Sri Shanmugavel Mills (P) Ltd., Tiruppur V. DCIT, Tiruppur

ITA 619/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81124 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 28-07-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 08-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: T BANUSEKAR
• Keywords: Business income; Cost of acquisition; Capital receipt

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . , !' # $# #'% , & !' ' BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ./ ITA NO. 619/MDS/2013 & ) #*) / ASSESSMENT YEAR : 2009-10 M/S SRI SHANMUGAVEL MILLS (P) LTD., NO.207/86, MANGALAM ROAD, KARUVAMPALAYAM, TIRUPUR 641 604. PAN : AADCS 8200 N V. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE, TIRUPUR. (%,/ APPELLANT) (-.%,/ RESPONDENT) %, / 0 / APPELLANT BY : SHRI T. BANUSEKAR, CA -.%, / 0 / RESPONDENT BY : SHRI S. DAS GUPTA, JCIT 1 # / 2 / DATE OF HEARING : 28 TH JULY, 2014 3* / 2 / DATE OF PRONOUNCEMENT : 18 TH AUGUST, 2014 / O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINS T THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, COI MBATORE, DATED 30.01.2013 RELEVANT TO THE ASSESSMENT YEAR 2009-10. THE ONLY 2 I.T.A. NO. 619/MDS/13 ISSUE IN APPEAL IS: WHETHER THE AMOUNT OF ` 2,18,93,728/- RECEIVED BY THE ASSESSEE ON ACCOUNT OF CLEAN DEVELOPMENT MEC HANISM (CDM) IS CAPITAL OR REVENUE RECEIPT. 2. THE ASSESSEE IN ITS RETURN OF INCOME FOR THE ASS ESSMENT YEAR 2009-10 CLAIMED CDM RECEIPTS AS CAPITAL RECEIPTS. THE ASSESSING OFFICER IN SCRUTINY ASSESSMENT HELD CDM RECEIPTS TO BE REVENUE IN NATURE AND MADE ADDITION ACCORDINGLY. THE ASSESSEE , CARRIED THE ISSUE IN APPEAL BEFORE CIT(APPEALS). THE CIT(APPEA LS), VIDE IMPUGNED ORDER, UPHELD THE FINDINGS OF A.O. AND DIS MISSED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF FIRST APPELLATE AUTHORI TY, THE ASSESSEE HAS COME IN APPEAL BEFORE THE TRIBUNAL. 3. SHRI T. BANUSEKAR, CA, APPEARING ON BEHALF OF AS SESSEE, SUBMITTED THAT THIS ISSUE HAS BEEN AGITATED BEFORE THE TRIBUNAL IN VARIOUS CASES. THE TRIBUNAL HAS REPEATEDLY HELD CD M RECEIPTS AS CAPITAL RECEIPTS. IN SUPPORT OF HIS CONTENTIONS, T HE LD. A.R. PLACED RELIANCE ON FOLLOWING DECISIONS:- (I) M/S MY HOME POWER LTD. V. DCIT 21 ITR (TRIB) 18 6 (HYD) (II) CIT V. M/S MY HOME POWER LTD. 2014 (6) TMI 82 AP (III) SRI VELAYUDHASWAMY SPINNING MILLS (P) LTD. V. DCIT IN I.T.A. NO. 582/MDS/2013 DECIDED ON 12.06.2013 (IV) M/S SRI AMBIKA COTTON MILLS LTD. V. DCIT IN I.T.A.NO.1836/MDS/2012 DECIDED ON 16.04.2013 3 I.T.A. NO. 619/MDS/13 4. ON THE OTHER HAND, SHRI S. DAS GUPTA, JCIT, REPR ESENTING THE DEPARTMENT SUPPORTED THE ORDER OF CIT(APPEALS). 5. BOTH SIDES HEARD. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND EXAMINED THE DECISIONS ON WHI CH THE LD. A.R. HAS PLACED RELIANCE. THE ISSUE IN APPEAL HAS COME UP BEFORE TRIBUNAL IN SEVERAL CASES. THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF M/S MY HOME POWER LTD. V. DCIT (SUPRA) HAS HELD CARBON CREDIT AS CAPITAL RECEIPTS. THE RELEVANT EX TRACT OF 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 ENTITLEMENT' RECEIVED TO IMPROVE WORLD ATMOSPHERE A ND ENVIRONMENT REDUCING CARBON, HEAT AND GAS EMISSIONS . THE ENTITLEMENT EARNED FOR CARBON CREDITS CAN, AT BEST, BE REGARDED AS A CAPITAL RECEIPT AND CANNOT BE TAXED A S 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 TRANSFERA BLE RIGHT OR ENTITLEMENT ONLY DUE TO WORLD CONCERN. THE SOURC E OF CARBON CREDIT IS WORLD CONCERN AND ENVIRONMENT. DUE TO THAT THE ASSESSEE GETS A PRIVILEGE IN THE NATURE OF TRAN SFER OF CARBON CREDITS. THUS, THE AMOUNT RECEIVED FOR CARBO N CREDITS HAS NO ELEMENT OF PROFIT OR GAIN AND IT CANNOT BE S UBJECTED TO TAX IN ANY MANNER UNDER ANY HEAD OF INCOME. IT IS N OT LIABLE FOR TAX FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IN TERMS OF SECTIONS 2(24), 28, 45 AND 56 OF THE INCOME-TAX ACT, 1961. 4 I.T.A. NO. 619/MDS/13 CARBON CREDITS ARE MADE AVAILABLE TO THE ASSESSEE O N ACCOUNT OF SAVING OF ENERGY CONSUMPTION AND NOT BEC AUSE OF ITS BUSINESS. FURTHER, IN OUR OPINION, CARBON CREDI TS 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 ASSESSEES WH O HAVE SURPLUS CARBON CREDITS CAN SELL THEM TO OTHER ASSES SEES TO HAVE CAPPED EMISSION COMMITMENT UNDER THE KYOTO PROTOCOL. TRANSFERABLE CARBON CREDIT IS NOT A RESUL T OR INCIDENCE OF ONE'S BUSINESS AND IT IS A CREDIT FOR REDUCING EMISSIONS. THE PERSONS HAVING CARBON CREDITS GET BE NEFIT BY SELLING THE SAME TO A PERSON WHO NEEDS CARBON CREDI TS TO OVERCOME ONE'S NEGATIVE POINT CARBON CREDIT. THE AM OUNT RECEIVED IS NOT RECEIVED FOR PRODUCING AND/OR SELLI NG ANY PRODUCT, BI-PRODUCT OR FOR RENDERING ANY SERVICE FO R CARRYING ON THE BUSINESS. IN OUR OPINION, CARBON CREDIT IS E NTITLEMENT OR ACCRETION OF CAPITAL AND HENCE INCOME EARNED ON SALE OF THESE CREDITS IS CAPITAL RECEIPT. FOR THIS PROPOSIT ION, WE PLACE RELIANCE ON THE JUDGEMENT OF THE SUPREME COURT IN T HE CASE OF CIT VS. MAHESHWARI DEVI 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 AGRE EMENT FOR CONTROL OF PRODUCTION WAS CAPITAL RECEIPT AND NOT I NCOME. BEING SO, THE CONSIDERATION RECEIVED BY THE ASSESSE E IS SIMILAR TO CONSIDERATION RECEIVED BY TRANSFERRING O F LOOM HOURS. THE SUPREME COURT CONSIDERED THIS FACT AND O BSERVED THAT TAXABILITY OF PAYMENT RECEIVED FOR SALE OF LOO M HOURS BY THE ASSESSEE IS ON ACCOUNT OF EXPLOITATION OF CAPIT AL ASSET AND IT IS CAPITAL RECEIPT AND NOT AN INCOME. SIMILA RLY, IN THE PRESENT CASE THE ASSESSEE TRANSFERRED THE CARBON CR EDITS LIKE LOOM HOURS TO SOME OTHER CONCERNS FOR CERTAIN CONSI DERATION. THEREFORE, THE RECEIPT OF SUCH CONSIDERATION CANNOT BE CONSIDERED AS BUSINESS INCOME AND IT IS A CAPITAL R ECEIPT. ACCORDINGLY, WE ARE OF THE OPINION THAT THE CONSIDE RATION 5 I.T.A. NO. 619/MDS/13 RECEIVED ON ACCOUNT OF CARBON CREDITS CANNOT BE CON SIDERED AS INCOME AS TAXABLE IN THE ASSESSMENT YEAR UNDER CONSIDERATION. 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 GENER ATED DUE TO ENVIRONMENTAL CONCERNS. CREDIT FOR REDUCING CARBON EMISSION OR GREENHOUSE EFFECT CAN BE TRANSFERRED TO ANOTHER PARTY IN NEED OF REDUCTION OF CARBON EMISSION. IT DOES NOT I NCREASE PROFIT IN ANY MANNER AND DOES NOT NEED ANY EXPENSES . IT IS A NATURE OF ENTITLEMENT TO REDUCE CARBON EMISSION, HO WEVER, THERE IS NO COST OF ACQUISITION OR COST OF PRODUCTI ON TO GET THIS ENTITLEMENT. CARBON CREDIT IS NOT IN THE NATURE OF PROFIT OR IN THE NATURE OF INCOME. SIMILAR VIEW HAS BEEN TAKEN BY THE CO-ORDINATE BE NCH OF THE TRIBUNAL IN THE CASE OF SRI VELAYUDHASWAMY SPINNING MILLS (P) LTD. V. DCIT (SUPRA), M/S SRI AMBIKA COTTON MILLS LTD. V . DCIT (SUPRA) AND MANY OTHER SIMILAR CASES. 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. 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. 6 I.T.A. NO. 619/MDS/13 ORDER PRONOUNCED ON MONDAY, THE 18 TH OF AUGUST, 2014 AT CHENNAI. SD/- SD/- ( . ) ( $# #'% ) (A. MOHAN ALANKAMONY) (VIKAS AWASTHY) !' /ACCOUNTANT MEMBER & !' /JUDICIAL MEMBER /CHENNAI, D! /DATED, THE 18 TH AUGUST, 2014. KRI. !E / -&2F$ G$*2 /COPY TO: 1. %, /APPELLANT 2. -.%, /RESPONDENT 3. 1 H2 () /CIT(A)-II, COIMBATORE 4. 1 H2 /CIT-III, COIMBATORE 5. $#IJ -&2& /DR 6. J) K /GF.