TaxTMI 
TaxTMI 
2015 (4) TMI 132
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....the business of manufacturing of yarn and electricity generation through wind mills. The assessee filed its return of income for the assessment year 2009-10 on September 29, 2009 declaring total income as Rs. 6,72,89,330. The case of the assessee was selected for scrutiny and a notice under section 143(2) of the Income-tax Act, 1961 (Act) was issued to the assessee on August 30, 2010. The Assessing Officer during the course of assessment made disallowance of Rs. 2,72,28,374 on account of clean development mechanism (CDM). The assessee treated CDM receipts on account of sale of carbon credits as capital receipts, whereas the Assessing Officer held the same to be revenue receipts. Aggrieved against the assessment order dated March 9, 2011, th....
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....] 21 ITR (Trib) 186 (Hyd). The learned Departmental representative supporting the order of the Commissioner of Income-tax (Appeals) made the following submissions : (i) the different clauses in the clean development mechanism (CDM) agreement between the assessee-company indicated that the sale trans action of certified emission reduction (CER) was nothing but a transaction in "goods" ; (ii) expenditure incurred for implementation of CDM project as a pol lution reduction measure could be claimed in the profit and loss account ; (iii) the certificates issued by UNFCCC had intrinsic value and had a ready market for their redemption/trading ; (iv) the certificates (CERs) were akin to shares or stocks which could be transacted in the....
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....sell the important entitlements ; (viii) CERs should be taxable as revenue receipt under section 28(iv) ; and (ix) the CERs are received from the Government (out of the quota allotted to the Government as per Kyoto Protocol) permitting the assessee to use fossil fuel to the extent mentioned in the CERs. The Government of a sovereign State has a right to place a reasonable restriction on carrying on profession or business and, therefore, restrictions are placed to use fossil fuel. However, this restriction also has an in-built incentive. "If you do not consume fossil fuel, or consume less, you can sell and earn money". Therefore, sale proceeds of CERs are revenue receipts not only from the intrinsic nature of the entitlement but also b....
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....carbon credits. Thus, the amount received for carbon credits has no element of profit or gain and it cannot be subjected to tax in any manner under any head of income. It is not liable for tax for the assessment year under consideration in terms of sections 2(24), 28, 45 and 56 of the Income-tax Act, 1961. Carbon credits are made available to the assessee on account of saving of energy consumption and not because of its business. Further, in our opinion, carbon credits cannot be considered as a bi-product. It is a credit given to the assessee under the Kyoto Protocol and because of international understand ing. Thus, the assessees who have surplus carbon credits can sell them to other assessees to have capped emission commitment under the K....
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....apital receipt. Accordingly, we are of the opinion that the consideration received on account of carbon credits cannot be considered as income as taxable in the assessment year under consideration. 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. Credit for reducing carbon emission or green house effect can be transferred to another party in need of reduction of carbon emission. It does not increase profit in any manner and does not need any expenses. It is a nature of entitlement to reduce carbon emission, however, there is no cost of acquisition or cost of production to get this entitlement. Carbon cred....