|CORAM:||Jason P. Boaz (AM), Rajpal Yadav (JM)|
|CATCH WORDS:||capital vs. revenue receipt, carbon credits|
|COUNSEL:||S. K. Tulsiyan|
|DATE:||November 28, 2014 (Date of pronouncement)|
|DATE:||November 29, 2014 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|Profits on sale of carbon credits is not a taxable revenue receipt|
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 can, at best, be regarded as 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. It is not liable for tax for the assessment year under consideration in terms of sections 2(24), 28, 45 and 56 of the Income-tax Act, 1961. Carbon credits are made available to the assessee on account of saving of energy consumption and not because of its business. Further, in our opinion, carbon credits cannot be considered as a bi-product. It is a credit given to the assessee under the Kyoto Protocol and because of international understanding. Thus, the assessees who have surplus carbon credits can sell them to other assessees to have capped emission commitment under the Kyoto Protocol. Transferable carbon credit is not a result or incidence of one’s business and it is a credit for reducing emissions. The persons having carbon credits get benefit by selling the same to a person who needs carbon credits to overcome one’s negative point carbon credit. The amount received is not received for producing and/or selling any product, bi-product or for rendering any service for carrying on the business. In our opinion, carbon credit is entitlement or accretion of capital and hence income earned on sale of these credits is capital receipt (My Home Power Ltd 151 TTJ 616 affirmed in My Home Power Ltd 2014 (6) TMI 82, Ambica Cotton Mills Ltd vs.DCIT 27 ITR 44, Velayudhaswamy Spinning Mills (P) Ltd vs. DCIT (2013) 27 ITR (Trib.) and Shree Cement Ltd vs.
ACIT (ITAT Jaipur) followed).