AN ELEMENT RECEIVED TO IMPROVE WORLD ATMOSPHERE AND ENVIRONMENT REDUCING CARBON HEAT AND GAS EMISSIONS. THE ENTITLEMENT EARNED FOR CARBON CREDITS CAN, AT B EST, M/S ASCENT HYDRO PROJECTS LTD. ITA NO.3283/MUM/2016 5 BE REGARDED AS A CAPITAL RECEIPT AND CANNOT BE TAXE D AS A REVENUE RECEIPT. IT IS NOT GENERATED OR CREATE D DUE TO CARRYING ON BUSINESS BUT IT IS ACCRUED DUE TO W ORLD CONCERN . IT HAS BEEN MADE AVAILABLE ASSUMING CHARACTER OF TRANSFERABLE RIGHT OR ENTITLEMENT ONLY DUE TO WORLD CONCERN. THE SOURCE OF CARBON CREDIT IS WO RLD CONCERN AND ENVIRONMENT. DUE TO THAT THE ASSESSEE GETS APRIVILEGE IN THE NATURE OF TRANSFER OF CARBON CREDITS. THUS, THE AMOUNT RECEIVED FOR CARBON CREDI TS HAS NO ELEMENT OF PROFIT OR GAIN AND IT CANNOT BE SUBJECTED TO TAX FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IN TERMS OF SECTION 2(24), 28, 45 AND 56 OF THE INCOME TAX ACT, 1961. CARBON CREDITS ARE MAD E AVAILABLE 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 CREDIT GIVEN TO THE ASSESSEE UNDER THE KYOTO PROTOCOL AND BECAUSE OF INTERNATIONAL UNDERSTANDING. THUS, THE ASSSSEES WHO HAVE SURPLUS CARBON CREDITS CAN SELL THEM TO OTHER ASSESSEES TO HAVE CAPPED INCIDENCE OF ONE S BUSINESS AND IT IS A CREDIT OF REDUCING EMISSION. THE PERSON S HAVING CARBON CREDITS GET BENEFIT BY SELLING THE SA ME TO A PERSON WHO NEEDS CARBON CREDITS TO OVERCOME ONE S NEGATIVE POINT CARBON CREDIT. THE AMOUNT RECEIVED I S NOT RECEIVED FOR PRODUCING AND / OR SELLING ANY PRO DUCT, BIPRODUCT OR FOR RENDERING ANY SERVICE FOR CARRYING ON THE BUSINESS. IN OUR OPINION, CARBON CREDIT IS ENTITLEMENT OR ACCRETION F CAPITAL AND HENCE INCOME EARNED ON SALE OF THESE CREDITS IS CAPITAL RECEIPT. FOR THIS PROPOSITION, WE PLACE RELIANCE ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT VS. MAHESHWARI DEVI JUTE MILLS LTD [1965] 57 ITR 36 (SC) ......... ....IN THE PRESENT CASE, THE ASSESSEE TRANSFERRED THE CARBON CREDITS LIKE LOOM HOURS TO SOME OTHER CONCERNS FOR CERTAIN CONSIDERATION. THEREFORE, THE RECEIPT OF SU CH CONSIDERATION CANNOT BE CONSIDERED AS BUSINESS INCOME AND IT IS A CAPITAL RECEIPT. ACCORDINGLY, WE ARE OF THE OPINION THAT THE CONSIDERATION RECEIVED ON ACCOUNT OF CARBON CREDITS CANNOT BE CONSIDERED AS INCOME TAXABLE IN THE ASSESSMENT YEAR UNDER CONSIDERATION. ...............HOWEVER, THERE IS NO COST OF ACQUISITION OR COST OF PRODUCTION TO GET THIS ENTIT LEMENT. CARBON CREDIT IS NOT IN THE NATURE OF PROFIT OR IN THE NATURE OF INCOME. 7. THE HON BLE ANDHRA PRADESH HIGH COURT IN THE APPEAL OF THE REVENUE IN ITTA NO.60 OF 2014 DECIDED M/S ASCENT HYDRO PROJECTS LTD. ITA NO.3283/MUM/2016 6 ON FEBRUARY 19, 2014 MY HOME POWER LTD (SUPRA) HAS UPHELD THE VIEW TAKEN BY THE HYDERABAD BENCH IN THE CASE OF MY HOME POWER LTD (SUPRA). 2.3. WE NOTE THAT THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF SUBHASH KABINI POWER CORPORATION LTD . (SUPRA) CLEARLY HELD THAT THE CARBON CREDIT WAS GEN ERATED OUT OF ENVIRONMENTAL CONCERN AND WAS NOT HAVING CHARACTER OF TRADING ACTIVITY, THEREFORE, RECEIPT F ROM SALE OF CARBON CREDIT WAS A CAPITAL RECEIPT AND NOT BUSINES S INCOME. WHILE COMING TO THIS CONCLUSION, THE HON'BL E COURT FOLLOWED THE DECISION IN THE CASE OF CIT VS M Y HOME POWER LTD. 365 ITR 82 (A.P.) AND DISTINGUISHED THE DECISION IN OBERAI HOTELS PVT. LTD. (1999) 103 TAXM AN 236 (SC)(PARA-11) AND KETTLEWLL BULLEN & CO. LTD. VS CI T (1964) 53 ITR 261 AND FURTHER AFFIRMED THE DECISION OF THE TRIBUNAL (BANGALORE BENCH) IN THE CASE OF SUBHASH K ABINI POWER CORPORATION LTD., THEREFORE, CONSIDERING THE ABOVE JUDICIAL PRONOUNCEMENTS, IT IS NOW SETTLED PROPOSIT ION IN LAW THAT IN PRINCIPLE THE RECEIPTS ON SALE OF CARBO N CREDITS SHOULD NOT BROUGHT INTO THE PROFIT & LOSS ACCOUNT AND IT RELATES TO THE BALANCE SHEET ITEM. CONSEQUENTLY, WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. M/S ASCENT HYDRO PROJECTS LTD. ITA NO.3283/MUM/2016 7 COMMISSIONER OF INCOME TAX (APPEAL). THE APPEAL OF THE REVENUE IS DISMISSED. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVE OF BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 20/12/2017. SD/- SD/- ( RAMIT KOCHAR ) (JOGINDER SINGH) ' # / ACCOUNTANT MEMBER $ # / JUDICIAL MEMBER MUMBAI; ' DATED : 20/12/2017 F{X~{T? P.S/. .. !%$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. )*+, / THE APPELLANT 2. -.+, / THE RESPONDENT. 3. / / 0! ( )* ) / THE CIT, MUMBAI. 4. / / 0! / CIT(A)- , MUMBAI 5. 23-! , / )*%) 4 , / DR, ITAT, MUMBAI 6. 56 / GUARD FILE. ! / BY ORDER, .2*!-! //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI