2015 (10) TMI 1867 - AT - Income Tax

Income Tax Tribunal: Carbon credits sales treated as capital receipts, not taxable income

The Income Tax Appellate Tribunal upheld the Commissioner of Income Tax (Appeals)' decision, ruling that the income from the sale of carbon credits by the ... Deduction u/s. 80IA - Exemption claimed on the sale of carbon credits in assessee's power division - Held that:- Assessee is not entitled for deduction u/s. 80-IA(1), but the said amounts are to be treated as a capital receipts not taxable as income as held by CIT(A) relying on The Commissioner of Income Tax – IV, Hyderabad Versus M/s. My Home Power Ltd. [2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT] - Decided against revenue. Issues: Exemption claimed on the sale of carbon credits in the assessee's power division for Assessment Years 2008-09 & 2009-10.Analysis:The appeals were filed by the Revenue against the orders of the Commissioner of Income Tax (Appeals)-V, Hyderabad concerning the exemption claimed on the sale of carbon credits by the assessee's power division. The assessee, a company engaged in seed production and wind power, declared income from the sale of carbon credits totaling to significant amounts for the respective assessment years. The deduction under section 80IA of the Income Tax Act was disallowed by the Assessing Officer, stating that the income from carbon credits lacked a direct nexus to the power generation business and did not qualify as incentives. The assessee contended before the CIT(A) that the amount should be treated as a capital receipt and not taxable income. The CIT(A) allowed the additional grounds, ruling that the assessee was not eligible for deduction under section 80-IA(1), but the amounts were to be considered as capital receipts and not taxable income. The CIT(A) relied on the decision of the ITAT Hyderabad Bench in a similar case. The ITAT held that carbon credits were in the nature of entitlement received due to global environmental concerns, and thus, the income earned from the sale of carbon credits should be treated as a capital receipt and not taxable income. The ITAT also referenced the guidance note on accounting for Certified Emission Reductions issued by the Institute of Chartered Accountants of India to support their decision.The ITAT upheld the CIT(A)'s decision, stating that the co-ordinate bench's judgment approved by the High Court was in line with the case at hand. The High Court had previously upheld a similar decision in the case of CIT Vs. My Home Power Ltd. The ITAT concluded that the revenue's appeals were to be dismissed, affirming the treatment of the income from the sale of carbon credits as capital receipts and not subject to tax. The judgment was pronounced on 24th June 2015.