The Supreme Court will preside over the government’s plea in respect of the applicability of Income Tax on money earned from trading of carbon credits by Green Industries.
In the case in hand, Lanco Tanjore Thermal Power Company Ltd was saddled with a tax effect of Rs 567 lakhs for its earning from trading in carbon credits for the assessment year 2010-11. After the case meandered through the tax tribunals, the Madras High Court in February termed the earnings capital assets and ruled it was not liable for tax.
The Centre while challenging the decision of the High Court raised the issue whether the HC was justified in holding that the sale of carbon emission reduction, also known as carbon credits, is to be considered as capital receipts and not liable to taxation, without appreciating that carbon credit is revenue in nature as is obvious from Section 115BBG inserted in the Income Tax Act.
The division bench of Justice Sanjiv Khanna and Justice Bela M Trivedi said this would have a far reaching impact on the future industrial scenario given the rising clamour against global warming. Venkataraman said, “The issue could be-whether trading in carbon credits trading is part of the business activities of an industry? Today it may be capital assets but it may become a revenue asset as the carbon credits trading income could be classified as income from other sources.”
It was further added, “If you classify carbon credits trading as income from other sources, there could be a problem. If these are going to be treated as business assets, then the issue will arise in several cases.”
The bench didnot elaborate more as it issued notice to Lanco Tanjore Power Corporation Ltd, which was granted exemption from tax liability on income accrued to it by selling carbon credits to foreign firms.
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