The Bengaluru bench of the Income Tax Appellate Tribunal ( ITAT ) recently held that the Sale of Carbon Credits would not attract Income Tax as the same constitute a capital receipt under the Income Tax Act.
Carbon Credit is a certificate showing that a government or company has paid to have a certain amount of carbon dioxide removed from the environment. The Certified Emission Reduction is tradable and its holder can transfer it to an entity which needs Carbon Credits to overcome an unfavorable position on carbon credits. India, though not a party to the, is one of the largest beneficiaries of the Kyoto Protocol.
In the instant case, Assessing Officer made an addition of Rs.6,35,04,451/- against the assessee, M/s. Ambuthirtha Power P. Ltd, in respect of sale of carbon credits by treating it as revenue receipt.
The assessee relied on an earlier order of the Tribunal wherein the bench held that the sale of carbon credits is to be considered as capital receipt.
Relying on its earlier order, the Tribunal reiterated that the receipts on sale of carbon credits is capital receipt and the order of the Assessing Officer needs to be deleted.
Carbon Credits, being a new concept, its taxability of the same is a debatable issue. There are criticisms that there is no effective mechanism to deal with the tax issues. Earlier, the Direct Tax Code proposed by the UPA Government had clear provisions regarding the taxation of income from carbon credits. It provided that carbon credits are business income and it will be taxed @ flat 30%.
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