2022 (2) TMI 758 - ITAT DELHI

Receipt from transfer of Carbon Emission Reduction ("CER") - Whether revenue receipt and taxable under section 28(iv) ? - Whether such money received by the assessee on sale of CERs/carbon credits is taxable under Income-tax Act or not? - HELD THAT:- We are of the view that carbon credits/CERs are in nature entitlement accrued to the assessee on account of its efforts to reduce the emission of harmful greenhouse gases. They have arisen due to environmental concerns and therefore cannot be said to be 'connected with' or 'incidental to' the business activities of assessee. The assessee is engaged in the business of refrigerants, engineering plastics and industrial yarns etc. and is not into the business of trading of carbon credits. All these findings of facts have been given by the coordinate bench in assessee's own case in subsequent years in AY 2007-08 and AY 2010-11 which have been placed before us. We, therefore, hold that carbon credits are not offshoot of business but offshoot of environmental concerns and hence not chargeable to tax. The receipts arising from transfer of carbon credits are in the nature of capital receipts not subjected to tax in terms of section 28(iv) read with section 2(24)(vd) of the Act. The claim of the assessee raised in grounds of appeal from 1 to 3 is hereby allowed.

Exclusion of carbon credits from the book profits computed u/s 115JB - HELD THAT:- Carbon credits being the capital receipts cannot be brought to tax as book profits and are, thus, liable to be excluded from the computation of book profits u/s. 115JB - See Ankit Metal & Power Ltd. [2019 (7) TMI 878 - CALCUTTA HIGH COURT]

Allowability of education cess as deductible expenditure u/s. 37 (1) - HELD THAT:- As it stands today (as the proposed amendment by Finance Bill, 2022 is yet to take effect) hold that education cess is not a disallowable expenditure u/s. 40(a)(ii) of the Act having been expressly excluded from section 40(a)(ii) of the Act by following the judgment of the Hon'ble Rajasthan High Court in the case of Chambal Fertilisers And Chemicals Ltd. [2018 (10) TMI 589 - RAJASTHAN HIGH COURT] and the Hon'ble Bombay High Court in the case of Sesa Goa Limited [2020 (3) TMI 347 - BOMBAY HIGH COURT]. We, therefore, allow the deduction of education cess u/s. 37 of the Act.

Appeal of the assessee stands allowed.