The Income Tax Appellate Tribunal (ITAT), Bangalore Bench held that The entitlement earned for carbon credits is a capital receipt and cannot be taxed as a revenue receipt.
The assessee, M/s. Bhoruka Power Corporation Ltd. is a company engaged in the business of generation of hydro and wind power. The assessee was entitled to claim deduction under section 80-IA of the Income Tax Act, 1961 in respect of the business of generation of power.
The assessee claimed a sum of Rs.20,74,42,471 as deduction under section 80-IA of the Act. In the claim for deduction under section 80IA, the assessee also included receipt of Rs.5,91,59,000 from the sale of carbon credit.
The AO held that receipt of account of sale of carbon credit is not derived from eligible business and denied the benefit under section 80IA of the Act, to the extent of receipt on account of sale of carbon credit.
Alternatively, the assessee claimed that the receipt on account of carbon credit is a capital receipt not chargeable to tax. The AO, however, rejected this contention and held that it is a revenue receipt chargeable to tax.
On appeal by the assessee, the CIT(Appeals) allowed the alternative claim of the assessee following the decision of the Hon’ble Andhra Pradesh High Court in CIT v. My Home Power Ltd.
The tribunal in the light of the judgment of Andhra Pradesh High Court in case of My Home Power Ltd., wherein it was held that carbon credit was not an offshoot of business of the assessee but an offshoot of environmental concerns. No asset was generated in the course of business but it was generated due to environmental concerns. There was no cost of acquisition or cost of production to get entitlement for the carbon credits. Therefore, the income from the sale of carbon credits was to be considered as capital receipt and not liable to tax under any head of income under the Income-tax Act, 1961.
The tribunal headed by N.V. Vasudevan did not allow the grounds raised by the revenue and held that the amount received for carbon credits has no element of profit or gain and it cannot be subjected to tax in any manner under any head of income.
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