SHIS, FPS Incentives and Carbon Credit Receipts held Capital in Nature, Excludable from Book Profit u/s 115JB: ITAT [Read Order]

The Kolkata Bench of Income Tax Appellate Tribunal (ITAT) held that the SHIS, FPS incentives and carbon credit receipts are Capital in Nature and can be excluded from Book Profit under Section 115JB of the Income Tax Act, .

The assessee, Shyam Metalics and Energy Ltd had received an incentive amounting to Rs. 1,02,01,683/-under the SHIS & FPS Scheme of the Government of India for promoting and exploring new markets abroad.

Relying on the decision of the Supreme Court in the case of PCIT v. Nitin Spinners Ltd. rendered in the context of these specific schemes, the assessee had claimed the impugned receipt as a capital receipt not exigible to tax before the CIT(A). The CIT(A) rejected this additional claim. Aggrieved by this, the assessee proceeded with an appeal.

The assessee contended that he was prevented from raising a fresh claim only before the AO and that the assessee was free to raise any new claims before the appellate authorities.

For this, he particularly relied on the decisions of the Calcutta High Court in the cases of PCIT Vs Shantinath Detergents (P.) Ltd. & CIT Vs Britannia Industries Ltd and the decision of this Tribunal in the case of Century Plyboards (I) Ltd. v. DCIT wherein on similar facts and circumstances, it was held that the appellate authority had the power to entertain the claim of deduction which was not claimed before the Assessing Officer by filing a revised return.

The Tribunal observed that the assessee had not raised the claim for exclusion of the incentive received under the FPS & SHIS Scheme by way of capital receipt, because of the complex legal position and the litigation surrounding this issue.

The Tribunal further observed that the Gujarat High Court in the case of CIT v. Mitesh Impex after considering the decisions rendered by the Apex Court in the case of NTPC v. CIT and Goetze (India) Ltd. v. CIT [2006] has held that, if a claim which is available in law is not raised either inadvertently or an account of erroneous understanding of complex legal position such a relief cannot be shut up for all the times to come merely because it is raised for the first time in appellate proceedings in absence of a revised return filed before the Assessing Officer.

In view of the above decisions, the bench admitted the fresh claim raised by the assessee seeking exclusion of the incentive received under the FPS & SHIS Scheme from the computation of total income, claiming it to be a capital receipt.

Regarding the FPS and SHIS scheme, the assessee brought to notice that the FPS Scheme was launched with an objective to incentivise employment intensity in rural and semi-urban areas so as to offset the inherent infrastructure inefficiencies and other associated costs. Likewise, the SHIS Scheme was intended to incentivise technological upgradation in export sectors.

The Tribunal observed that the objective of these Schemes was to increase the share of global trade of India, incentivise investment and expand the employment opportunities in these sectors.

The Tribunal further observed that an identical issue came up for consideration before the Rajasthan High Court in the case of Pr. CIT v. Nitin Spinners Ltd., the subsidy received under the various schemes of Foreign Trade Policy was held to be a capital receipt and therefore excluded from the total income. It is noted that the SLP preferred by the Revenue has since been dismissed by the Supreme Court.

Following these decisions, the Tribunal accepted the plea raised by the assessee and directed the AO to exclude the impugned incentives, being capital receipts, while computing the total income for the relevant year.

On the issue of treatment of these incentives while computing book profit under Section 115JB, the Tribunal found that the case of the assessee is squarely covered by the decision of the coordinate Bench of the ITAT, Kolkata in the case of DCIT Vs Century Plyboards

Following the above decisions, the two-member bench of Pradip Kumar Choubey (Judicial Member) and Rajesh Kumar (Accountant Member) held that the incentive received under the SHIS / FPS Scheme, being a capital receipt, is directed to be excluded from the computation of book profit under Section 115JB of the Act.

The Tribunal in the matter of carbon credit observed that

“The carbon credit is neither received by producing or selling a product, or by-product or rendering any services in connection with the carrying on of the business. Rather, it is in the nature of ‘an entitlement’ received to improve world atmosphere and environment by reducing carbon, heat and gas emissions. Carbon credits are made available to the taxpayer on account of saving of energy consumption and non-emission of hazardous gases into the atmosphere and not because of its business. It has been held by various judicial authorities cited above that “carbon credit is an offshoot of environmental concern”.“

The Tribunal found that there is a plethora of judgments wherein it has been consistently held that income from the sale of carbon credit is not chargeable to tax. The Tribunal directed the AO to allow the exclusion of carbon credit receipts from the computation of assessable book profit under Section 115JB of the Act.

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