2016 (5) TMI 793 - KARNATAKA HIGH COURT

Sale of carbon credits - revenue or capital receipt - Tribunal quashing the order under Section 263 - whether he consideration received from the sale of carbon credits is not derived from the eligible business undertakings? - Held that:- In the case of Commissioner of Income Tax v. Maheshwari Devi Jute Mills Ltd. [1965 (4) TMI 10 - SUPREME Court] , wherein the question came up for consideration before the Apex Court as to whether by sale of loom-hours, the amount received could be termed as capital receipt or the income out of business. In the said decision, the Apex Court held that the amount received out of sale of loom-hours can be termed as capital receipt and not income out of business.

When the carbon credit is generated out of environmental concerns, and it is not having the character of trading activity, the Tribunal has rightly held that it is capital receipt and it is not income out of business and hence, not liable to pay income tax.

Once it is found that the amount realized by sale of carbon credit is not taxable as profit, naturally it will have no adverse effect on the Revenue. It is settled legal position that one of the requirements for exercise of power under Section 263 of the Act, is that the order passed by the lower authority should not only be erroneous, but should also be prejudicial to the interest of the Revenue, which is lacking in the present case and rightly found so by the Tribunal. No substantial question of law - Decided against revenue