TaxTMI 
TaxTMI 
2015 (11) TMI 1866
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....t the assessee company is in the business of manufacture of sponge iron, ingots, generation of power etc. A return of income was electronically filed at Rs.10,27,19,530/- under the provisions of Section 115JB of the IT Act. The book profit was at Rs.33,92,06,808/- The assessee claimed a deduction in respect of income from generation of power and sale of carbon credit amounting to Rs.1,20,86,455/-. The AO has examined the issue of inclusion of amount received on sale of carbon credit, while computing the eligible business in the claim of deduction u/s 80IA of the IT Act. According to the AO, the amount in question was not 'derived from generation and distribution of power", therefore, not eligible for claim of deduction u/s 80IA of the IT Act. After discussing certain case laws namely Cambay Electric Supply Industrial Co. Ltd., Vs CIT, 113 ITR 84 (SC) etc. the AO has finally held that the sale on "carbon credit" was neither having direct nor having immediate nexus with the income from power generation division of the assessee, therefore, profit on sale of carbon credit was not eligible for claiming deduction u/s 80IA of the IT Act. As a result, the amount received on sale of carbon ....
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....d 05-05-2010 were that the assessee were engaged in the business of manufacturing sponge iron and generation of power. The assessee has claimed deduction u/s 80 IA (4) (iv) of the IT Act. It has also been noted by the AO that better gross profit from 19.67% of the past year to 26.86% in the year under consideration as well as net profit from 11.93% to 18.19% was disclosed as per the accounts of the assessee. There are two divisions namely (i) Steel Division and (ii) Power Division respectively engaged in manufacture of sponge iron and Ferro Alloys etc. And the Power Division is in the business of generation of electricity. The year under consideration was the first year of claim of deduction in respect of generation and distribution of power. On the issue of claim of deduction u/s 80 IA (4) (iv) of the Act a query was raised that whether generation and distribution of power is an eligible business activity for claim of said deduction. The assessee was asked to provide the bifurcation of "sale of Power Division". As per the details submitted, it was found that there was a sale of "carbon credit" of Rs.7,82,87,701/-. The assessee had claimed deduction u/s 80 IA of the IT Act on the e....
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....alue assigned to such reduction in greenhouse gases is also measured in terms of unit of power generated. For better understanding the meaning of carbon credit and its background is narrated in brief as under: Meaning of carbon credit : 2.2 A Carbon credit is a generic term meaning that a value has been assigned to a reduction or offset of greenhouse gas emissions. Carbon credits and markets are key components of national and international attempts to mitigate the growth in concentrations of generating gases (GHGs). One carbon credit is equal to one ton of carbon dioxide or in some markets, carbon dioxide equivalent gases .... The concept of carbon credits came into existence as a result of increasing awareness of the need for controlling emissions. .... The mechanism of carbon credit was formalized in the Kyoto Protocol, an international agreement between more than 170 countries, and the market mechanisms were agreed. .... Operators that have not used up their quotas can sell their unused allowances as carbon credits, while businesses that are about to exceed their quotas can buy the extra allowance as credits, privately or on the open market. The assessee has placed relia....
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..... Being aggrieved, now, the Revenue is in appeal before us. 8. From the side of the Revenue, the learned DR, Rajiv Varshnay at the threshold placed on record certain articles pertaining to the concept of income generation on sale of carbon credit and its tax implication. The gist of the articles is reproduced below: "CARBON CREDIT AND ITS TAXABILITY The Kyoto Protocol- The Kyoto Protocol is an international and legally binding agreement to reduce greenhouse gas emissions worldwide and is an addition to the UNFCCC treaty. The Kyoto Protocol was accepted in Kyoto, Japan, on 11 December 1997 and entered into force on 16 February 2005. 185 parties of the UNFCCC have ratified the Protocol. The major feature of the Kyoto Protocol is that it assigns mandatory targets for 37 industrialized nations and the European Community to reduce their emission of the specified 6 greenhouse gases (GHGs). These amount to an average of five per cent against 1990 levels over the five-year period 2008-2012. ..... "The central feature of the Kyoto Protocol is its requirement that countries limit or reduce their greenhouse gas emissions. A country has two ways to reduce emissions. One, it can ....
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.... ITR 186 (Hyd.)/ 151 TTJ 616 (supra). The issue of taxability of sale proceeds of carbon credit was discussed in this decision. The respected Bench has held that carbon credit is accreditation of capital, hence, income earned on sale of carbon credit is capital receipt in view of the decision of Maheswaridevi Jute Mills, 57 ITR 36. Thereafter, he has emphasized that the said decision of the Tribunal was contested before the Hon'ble Andhra Pradesh High Court cited as CIT Vs My Home Power Ltd., 365 ITR 82 (A.P.), order dated 19- 02-2014. The Hon'ble High Court has held that the ITAT had correctly held it as capital receipt and cannot be treated as business receipt of the assessee. He has, therefore, emphasized that the issue is now stood squarely covered by the decision of Hon'ble High Court. Hence, the additional ground raised by the Revenue Department deserves to be dismissed. He has referred to a latest decision of ITAT 'F' Bench, Mumbai pronounced in the case of M/s. Ultratech Cement Ltd., AY 2007- 08 wherein cross appeals have been filed bearing ITA No.7502 and 8143/Mum/2010 and others order dated 20-02-2014 wherein the belated ground of appeal was admitted and thereafter, after....
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.... power. At that point of time when the appeal was heard by the first appellate authority, the larger issue whether the receipt on sale of carbon credit is a capital receipt or not, was not adjudicated upon. Now, the situation is that as soon as the Revenue Department has raised the said additional ground, the respondent assessee has raised an additional cross objection in addition to the cross objection already raised. The additional ground of the cross objection of the respondent assessee is that the profit earned on account of sale of carbon credit is to be held as capital receipt in view of the judgment of the Hon'ble Andhra Pradesh High Court pronounced in the case of My Home Power Ltd., 365 ITR 82 (A.P.). In the interest of natural justice, we have, therefore, consolidated both the issues and thought it proper to take a holistic view in respect of the profit earned on sale of carbon credit. Rather, at this juncture, it is worth to mention that this very combination whether both of us are parties, have heard a case of ACIT Vs Nakoda Ispat Ltd., Raipur while camping at ITAT Raipur Bench, Raipur and in ITA No.109/BLPR/2011 and ITA No.71/BLPR/2012 along with C. O. Nos. 136 and 137....
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....dit. The producers of such carbon credit can sell them to other assessees who have capped emission commitment under the Kyoto Protocol. Thus the carbon credit can also be said to be a grant as international agency grants the same. Carbon credit hence emanates out of such technology and plant and machinery which contribute to reduction of green house gases. Thus these carbon credits are also meant to promote such investments which are admittedly capital in nature. Hence seen from this angle also the carbon credit is a capital receipt. 15. In the result, the cross objection is allowed. 16. Now the issue raised in Revenue's appeal was that whether the learned CIT (Appeals) is correct or not in deleting the disallowance of claim u/s 80IA with respect to the receipt on account of carbon credit sale. We find that as we have already held that the receipt on account of carbon credit sale is a capital receipt and hence the same is not liable to tax. The adjudication of issue raised by the Revenue is only of academic interest. Accordingly we are not engaging under the same. Hence this ground raised by the Revenue is dismissed as infructuous". We, therefore, conclude that the legal i....
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.... price at which the steel industries procures the power from Chhattisgarh State Electricity Board (CSEB). In terms of money it comes to Rs.24,02,92,279/- i. e. at the rate of Rs.3.01 per unit. The AO has concluded that the supply of power was made to a captive unit @Rs.3.01 per unit with the purpose to reduce the profit of steel division, although, the assessee had supplied electricity8 to CSEB @ Rs.2.80 per unit. As a result, re-calculation was made by the AO and the disallowance was made to reduce the claim of deduction u/s 80IA (4) of the Act by RS.1,66,68,207/-. Being aggrieved, the matter was carried before the first appellate authority. 13. After considering the submissions of both the sides, the learned CIT(A) has placed reliance on the decision of M/s. Jindal Steels & Power Ltd., 16 SOT 509 (Del.) as well as the decision of Dalmia Cement (Bharat) Ltd. 32 SOT 164 (Del.). Since, the relief was granted, the Revenue is in appeal before us. 14. On this issue, we have heard both the sides. On the issue whether the tariff determined by State Electricity Board represents market value or not, a detailed verdict has already been pronounced by the Hon'ble Jurisdictional High ....