Vedha Spinning Mills (P) Ltd., Tiruppur V. DCIT, Tiruppur

ITA 630/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81121 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-08-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 09-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHYAM
• Assessee Lawyers: N VIJAY KUMAR
• Keywords: Business income; Cost of acquisition; Capital receipt

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , ! '# $% , & #'$ #( BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENTAND SHRI VIKAS AWASTHY, JUDICIAL MEMBER # ./ ITA NO. 630/MDS/2013 & ) *) / ASSESSMENT YEAR : 2009-10 M/S VEDHA SPINNING MILLS (P) LTD., 207 / 86, MANGALAM ROAD, KARUVAMPALAYAM, TIRUPUR 641 601. PAN : AABCV 2433 Q V. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE, TIRUPUR. (%,/ APPELLANT) (./%,/ RESPONDENT) %, 0 # / APPELLANT BY : SHRI N. VIJAY KUMAR, CA ./%, 0 # / RESPONDENT BY : SHRI GURU BHASHYAM, JCIT # 1 0 23 / DATE OF HEARING : 18 TH AUGUST, 2014 45* 0 23 / 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 AGAINST 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 ISSUE IN APPEAL IS: WHETHER THE AMOUNT OF ` 1,69,31,158/- RECEIVED 2 I.T.A. NO. 630/MDS/13 BY THE ASSESSEE ON ACCOUNT OF CLEAN DEVELOPMENT MEC HANISM (CDM) IS CAPITAL OR REVENUE RECEIPT. 2. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE O F YARN AND ELECTRICITY GENERATION THROUGH WIND ELECTRICAL GENE RATORS. THE ASSESSEE IN ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 CLAIMED CDM RECEIPTS AS CAPITAL RECEIPTS. THE ASSE SSING OFFICER IN SCRUTINY ASSESSMENT HELD CDM RECEIPTS TO BE REVENUE 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. 3 I.T.A. NO. 630/MDS/13 4. ON THE OTHER HAND, SHRI GURU BHASHYAM, JCIT, REP RESENTING THE DEPARTMENT STRONGLY SUPPORTED THE ORDER OF CIT( APPEALS). FURTHER, IN ORDER TO SUPPORT HIS SUBMISSIONS THE LD . D.R. PLACED RELIANCE ON THE DECISION OF COCHIN BENCH OF THE TRI BUNAL IN THE CASE OF APOLLO TYRES LTD. V. ACIT REPORTED AS 31 ITR (TR IB) 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 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 4 I.T.A. NO. 630/MDS/13 OF SECTIONS 2(24), 28, 45 AND 56 OF THE INCOME-TAX ACT, 1961. 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. 5 I.T.A. NO. 630/MDS/13 ACCORDINGLY, WE ARE OF THE OPINION THAT THE CONSIDE RATION 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. 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. 630/MDS/13 ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON MONDAY, THE 18 TH OF AUGUST, 2014 AT CHENNAI. SD/- SD/- ( ... ) ( '# $% ) (DR. O.K. NARAYANAN) (VIKAS AWASTHY) /VICE-PRESIDENT & #'$ /JUDICIAL MEMBER /CHENNAI, H' /DATED, THE 18 TH AUGUST, 2014. KRI. 'I 0 .&2J' K'*2 /COPY TO: 1. %, /APPELLANT 2. ./%, /RESPONDENT 3. 1 L2 () /CIT(A)-II, COIMBATORE 4. 1 L2 /CIT-III, COIMBATORE 5. 'MN .&2& /DR 6. N) O /GF.