TaxTMI 
TaxTMI 
2012 (11) TMI 288
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....n confirming the addition of Rs. 11,75,00,000 made by the Assessing Officer. 5. Without prejudice to the above, the learned CIT(A) erred in holding that the amount realised on Carbon Credits is not eligible for deduction u/s. 80IA of the IT Act. 6. The learned CIT(A) erred in confirming the order of the Assessing Officer in determining the total income of the appellant at Rs. 8,99,61,870 by treating the realisation from carbon credits of Rs. 11.75 crores as the taxable income of the appellant. 3. Brief facts of the issue are that the assessee had filed return of income for the assessment year under consideration on 28.2.2008 showing a loss of Rs. 86,54,970. The company is engaged in the business of power generation through biomass power generation unit. During the year under consideration it has received 1,74,037 Carbon Emission Reduction Certificates (CERs) popularly known as 'carbon credits' for the project activity of switching off fossil fuel from naphtha and diesel to biomass. It has sold 1,70,556 CERs to a foreign company M/s. Noble Carbon Credits Ltd., Ireland and had received an amount of Rs. 12.87 crores. The assessee had accounted this receipt a....
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....iness commences from purchase of raw material and ends with the sale of finished product. The gain is not within any of the process in between and does not represent receipt to compensate the loss suffered in the process. Therefore, the amount does not represent any income in the process or during the course of business. 6. He submitted that the said amount does not represent subsidy for establishing the industry or for purchase of raw material or a capital asset. The UNFCCC does not reimburse either revenue or capital expenditure. In fact the UNFCCC does not provide any funds to the industry. It only certifies that the industry emitted a particular quantity of gases as against the permissible quantity. It is not, therefore, a subsidy granted to reimburse the losses. No payment is in fact made by the UNFCCC but only a certificate is issued without any consideration of profit or loss or the acquisition of capital assets. The amount cannot be considered to be a perquisite as this is not received from any person having a business connection with the company and is not received in the process of carrying on the business. The perquisites are those provided in addition to the profits or....
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....e. The sale consideration is held as not relating to the Industrial undertaking and was held to be related to the export promotion scheme announced by the Government (CIT v. Sterling Foods [1999] 237 ITR 579 at page 209). In the said situation, export is a part of trade and the certificate is granted during the course of and in connection with the export trade. Some other certificates were issued against payment of duty against purchase of raw material and such certificates acted as reimbursement of excise duty suffered. In the instant case the certificates are to be attributed to the climatic protection, which is not a part of the business. The scheme by UNFCCC is in the interest of Global protection from pollution and has no relevance to the business activities of the assessee. Therefore, the assessee is in a better situation for claiming exemption. Such certificates are later included as income both in Sec. 2(24) and in Sec. 28. The certificates received by the assessee are not included as income within Sec. 2(24) or in Sec. 28 of the Act. An attempt is made to include the same in DTC in the year 2010 itself and DTC is not introduced as Act so far. Though the DTC included the ce....
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....esent income of the company. The Andhra Pradesh High Court in the case of CIT v. Chitrakalpa reported in 177 ITR 540 held that subsidy received by the producer for the production of feature films in the state are capital in nature. It was also held that the said amount cannot be considered as the income of the assessee. The decision of the Gauhati High Court in the case of Lachit Films v. CIT 195 ITR 402 - The Gauhati High Court was considered the question whether the Grants-in-aid received by the assessee from the government for production of films is a revenue receipt or not. The Hon'ble High Court held that the Grants-in-aid was not a product of normal business activity and therefore, is not a revenue receipt. The Kerala High Court in the case of CIT v. 225 ITR 394 Udaya Pictures Private Ltd., also held the same view that the subsidy received by the producer of Cinematograph Films is not taxable. The Madras High Court in the case of CIT v. Kanyakumari District Co- operative Spinning Mills Ltd., 128 Taxman 544 held that the subsidy received from the State Government for recruiting the Adi Dravidas by the assessee as capital in nature. The Calcutta High Court in the case of CIT v.....
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....e of acquisition of the specified assets. There are various other decisions to the effect that such receipts are capital in nature. 15. The AR submitted that the Assessing Officer relied on the following decisions and the said decisions have no application to the facts of the case, in view of the explanations submitted hereunder: (a) The Assessing Officer relied on the decision of the Hon'ble Supreme Court in the case of Tata Consultancy Services v. State of Andhra Pradesh reported in 271 ITR 401. According to the Assessing Officer, the CERs represent goods as they are capable of marketing. The said case has no application-to the facts of the assessee's case. In the said case, the company is engaged in the business of sale of computer software packages. The question was whether the items traded in are goods or not for the purpose of Sales Tax. The case of the assessee is totally different. The CERs were not the stock in trade of the assessee. There is no relevance of the decision of the Supreme Court to the case of the assessee's case. (b) The Assessing Officer also relied on the decision of the Supreme Court in the case of Bharat Sanchar Nigam Ltd., v. Union of Indi....
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....hat from the analysis of the decisions cited by the assessee or the Assessing Officer, it can be seen that the subsidies granted are categorized into three types. (a) Subsidy granted to compensate the trading loss or a manufacturing loss which is held as a revenue receipt. (b) Subsidy granted to compensate the capital investment, purchase of specified plant and machinery etc. This subsidy is held to be capital receipt and also held that the same shall be reduced from the cost of the capital asset for the purpose of arriving at the depreciation. (c) Subsidy granted for the public good is held as not taxable and not deductable from capital asset. 17. The AR submitted that in so far as the amount received from the International organizations, it is submitted that such amount is for public good and not to compensate either the revenue expenditure or the capital expenditure and, therefore, is not taxable. From the above explanations, it is clear that the subsidy received by a person unconnected with the trading or manufacture and meant for promotion of public good is capital in nature. It is clear from various decisions that any subsidy which compensate revenue exp....
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....Assessing Officer is of the view that the said decision was referred as the word 'attributable' as used in Sec. 80I and whereas the word 'derived from' is used in Sec. 80IA of the Act. Therefore, the Assessing Officer relied on the decision of the Supreme Court in the case of Ashok Leyland v. CIT reported in 224 ITR 122. In the said case, the Supreme Court considered the allowability of deduction u/s 80IA of the IT Act. The question before the Supreme Court was where the profit derived from sale of imported parts can be said to be attributable to the priority nature or not. The Supreme Court held that the receipt from sources other than the actual conduct of the business of generation and distribution of electricity also is eligible for deduction. Both the decisions referred to above i.e. 113 ITR 84 and 224 ITR 122 are in favour of the assessee and do not support the view of the Assessing Officer. (d) The Assessing Officer relied on the decision of the Supreme Court in the case of Sterling Foods v. CIT reported in 237 ITR 579 and the decision of the Madras High Court in the case of Pandian Chemicals Ltd., v. CIT reported in 233 ITR 497. According to the Assessing Officer, th....
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....they represent capital goods The gain would be subject to tax as capital gain. In such an event, it is submitted that there is no cost of acquisition of such capital asset and hence the gain cannot be subject to capital gains in view of the decision of the Supreme Court in the case of CIT v. RC Srinivasa Setty reported in 128 ITR 294. It is further submitted that the amount spent for registration of the claim cannot be considered as the cost of acquisition. It only represents the process Cost for making applications etc. This view is supported by the decision of the ITAT, Hyderabad Bench in the case of ITO v. Uppala Venkatarao reported in 83 ITD 273. On the other hand if it were to be held that there is cost forming part of the manufacturing process, the proportion has to be determined and the cost suffered from the inception of the company has to be arrived at in which case there would be no gain. In view of the above submissions, the AR submitted that the Tribunal may pass appropriate orders allowing the appeal. 21. The learned DR submitted that the only grievance of the assessee is that the sale from out of transfer/sale of CERs popularly known as carbon credit is not taxable a....
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....property or intangible property. It would become 'goods' provided it has the attributes thereof with regard to (a) its utility (b) capability of being bought and sold (c) capability of being transmitted, transferred, delivered, stored and possess. The CER credits can be considered as 'goods' as they have all the attributes of goods as laid down in the decision of Hon'ble Supreme Court. This approach was reiterated by the Supreme Court in the case of BSNL v. Union of India [2006] (282 ITR 273). The different clauses in the purchase agreement between the assessee company and M/s. Noble Carbon Credit, Ireland clearly indicate that the sale transaction of CER is nothing but a transaction in 'goods'. The agreement had different clauses regarding the contract quantity, contract price, date of delivery and the receipt thereof, which are' basically the attributes in a transaction of sale of goods. 22. The DR submitted that, otherwise also, this issue can be viewed from a different angle. The assessee submitted that the certificates are in recognition of the achievement for reducing the pollution. No doubt by implementing the CDM Project the assessee gets the benefit of efficiency in respe....
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....l to the business. The Assessing Officer has relied on the decision of Hon'ble Punjab and Haryana High Court in the case of Liberty Shoe Ltd v. CIT and Liberty India v. CIT reported in 293 ITR. The Assessing Officer has also relied on the decision of Supreme Court in the case of Sterling Food Ltd and the decision of Madras High Court in the case of Pandian Chemicals. The contention of the assessee is that once the assessee qualifies for deduction u/s. 80IA of the Act by being covered by the description industrial undertaking any profit earned by the business of the assessee was eligible for deduction and it was not necessary that the business must be from the activity of the industrial undertaking. It has been held by various courts that if the income is from a different and independent source, the same may not be eligible for deduction u/s, 80IA/80IB. In the context of DEPB benefits, the Hon'ble Punjab and Haryana High Court held that for application of the words "derived from" there must be a direct nexus between profits and gains and the industrial undertaking. The income of the assessee from duty draw back cannot be held to be income derived from specified business. This view o....
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....on credit is not a result or incidence of one's business and it is a credit for reducing emissions. The persons having carbon credits get benefit by selling the same to a person who needs carbon credits to overcome one's negative point carbon credit. The amount received is not received for producing and/or selling any product, bi-product or for rendering any service for carrying on the business. In our opinion, carbon credit is entitlement or accretion of capital and hence income earned on sale of these credits is capital receipt. For this proposition, we place reliance on the judgement of the Supreme Court in the case of CIT v. Maheshwari Devi Jute Mills Ltd. (57 ITR 36) wherein held that transfer of surplus loom hours to other mill out of those allotted to the assessee under an agreement for control of production was capital receipt and not income. Being so, the consideration received by the assessee is similar to consideration received by transferring of loom hours. The Supreme Court considered this fact and observed that taxability of payment received for sale of loom hours by the assessee is on account of exploitation of capital asset and it is capital receipt and not an incom....