TaxTMI 
TaxTMI 
2022 (6) TMI 1250
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (ii) 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 under the Income Tax Act, 1961? (iii) Whether in the facts and circumstances of the case and in law, the Income Tax Appellate Tribunal is correct in holding that there is no cost of acquisition or cost of production to get entitlement for the carbon credits, without appreciating the generation of carbon credits is intricately linked to the machinery and processes employed in the production process by the assessee? and (iv) Whether in the facts and circumstances of the case and in law, the Income Tax Appellate Tribunal is correct in holding that the Technology Upgradation 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 the Income Tax Act? " 3. Today, when the matter was taken up for consideration, the learned counsel appearing for both sides, jointly submitted that the substantial question of law Nos.1 to 3 are co....
X X X X Extracts X X X X
X X X X Extracts X X X X
........, this was the law, this is the law, this is how the provision shall be construed. Therefore, he cannot plead that the view taken by the Tribunal and upheld by the Hon'ble Andhra Pradesh High Court could be considered as if applicable from the date of the decision. In the decision only the position of the law as to how receipts from sale of carbon credits are to be treated, has been explained. One of the argument raised by the DR was that at this stage, the additional ground ought not to be permitted to be raised. It is pertinent to mention here that basically, it is not a separate ground, it is a limb of arguments, which is affecting the ultimate tax liability of the assessee. The Hon'ble Supreme Court in the case of NTPC Ltd (Supra) has held that the Tribunal had jurisdiction to examine a question of law which arose from the fact as found by the Income Tax authorities and having a bearing on the tax liability of the assessee. As far as the nature of the receipt from sale of carbon credit is concerned, it is available from the assessment stage. It is not disputed even by the learned Commissioner, the dispute is, whether it has been derived from the eligible industrial undertak....
X X X X Extracts X X X X
X X X X Extracts X X X X
....come out of business. In the said decision, the Apex Court held that the amount received out of sale of loom-hours can be termed as capital receipt and not income out of business. 5. Subsequently, in a later decision of the Apex Court, a question came up for consideration in the case of M/s. Empire Jute Co. Ltd. v. Commissioner of Income Tax [(1980) 4 SCC 25] the question which arose before the Apex Court was, if loom-hours are purchased by the manufacturing mills, whether it can be termed as capital expenditure or revenue expenditure. In the said decision, the earlier decision of the Apex Court in the case of Maheswari Devi Jute Mills (supra) was also relied upon by the Revenue and after considering the same, the Apex Court at paragraph Nos. 4 and 5 observed thus: "4. Now an expenditure incurred by an assessee can qualify for deduction under Section 10(2) (xv) only if it is incurred wholly and exclusively for the purpose of his business, but even if it fulfils this requirement, it is not enough; it must further be of revenue as distinguished from capital nature. Here in the present case it was not contended on behalf of the Revenue that the sum of Rs. 2,03,255 wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ring the test to find out as to whether a particular expenditure can be termed as capital or revenue expenditure observed at paragraph Nos. 8 and 9 as under: "8. The decided cases have, from time to time, evolved various tests for distinguishing between capital and revenue expenditure but no test is paramount or conclusive. There is no all embracing formula which can provide a ready solution to the problem; no touchstone has been devised. Every case has to be decided on its own facts keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred. But a few tests formulated by the courts may be referred to as they might help to arrive at a correct decision of the controversy between the parties. One celebrated test is that laid down by Lord Cave, L.C., in Atherion v. British Insulated and Halsby Cables Ltd. where the learned law Lord stated: When an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it in the capital field was acquired by the assessee in purchasing loom hours and the test of enduring benefit cannot help the Revenue. 9. Another test which is often applied is the one based on distinction between fixed and circulating capital. This test was applied by Lord Haldane in the leading case of John Smith & Son v. Moore where the learned law Lord drew the distinction between fixed capital and circulation capital in words which have almost acquired the status of a definition. He said: Fixed capital (is) what the owner turns to profit by keeping it in his own possession; circulating capital (is) what he makes profit of by parting with it and letting it change masters. Now so long as the expenditure in question can be clearly referred to the acquisition of an asset which falls within one or the other of these two categories, such a test would be a critical one. But this test also sometimes break down because there are many forms of expenditure which do not fall easily within these two categories and not infrequently, as pointed out by Lord Radcliffe in Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd., the line of d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sioner of Income Tax- IV v. My Home Power Ltd. [(2014) 46 Taxmann.com 314 (Andhra Pradesh), at paragraph No. 3 observed thus: "3. We have considered the aforesaid submission and we are unable to accept the same, as the learned Tribunal has factually found that "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. "We agree with this factual analysis as the assessee is carrying on the business of power generation. The Carbon Credit is not even directly linked with power generation. On the sale of excess Carbon Credits the income was received and hence as correctly held by the Tribunal it is capital receipt and it cannot be business receipt or income. In the circumstances, we do not find any element of law in this appeal." The aforesaid shows that the Andhra Pradesh High Court has confirmed the view of the Tribunal that 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. It was also found th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 32.The Hon'ble Division Bench refers to three decisions of the Hon'ble Supreme Court in the case of Hukumchand Mills Ltd. vs. CIT [(1967) 63 ITR 232 (SC)]; CIT vs. Mahalakshmi Textile Mills Ltd., [(1967) 66 ITR 710]; and CIT vs. Nelliappan [(1967) 66 ITR 722 (SC)] wherein, the observations made by the Hon'ble Supreme Court were referred to, which are quoted hereunder:- "In hearing an appeal, the Tribunal may give leave to the assessee to urge grounds not set forth in the memorandum of appeal, and in deciding the appeal the Tribunal is not restricted to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal. The Tribunal was, therefore, competent to allow the assessees to raise the contention relating to the cash credits which was not made the subject-matter of a ground in the memorandum of appeal. It cannot be said that in accepting the contention of the assessee that the cash credits represented income from the business withheld from the books, the Tribunal made out a new case inconsistent with the assessee's own plea. In any event, the Tribunal is not precluded from adjusting the tax liability of the assessee in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ointed out that although the income-tax statute makes the Department or its officers figure as parties in the appeal proceedings, they are not in the strict sense what are called by American writers as parties to adversary proceedings. This is so because, the very object of the appeal is not to decide a point raised as a dispute, but any point which goes into the adjustment of the taxpayer's liability. In that sense, a view prevails, even in England, that the authorities sitting in an appeal in tax case, cannot be regarded as deciding a lis, but they are only engaged in an administrative act of adjusting the taxpayer's liability. 37.Further, it was pointed out that under our fiscal jurisprudence, we may regard the Appellate Authorities as exercising quasi judicial functions in the same sense, as a tax officer does. But, even so, the proceedings before them lack the basic elements of adversary proceedings. It, therefore, follows that the discussion and the scope of the appellate jurisdiction of the Tribunal and the other authorities under the tax code cannot be pursued by drawing a parallel to civil litigation with particular reference to appeal from decrees, and th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....taking a decision as to whether the deduction is admissible under Section 80IA of the Act is a non-issue. If the receipt from the sale of carbon credit is a capital receipt, then it will go out of the purview of the gross total income as defined under Section 80B(5) of the Act, which expression is found in Section 80IA of the Act. Thus, if the receipts by sale of carbon credit will not fall within the definition of total income, the same cannot be included under Section 80IA of the Act. Therefore, even if the assessee has made such a claim, that cannot be a reason for the Tribunal to non-suit the assessee. 39.One more important factor to be noted is that Section 115BBG of the Act was introduced by Finance Act, 2017 with effect from 01.04.2018, prior to which, there was no such provision and Mr.V.S.Jayakumar, learned counsel for the assessee would submit that the assessees were under utter confusion as to under which provision of the Act, they should make a claim for deduction and having left with no other option, had been making the claim under Section 80IA of the Act and merely because the assessee due to uncertainty in the legal position, had made a claim under Section 8....