2015 (8) TMI 600 - AT - Income Tax

Tribunal allows deduction, deems carbon credit income capital. Revenue appeal dismissed.

Assistant Commissioner of Income Tax, Circle- II, Trichy Versus M/s. INTEX

The Tribunal upheld the Commissioner's decision allowing the deduction claimed by the assessee without setting off losses from previous years in the ... Entitlement to claim deduction under Section 80-IA - Held that:- The business undertaking of the assessee is wind mill power generation/hosiery goods, etc., and it has claimed the benefit of deduction under Section 80IA of the Income Tax Act for the assessment year in question and for the subsequent years as well. Having exercised its option and its losses have been set off already against other income of the business enterprise, the assessee in this appeal falls within the parameters of Section 80IA of the Income Tax Act. There appears to be no distinction on facts in relation to the decision reported in Velayudhaswamy Spinning Mills case (2010 (3) TMI 860 - Madras High Court). - Decided in favour of the assessee Sale of carbon credit - CIT(A) treated it as capital in nature - Held that:- This issue has been decided in favour of the assessee by the co-ordinate Bench of this Tribunal in Prabhu Spinning Mills (P) Ltd. and Sivaraj Spinning Mills (P) Ltd. case [2015 (8) TMI 110 - ITAT CHENNAI] following the decision of CIT v. My Home Power Ltd. [2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT] wherein held “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 -” Carbon Credit is not even directly linked with power generation - on the sale of excess Carbon Credits the income was received it is capital receipt and it cannot be business receipt or income – Decided against Revenue. Issues:1. Whether losses from windmill business for specific assessment years can only be set off against profit from windmill business of a particular assessment year.2. Whether income earned on the sale of carbon credit should be considered as capital in nature.Issue 1:The first issue in the appeal pertains to the set off of losses from windmill business against profits from the same business for a specific assessment year. The Revenue contended that losses from the windmill business for certain assessment years should only be set off against profits from the windmill business of the assessment year 2010-11. The Departmental representative relied on the Assessing Officer's order. The Commissioner of Income-tax (Appeals) allowed the claim of the assessee based on the judgment of the jurisdictional High Court in a specific case. The Commissioner held that the assessee could claim deduction under section 80-IA for the current assessment year's profit without setting off losses from prior years. The Tribunal upheld the Commissioner's order, stating that there was no reason to interfere with the findings.Issue 2:The second issue raised in the appeal concerns the classification of income earned from the sale of carbon credit as either capital or revenue in nature. The Revenue argued that the income from the sale of carbon credits should be considered as business income. However, the assessee relied on a co-ordinate Bench decision and a judgment of the Andhra Pradesh High Court, which held that income from carbon credits is capital in nature. The Tribunal, following the decisions cited, concluded that the amount received from the sale of carbon credits is indeed capital in nature. Therefore, the orders of the Commissioner of Income-tax (Appeals) and the Assessing Officer were reversed on this issue, and the Revenue's appeal was dismissed.In summary, the Tribunal's judgment addressed two main issues: the set off of losses from a windmill business against profits for a specific assessment year and the classification of income from the sale of carbon credits. The Tribunal upheld the Commissioner's decision on the first issue, allowing the deduction claimed by the assessee without setting off losses from previous years. On the second issue, following precedents, the Tribunal ruled that income from the sale of carbon credits is capital in nature, rejecting the Revenue's contention. The appeal of the Revenue was ultimately dismissed based on these determinations.