2023 (7) TMI 7 - AT - Income Tax

Capital treatment upheld for Carbon Credits sales by Bangalore ITAT, not taxable for 2012-13 assessment year.

ITO Ward-1 Bellary Versus M/s. Ramgad Minerals and Mining Ltd.

The Appellate Tribunal ITAT Bangalore held that the sale of Carbon Credits should be treated as a capital receipt, not subject to tax, for the assessment ... Nature of receipts - sale of carbon credits - revenue or capital receipts - HELD THAT:- Admittedly, the issue came for consideration before this Tribunal in assessee’s own case for AYs 2013-14 & 2014-15 [2020 (11) TMI 174 - ITAT BANGALORE] held that the sale of carbon Credit is a capital receipt and his finding on this aspect has attained finality because no appeal is filed by the revenue against this finding of Ld. CIT (A). Once it is accepted that the receipt in question is a capital receipt, this judgment of Hon’ble Calcutta High Court rendered in case of CIT vs. Ankit Metal & Power Ltd. [2019 (7) TMI 878 - CALCUTTA HIGH COURT] becomes applicable as duly considered the judgment of Appollo Tyres [2002 (5) TMI 5 - SUPREME COURT] and held that where a receipt is not in the nature of income at all, it cannot be included in Book Profit under Section 115JB . Also see M/S. CHEMPLAST SANMAR LIMITED case [2019 (12) TMI 1272 - ITAT CHENNAI] as held the receipts arising to the assessee herein on the sale of carbon credits is held to be capital receipt. Carbon credits cannot be considered as an income in the assessment year 2012-13 and insertion of new section 115BBE of the Act, which was introduced from 1.4.2018 is only prospective in nature and cannot be applied to the assessment year 2012-13. These grounds of revenue are dismissed. Issues involved:The issues involved in this judgment are whether the sale of Certified Emission Reduction/Verified Emission Reduction (Carbon Credits) should be treated as revenue receipts or capital receipts for the assessment year 2012-13.Issue 1: Treatment of Carbon Credits as Revenue or Capital ReceiptsIn this case, the appellant, the revenue, challenged the deletion of the addition towards the sale of Carbon Credits, arguing that it should be treated as revenue receipts based on the provisions of the Income Tax Act. The Tribunal considered various decisions and held that the sale of Carbon Credits is a capital receipt, not chargeable to tax. It was noted that the issue had been decided in favor of the assessee in previous cases, and the Tribunal followed the precedent set by the judgments of the High Court and Supreme Court. Therefore, the Tribunal dismissed the revenue's appeal, affirming that the sale of Carbon Credits is a capital receipt.Issue 2: Applicability of Section 115BBGThe Tribunal also addressed the applicability of Section 115BBG of the Income Tax Act, which was introduced from 1.4.2018 to tax income from the sale of carbon credits. The Tribunal held that this provision is prospective in nature and cannot be applied to the assessment year 2012-13. Citing previous decisions by coordinate benches, the Tribunal concluded that the receipts from the sale of carbon credits during the relevant period should be considered as capital receipts. Consequently, the grounds raised by the revenue were dismissed, and the appeal of the revenue was ultimately dismissed.In summary, the Appellate Tribunal ITAT Bangalore, in its judgment, addressed the issues related to the treatment of Carbon Credits as revenue or capital receipts for the assessment year 2012-13. The Tribunal held that the sale of Carbon Credits should be considered as a capital receipt, not chargeable to tax, based on previous decisions and legal provisions. Additionally, the Tribunal clarified that the introduction of Section 115BBG from 1.4.2018 does not apply retrospectively to the assessment year in question. As a result, the appeal of the revenue was dismissed, affirming the treatment of Carbon Credits as capital receipts for the relevant period.