The Chennai Bench of the Income Tax Appellate Tribunal (ITAT), deleted income tax addition and ruled that carbon credit receipt is capital receipt.
The assessee, Bannari Amman Sugars Ltd, is a limited company engaged in the business of manufacturing of sugar, alcohol, granite and cogeneration of power. The case was selected for scrutiny through CASS after serving valid notice under Section 143(2) of the Income Tax Act. After considering the assessee’s submissions, the assessment was completed after making various disallowances and additions.
Carbon Credits is an incentive given to an industrial undertaking for the reduction of the emission of GHGs (Green House Gases), including carbon dioxide which is done through several ways such as by switching over to wind and solar energy, forest regeneration, installation of energy efficient machinery, landfill methane capture, etc.
Section 15BBG of the Income Tax Act states that (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 per cent; 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).
Explanation to the Section states that carbon credit” in respect of one unit shall mean reduction of one tonne of carbon dioxide emissions or emissions of its equivalent gases which is validated by the United Nations Framework on Climate Change and which can be traded in market at its prevailing market price.
The assessee received Rs.68 lakhs as carbon credit and claimed it as a capital receipt. The Assessing Officer treated it as a Revenue receipt under Section 28(iv) of the Income Tax Act. Thereafter, the CIT(A) respectfully following the judgment of the Andhra Pradesh High Court in the case of CIT v. My Home Power Ltd., deleted the addition made by the Assessing Officer.
The CIT(A) had placed reliance on the judgment of the Andhra Pradesh High Court in the case of My Home Power Ltd. Similar view has also been taken in the case of PCIT v. Chemplast Sanmar Ltd., wherein it was held that sale of Renewable Energy Certificate (Carbon Credit) of income received by the assessee is a capital receipt and cannot be considered business receipt or income.
The Two- Member Bench of Manish Borad, Accountant Member and V. Durga Rao, Judicial Member observed that” Respectfully following the judicial precedents fail to find any infirmity in the findings of the CIT(A) holding the Carbon Credit receipt as a capital receipt.”
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