Carbon credits treated as capital receipt; sale proceeds held not taxable as business income or revenue income.

Carbon credits generated from environmental improvement were treated as a capital receipt, not as business income or taxable revenue income, because they arose from an entitlement linked to environmental concerns rather than from the assessee's trading operations. The Tribunal followed its earlier ruling in the assessee's own case, as confirmed by the jurisdictional High Court, and held that CERs had no element of profit or gain and no attributable cost of acquisition. The addition was therefore deleted and the tax treatment as exempt from income tax was upheld.

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Issues: Whether the amount received on sale of carbon credits is a capital receipt not liable to tax, or a revenue receipt assessable as income.

Analysis: The receipt arose from the sale of CERs generated in the course of environmental improvement and not from the assessee's business operations. The Tribunal followed its own earlier decision in the assessee's case and the jurisdictional High Court's confirmation thereof, holding that carbon credits are an entitlement arising from environmental concern, having no element of profit or gain and no cost of acquisition attributable to their generation. The receipt could not be brought to tax as business income or as income under the general charging provisions.

Conclusion: The amount received on sale of carbon credits is a capital receipt and is not taxable as revenue income. The deletion of the addition was upheld.

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