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

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 year 2012-13. The Tribunal dismissed the revenue's appeal, citing precedent set by previous court decisions and clarifying that Section 115BBG of the Income Tax Act, introduced in 2018, does not apply retrospectively to the relevant assessment year. Consequently, the revenue's appeal was dismissed, affirming the treatment of Carbon Credits as capital receipts.

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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 Receipts
In 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 115BBG
The 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.

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