The Madras High Court ruled that the proceeds on the sale of certified emission reduction credit earned on clean development mechanism are a capital receipt, no Income Tax payable.
The Revenue is on appeal challenging the correctness of the order by raising the substantial question of law that Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the proceeds realized by the assessee, M/s.Wescare (India) Ltd. on sale of certified emission reduction credit, which the assessee had earned on the clean development mechanism in its wind energy operations, is a capital receipt and not taxable.
The division bench of Justice T.S. Sivagnanam and Justice Sathi Kumar Sukumara Kurup in the light of the decision in the case of S.P. Spinning Mills Pvt. Ltd. Vs. ACIT, Circle – 1(3), Salem wherein it was held that Carbon Credit is not an offshoot of business, but an offshoot of environmental concerns. No asset is generated in the course of business, but it is generated due to environmental concerns. It was also found that the carbon credit is not even directly linked with power generation and the income is received by the sale of the excess carbon credits. It was found that the Tribunal has rightly held that it is a capital receipt and not business income.
Therefore, the Court held that the Carbon Credit is not even directly linked with power generation. On the sale of excess Carbon Credits the income was received and hence as correctly held by the Tribunal it is a capital receipt and it cannot be a business receipt or income.
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