The Apex Court has refused to give a verdict on the issue whether Carbon Credit is a revenue or capital receipt as not pressed by the department in a batch of Income tax appeals against Jindal Steel and Power Limited.
Among others, a question raised before the apex court was whether the carbon credit is a revenue receipt or capital receipt.
This additional issue has been raised by the revenue in ACIT Vs. M/s Godawari Power and Ispat Pvt. Ltd. and in ACIT Vs. M/s Godawari Power and Ispat Pvt. Ltd.
In the two appeals, revenue has raised the question as to whether receipts on sale of carbon credit is a capital receipt whereafter assessee is not liable to pay any tax.
We may mention that before the Tribunal, the assessee had questioned amongst others the finding of CIT(A) confirming the decision of the assessing officer that an amount of Rs. 4,47,75,122.00 realized on account of carbon credit had no direct and immediate nexus with the income of the power division and hence did not qualify for deduction under Section 80-IA(4)(iv) of the Income Tax Act.
On due consideration, the Tribunal vide the order dated 31.03.2016 held that carbon credit is generated under the Kyoto Protocol and because of international commitments.
Carbon credit emanates from such technology and plant and machinery which contribute to reduction of greenhouse gases. That apart, carbon credits are also meant to promote environmentally sound investments which are admittedly capital in nature. Therefore, the Tribunal had held that carbon credit is a capital receipt.
Against the aforesaid decision of the Tribunal, revenue had preferred appeal before the High Court of Chhattisgarh under Section 260A of the Income Tax Act.
From a reading of the High Court order dated 15.11.2016, the Apex Court Bench noted that the only issue raised by the revenue before the High Court was relating to disallowance of deduction by the assessing officer under Section 80-IA (4) (iv) of the Income Tax Act.
“The question of carbon credit being capital receipt or not was not raised. In other words, revenue had accepted the decision of the Tribunal as regards carbon credit and did not challenge the said decision before the High Court”, the Apex Court Bench of Justice B V Nagarathna and Justice Ujjal Bhuyan observed.
“In fact, in the proceedings dated 11.09.2009 it was agreed by both the sides (including the revenue) that the only question which arose for consideration of this Court was as regards interpretation of Section 80-IA of the Act”, the Supreme Court Bench noted.
Thus, observing that the issue relating to carbon credit was not raised or urged by the revenue, the Supreme Court two-judge bench held that, “revenue would be estopped from raising the said issue before this Court at the stage of final hearing. That apart, there is no decision of the High Court on this issue against which the revenue can be said to be aggrieved and which can be assailed.”
Thus, the Apex Court declined to answer this question raised by the revenue and left the question open to be decided in an appropriate proceeding.
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