Receipts from Carbon Credit is not Business Income: ITAT disallows Deduction Claim [Read Order]

Carbon Credit - ITAT - Deduction Claim - Taxscan

The Income Tax Appellate Tribunal (ITAT) held that the receipts from the sale of the carbon credit are liable to be treated as the capital receipts on an appeal filed by M/s. Rajshree Sugars and Chemicals.

The assessee had claimed that the receipt from the sale of carbon credits had originally been offered by the assessee as business income and the assessee had claimed the same as eligible for deduction u/s.80IA of the Income Tax Act, 1961.

The Assessing Officer submitted that in the course of the assessment had denied the assessee’s claim of deduction u/s.80IA in respect of the receipts on the sale of the carbon credits.

In an additional ground, the assessee has raised an alternative prayer that the receipts from the sale of the carbon credit are liable to be treated as the capital receipts.

“Additional Ground: An amount of Rs.5,76,72,595/- realized to transfer of Carbon Credits – CER (Certified Emission Reductions) was not a receipt in the nature of revenue, but only a capital receipt and therefore not liable to be included in the total income of the appellant for the assessment year.”

Section 115 BBG(1) has been brought to the statute elaborate as follows:

(1) Where the total income of an assessee includes any income by way of transfer of carbon credits, the income-tax payable shall be the aggregate of:-

(a) The amount of income-tax calculated on the income by way of transfer of carbon credits, at the rate of ten percent; and

(b) The amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (a).”

In the light of the decision of the Co-ordinate Bench of the Tribunal, Hyderabad Benches in the case of Commissioner of Income Tax Vs. My Home Power Limited and Assistant Commissioner of Income Tax Vs. M/s. Chemplast Sanmar Limited the bench held that the receipts from the sale of the carbon credits are liable to be held as capital receipts only.

The Tribunal observed that the expenditure incurred by the assessee in respect of the sale of the carbon credits cannot be treated as Revenue expenditure at all.

The Bench comprising of Judicial Member, George Matham and Accountant Member S. Jayaraman further directed to see to it that when the capital receipt is computed, the said expenditure is reduced from the said capital receipts for determining the net capital receipt.

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