TaxTMI 
TaxTMI 
2021 (5) TMI 93
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....r (TCA.Nos.332, 438, 439/2015, 724/2016), Mr.M.P.Senthil Kumar (TCA.Nos.304/2015, 476/2016), no appearance (TCA.No.647/2014) COMMON JUDGMENT M.DURAISWAMY, J. Challenging the order passed in I.T.A.No.630/Mds/2013 on the file of the Income Tax Appellate Tribunal, Chennai, "A" Bench in respect of the Assessment Year 2009-10, the Revenue has filed the appeal in T.C.A.No.10 of 2015. 2.Challenging the order passed in I.T.A.No.746/Mds/2014 on the file of the Income Tax Appellate Tribunal, Chennai, "B" Bench in respect of the Assessment Year 2010-11, the Revenue has filed the appeal in T.C.A.No.332 of 2015. 3.Challenging the orders passed in I.T.A.Nos.534 & 536/Mds/ 2014 on the file of the Income Tax Appellate Tribunal, Chennai, "B" Bench in respect of the Assessment Year 2009-10 & 2010-11, the Revenue has filed the appeals in T.C.A.Nos.438 & 439 of 2015. 4.Challenging the orders passed in I.T.A.Nos.619/Mds/2013, 1583/Mds/2015, 616/Mds/2013 on the file of the Income Tax Appellate Tribunal, Chennai, "D" Bench in respect of the Assessment Year 2009-10, the Revenue has filed the appeal in T.C.A.No.11 of 2015, 724 of 2016, 554 of 2014. 5.Challenging the orders passed in I.....
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....ppreciating that generation of Carbon Credits is intricately linked to the machinery and processes employed in the production process by the assessee? 4)Whether in the facts and circumstances of the case and in law, the Income Tax Appellate Tribunal is correct in holding that the Technology Up-gradation Fund (TUF) subsidy and compensation receivable on non-performance of the Energy Generation are capital receipts and not liable for tax under any head of income under Income Tax Act, 1961?" 9.2.The appellant/Revenue has raised the following substantial questions of law in T.C.A.Nos.724, 476, 493 of 2016, 158, 161 of 2015: "1)Whether on the facts and circumstances of the case, the Tribunal was right in holding that the proceeds realized by the assessee on sale of Certified Emission Reduction Credit, which the assessee had earned on the Clean Development Mechanism in its wind energy operations, is a capital receipt and not taxable? 2)Whether in the facts and circumstances of the case and in law, the Appellate Tribunal is correct in holding that sale of Carbon Credits is to be considered as Capital Receipt and not liable for tax under any head of income und....
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....ed by an undertaking. ... 28.Insofar as substantial question of law no.4 is concerned, it deals with carbon credit. The question, as to the manner in which carbon credit receipt has to be treated, has been considered by several High Courts and it has been held that the receipt should be treated as a capital receipt. In this regard, it would be beneficial to refer to the decision in the case of CIT vs. Subhash Kabini Power Corporation Ltd., [(2016) 385 ITR 0592 (Karn.)]. In the said decision, the Karnataka High Court approved the view taken by the ITAT, Hyderabad Bench, which decision was upheld by the High Court of Andhra Pradesh in the case of CIT vs. My Home Power Ltd. [(2014) 365 ITR 0082 (AP)], which was subsequently followed by the ITAT, Chennai and Jaipur Benches. The operative portion of the judgment reads as follows:- "11.The decision has been upheld by the Hon'ble Andhra Pradesh High Court. This decision has been subsequently followed by the ITAT Chennai and Jaipur Benches. There is no decision either from the Hon'ble Supreme Court or from the Hon'ble jurisdictional High Court. These decisions indicate that sale of carbon credit would result capi....
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....rant of deduction u/s 80IA and the Assessing Officer committed an error in including the receipt in the eligible profit. Those facts are already on the record. It is to be seen, whether the receipt is of capital nature or of a revenue nature. Even in case the order of the CIT is upheld, then, in law, it will affect the computation of income, ultimately because the receipt will not be taxable, it will not come under the ambit of computation of income. Simultaneously it will be excluded from the deduction u/s 80IA as well as of the total income. The result will remain as it is. It is a revenue neutral case. Therefore, in view of the ratio laid down by the Hon'ble jurisdictional High Court in the case of Gopala Gowda (Supra), the second condition for taking action u/s 263 does not exist. The assessment order is not prejudicial to the interests of the Revenue. In view of the above discussion, we allow the appeal of the assessee and quash the impugned order of the learned CIT passed u/s 263 of the Income Tax Act." The aforesaid shows that, so far as the question as to whether, the income by sale of carbon credit could be termed as capital receipt or p....
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.... High Court, that it represented capital expenditure and was hence not deductible under Section 10(2) (xv). The sole question which therefore arises for determination in the appeal is whether the sum of Rs. 2,03,255 paid by the assessee represented capital expenditure or revenue expenditure. We shall have to examine this question on principle but before we do so, we must refer to the decision of this Court in Maheshwari Devi Jute Mills case since that is the decision which weighed heavily with the High Court, in fact, compelled it to negative the claim of the assessee and hold the expenditure to be on capital account. That was a converse case where the question was whether an amount received by the assessee for sale of loom hours was in the nature of capital receipt or revenue receipt. The view taken by this Court was that it was in the nature of capital receipt and hence not taxable. It was contended on behalf of the Revenue, relying on this decision, that just as the amount realised for sale of loom hours was held to be capital receipt, so also the amount paid for purchase of loom hours must be held to be of capital nature. But this argument suffers from a double fallacy....
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....where there are special circumstances leading to a contrary conclusion and, as pointed out by Lord Radcliffe in Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd., it would be misleading to suppose that in all cases, securing a benefit for the business would be prima facie capital expenditure "so long as the benefit is not so 20/37 https://www.mhc.tn.gov.in/judis/ T.C.A.No.451 of 2018 transitory as to have no endurance at all". There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature, acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leavin....
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....s made "out of" assets and profit that is made "upon" assets or "with" assets. Moreover, there may be cases where expenditure, though referable to or in connection with fixed capital, is nevertheless allowable as revenue expenditure. An illustrative example would be of expenditure incurred in preserving or maintaining capital assets. This test is therefore clearly not one of universal application. But even if we were to apply this test, it would not be possible to characterise the amount paid for purchase of loom hours as capital expenditure, because acquisition of additional loom hours does not add at all to the fixed capital of the assessee. The permanent structure of which the income is to be the produce or fruit remains the same; it is not enlarged. We are not sure whether loom hours can be regarded as part of circulating capital like labour, raw material, power etc., but it is clear beyond doubt that they are not part of fixed capital and hence even the application of this test does not compel the conclusion that the payment for purchase of loom hours was in the nature of capital expenditure." After making the aforesaid observation, at paragraph No. 10, the Apex Court....