Carbon Credit receipts are not chargeable to tax as “income”. For s. 80-IA(8) if there are multiple “market values” assessee has the right to choose

(i) Carbon credit is in the nature of ‘an entitlement’ received to improve world atmosphere and environment reducing carbon, heat and gas emissions. The entitlement earned for carbon credits is a capital receipt and cannot be taxed as a revenue receipt. It is not generated or created due to carrying on business but it is accrued due to ‘world concern’. It has been made available assuming character of transferable right or entitlement only due to world concern. The source of carbon credit is world concern and environment. Due to that the assessee gets a privilege in the nature of transfer of carbon credits. Thus, 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. My Home Power Ltd 151 TTJ 616 (Hyd), Velayudhaswamy Spinning Mills 40 taxmann.com 141 (Chennai) & Ambika Cotton Mills Ltd (Chennai) followed. Also, in Vodafone International Holdings 341 ITR 1 the Supreme Court has held that treatment of any particular item in different manner in the 1961 Act and Direct Tax Code (“DTC”) serves as an important guide in determining the taxability of said item. Since DTC specifically provides for taxability of carbon credit as business receipt and Income Tax Act does not do so, it means that carbon credits are not taxable under the Act

For s. 14A/ Rule 8D(2)(ii), interest expenditure on loans taken for taxable business purposes has to be excluded

Rule 8D(2)(ii) is very clear that the expenditure on account of payment of interest would be covered in the said Rule only if it is not directly attributable to any particular income or receipt. If the assessee is able to demonstrate that the payment of interest is directly attributable to the assessee’s business, it cannot be considered under Rule 8D(2)(íi) of the I.T. Rules and has to be excluded while computing the disallowance u/s 14A

Transfer Pricing: Argument, based on BMW, that the AMP adjustment law laid down in L. G. Electronics (SB) does not apply to a full-risk distributor in not correct

The argument, based on BMW India Pvt. Ltd. vs. ACIT (Del) that as the assessee was a full fledged distributor and as such the benefit of AMP expenses did not spill over to the foreign AE is not acceptable because the Special Bench order in LG Electronics is applicable with full force on all the classes of the assessees, whether they are licensed manufacturers or distributors. The Bench in BMW did not have any occasion to bestow its attention to the correctness of the application by the TPO of the aforesaid parameters laid down in the special bench order as these were naturally not considered by the Officer since he passed his order much before the advent of the special bench order. There is no prize for guessing that Special Bench order has more force and binding effect over the Division Bench order on the same issue

S. 2(47)(v): A development agreement by which possession is transferred to developer is not a “transfer” for capital gains purposes if developer’s willingness to perform his part of the contract is not ascertainable with certainty

S. 2(47)(v) provides that the term ‘transfer‘ includes “any transaction involving the allowing of, the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in s. 53A of the Transfer of Property Act”. In order to be “of the nature referred to in s. 53A of the Transfer of Property Act”, the necessary precondition is that the transferee should be willing to perform his part of the contract. The “willingness” has to be absolute and unconditional. If willingness is studded with a condition, it is no more than an offer and cannot be termed as willingness. On facts, the “willingness” of the developer to perform his part of the obligations is not ascertainable in AY 2007-08 because (a) the consideration was not paid to the assessee, (b) the building plans had not been approved, (c) there was no progress with regard to development in the AY, (d) there was no investment by the developer in the construction activity during the AY. It is not possible to say whether the developer is prepared to carry out those parts of the agreement to their logical end. The fact that the assessee has given possession is not relevant. Consequently, s. 2(47)(v) does not apply and the capital gains is not assessable to tax (Chaturbhuj Dwarakadas Kapadia 260 ITR 491 (Bom) explained/ distinguished)

No s. 40(a)(i) TDS disallowance for amounts made taxable due to retrospective amendment. Also, concept of “business connection” u/s 9(1)(i) & “fees for technical services” u/s 9(1)(vii) explained

As regards “fees for technical services”, the payments made to the subsidiaries may be construed as “fees for technical services”. However this is only due to the retrospective amendment by Finance Act 2010. Prior to that, Ishikawajima-Harima Heavy Industries 288 ITR 408 (SC) had held that s. 9(1)(vii) could be invoked only where the services were rendered in India and utilized in India. At the time of the payment Ishikawajima-Harima was the law of the land and the assessee was of the bona fide belief that TDS was not necessary on the said payments of fees for technical services. S. 40(a)(i) cannot apply to disallow payments which become taxable subsequently due to a retrospective legislation. Further, some of the payments do not satisfy the “make available” test in the DTAA as held in De Beers India Minerals

S. 147: Failure to compute capital gains u/s 50C does not lead to escapement of income

S. 50C is not a final determination to prove that it is a case of escapement of income. The report of the approved valuer may give estimated figure on the basis of facts of each case. Therefore, mere applicability of s. 50C would not disclose any escapement of income in the facts and circumstances of the case. The AO at the original assessment stage considered all the documents and material produced before him and has accepted the cost of property as was declared by the assessee. The reassessment is on change of opinion which is not justified

S. 32: Road constructed on Build-Operate-Transfer (“BOT”) terms is eligible for depreciation even though assessee is not the legal owner of the road

Though the NHAI remains legal owner of the site with full powers to hold, dispose of and deal with the site consistent with the provisions of the agreement, the assessee had been granted not merely possession but also right to enjoyment of the site and NHAI was obliged to defend this right and the assessee has the power to exclude others. The very concept of depreciation suggests that the tax benefit on account of depreciation belongs to one who has invested in the capital asset, is utilizing the capital asset and thereby loosing gradually investment cost by wear and tear and would need to replace the same by having lost its value fully over a period of time. The term “owned” as occurring in s. 32 (1) of the Act must be assigned a wider meaning. Anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded there from and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the buildings, though a formal deed of title may not have been executed and registered (Mysore Minerals 239 ITR 775 (SC), Noida Toll Bridge 213 Taxman 333 etc referred)