TaxTMI 
TaxTMI 
TaxTMI 
2025 (6) TMI 1920
X X X X Extracts X X X X
X X X X Extracts X X X X
....n sale of REC (carbon credits) are capital in nature and hence, the same are not taxable. Section 115BBG of the Act dealing with taxation on transfer of carbon credits is inserted in the statute book w.e.f. 01.04.2018 and it is prospective in nature, hence not applicable in the case of the appellant. 3. The Ld. CIT(A) erred in law and on facts in confirming disallowance of partner's remuneration of Rs. 3,80,000/- which is in compliance with Section 40(b) and Section 40A(2) of the Act. 4. The Ld. CIT(A) erred in law and on facts attributing partner's remuneration of Rs. 3,80,000/- to the solar power unit. Remuneration taken by the partners is based on mutual agreement and it is not mandatory to take remuneration from each business unit. 5. The Ld. CIT(A) erred in law and on facts in not adjudicating the ground relating to disallowance of depreciation of Rs. 3,25,692/- on solar building and machinery. 6. The Ld. CIT(A) has erred in law and on facts of the case in confirming action of the Ld. AO in levying interest u/s. 234B/C of the Act. 7. The Ld. CIT(A) has erred in law and on facts of the case in confirming action of the Ld. AO in initiating penalty u/s. 270A of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le sources. These certificates are tradable on power exchanges approved by the regulatory authority. The sale of RECs is essentially an entitlement received for contributing to environmental conservation and the reduction of harmful emissions. Therefore, the income generated from the sale of RECs is not taxable under the Act. In support of this argument, the Counsel for the assessee placed reliance on several judicial decisions, including PCIT v. Gujarat Fluorochemicals Ltd. [2023] 155 taxmann.com (Gujarat), CIT v. My Home Power Ltd. [2014] 365 ITR 82 (Andhra Pradesh), CIT v. Subhash Kabini Power Corporation Ltd. [2016] 385 ITR 592 (Karnataka), and Essel Mining & Industries Ltd. v. DCIT [2022] SCC Online ITAT 311. The assessee submitted that Section 115BBG, which specifically taxes carbon credits as capital receipts, was introduced into the Statute only prospectively, w.e.f. 01.04.2018, and is thus not relevant for the impugned assessment year. Alternatively, and without prejudice to the primary argument, the assessee submitted that if the sale of RECs is considered a revenue receipt, it should still be eligible for the deduction under Section 80IA as income generated from the busi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aim related to income earned from the sale/transfer of RECs/ESCs as "capital receipt" and recomputed the tax by claiming exemption of tax on said income. The Tribunal while allowing the appeal of the assessee on this issue made the following observations: "15. We heard the rival submission and considered the documents available in the record. First, we consider the issue whether assessee is eligible for the income from RECs and ESCs capital in nature and shall be considered as capital receipt or revenue receipt. First to ascertain the issue related technical nitty gritty of the REC &ESC's. 15.1 CARBON CREDITS v. RENEWABLE ENERGY SOURCES v. ESCERTS That in the present era global warming and environmental concerns are on the mind of everybody and all the developed/underdeveloped countries are having their meetings regularly to devise new modes to reduce the emission of greenhouse gases i.e. Carbon dioxide/Methane etc. to impede global warming because the emission of excessive greenhouse gases primary polluter of environment. 15.2 Common Feature [Credit for reducing carbon emission or greenhouse effect] The common features of Carbon Credits/RECs/ESCERTS is that these are....
X X X X Extracts X X X X
X X X X Extracts X X X X
....plants who have overachieved their targets. Those plants who were under achievers of their targets are entitled to purchase ESCERTs for the trading of ESCERTs, Central Electricity Regulatory Commission (CERC) is the Market Regulator and Bureau of Energy Efficiency is the Administrator. 15.5 Common Features: For treating them as capital receipts not liable to tax (a) That all the above stated three modes of incentives are in the nature of an entitlement received to improve word atmosphere reducing Carbon/Heat and gases emissions and entitlement earned can, at best, be recorded as 'capital receipt' and cannot be taxed as the 'revenue receipt'. (b) The credits in all the three modes of reduction of 'carbon footprint' are not generated or created due to carrying on business to this accrued due to concern of the word to improve emission of 'greenhouse gases' which are primary polluters of environment. Thus, the amount received for 'Carbon Credits' has no element for profit and gain and it is not subjected to tax under any head of income and it is not liable for tax in terms of sections 2(24),28,45 & 56 of the Income-tax Act, 1961. [The taxab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the same qualifies as "capital receipt" for the impugned year under consideration. 9. In the result, Ground Number 2 of the assessee's appeal is allowed. 10. Since, we have held that the income of sale of REC qualifies as "Capital Receipt" and hence not taxable, we are not adjudicating Ground No. 1 raised by the assessee. Ground Number 3 and 4: disallowance of partner's remuneration: 11. The brief facts in relation to this ground of appeal are that during the course of assessment, the Assessing Officer observed that the assessee had not claimed any expenditure against income earned from sale of power, on which deduction under Section 80-IA of the Act was claimed by the assessee. On being asked, the assessee submitted that all the running and maintenance costs were being incurred by the vendor from whom the solar plant was purchased, as per agreement. Accordingly, no costs were allocated towards running and maintenance of the solar power plant. However, the Assessing Officer was of the view, that looking into the assessee's set of facts, it is evident that partners of the assessee firm would have clearly devoted their time and energy towards income earning activities on which ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....usiness. The Counsel for the assessee further argued that, as established in prior rulings, unless an expenditure is directly related to an eligible unit for claiming a deduction under Section 80IA, it cannot be apportioned to that unit. To support this argument, the assessee has cited precedents such as DCIT v. Hira Ferro Alloys Ltd. [2018] 90 taxmann.com 430 (Raipur-Trib.) and ACIT v. P.I. Industries [2012] 23 taxmann.com 301 (Jodhpur-Trib.), where similar principles were upheld. 14. On going through the facts of the case, we observe that the assessee did not claim any expenses against the receipts from the sale of power, while claiming deductions on the entire income from these receipts. We are unable to accept the argument of the assessee that there was no requirement for the partners to dedicate any time and effort to the income-generating activities of the business on which exemption was being claimed. Additionally, we are of the view that the Assessing Officer / Ld. CIT(Appeals) have correctly observed that remuneration to the partners is payable as working partners in relation to the business as a whole and it cannot be accepted that such remuneration is not payable with r....