2013 (6) TMI 729 - AT - Income Tax

ITAT rules carbon credit sales as capital receipts, dismisses Revenue's appeal.

The ITAT upheld the CIT(Appeals)'s decision, ruling that receipts from the sale of carbon credits are capital in nature. The Revenue's appeal was ... - Issues involved: The appeal filed by the Revenue challenges the order of the Commissioner of Income Tax (Appeals)-I, Coimbatore, regarding the treatment of tradable Carbon credit receipts as capital receipts under sec.143(3) of the Income Tax Act, 1961.Details of the Judgment:Issue 1: Treatment of Carbon Credits as Capital ReceiptsThe Revenue contended that the CIT(Appeals) erred in treating the receipts from carbon credits as capital in nature instead of revenue receipts. The Revenue pressed for acceptance of the appeal based on this argument.Issue 2: Nature of Carbon Credits ReceiptsThe assessee claimed deduction under sec.80IA for profits from wind mills, including an amount from CDM credit. The Assessing Officer held that the carbon credit receipts are taxable revenue receipts not derived from the business, limiting the deduction. The CIT(Appeals) affirmed the AO's action but held the receipts as capital in nature based on a precedent, directing the Assessing Officer to treat them as capital receipts.Issue 3: Judicial InterpretationThe Co-ordinate Bench, relying on a Hyderabad ITAT decision, held that carbon credits are an entitlement due to environmental concerns, not business activities. The Bench concluded that the consideration received for carbon credits is a capital receipt, not taxable income under various sections of the Income-tax Act, 1961.Conclusion:The ITAT upheld the CIT(Appeals)'s decision, stating that the receipt from the sale of carbon credits is capital in nature. The Revenue's appeal was dismissed, and the addition of the carbon credit receipts as revenue was deleted. The judgment was pronounced on June 11, 2013, in Chennai.