TMI Blog2021 (1) TMI 1081X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal was expected to apply the law and take a decision in the matter and if the CIT(A) or the Assessing Officer had failed to apply the law, then the Tribunal was bound to apply the law. This is so because, in the light of the decisions referred above, the receipt by way of sale of carbon credit has been held to be capital receipt. Therefore, it is of a little consequence as to the claim made by the assessee under Section 80IA of the Act or in other words, the question of taking a decision as to whether the deduction is admissible under Section 80IA of the Act is a non-issue. If the receipt from the sale of carbon credit is a capital receipt, then it will go out of the purview of the gross total income as defined under Section 80B(5) of the Act, which expression is found in Section 80IA of the Act. Thus, if the receipts by sale of carbon credit will not fall within the definition of total income, the same cannot be included under Section 80IA of the Act. Therefore, even if the assessee has made such a claim, that cannot be a reason for the Tribunal to non-suit the assessee. Section 115BBG of the Act was introduced by Finance Act, 2017 with effect from 01.04.2018, prior to w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Justice R.N. Manjula For the Appellant : Mr.V.S.Jayakumar For the Respondent : Ms.V.Pushpa, Senior Standing Counsel JUDGMENT This appeal filed by the assessee under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act ) is directed against the order dated 24.03.2017, passed by the Income Tax Appellate Tribunal Bench 'C', Chennai (for brevity the Tribunal ), in I.T.A.No.2845/Mds/2016 for the assessment year 2011-12. 2.The appeal is entertained on the following substantial questions of law:- (i).Whether on the facts and in the circumstances of the case the Tribunal is correct in law in its interpretation of Section 14A of the Income Tax Act, 1961 and read with Rule 8D of the IT Rules, 1962 relating to the disallowance of expenses in the absence of exempt income? (ii).Whether the Tribunal is right in law in holding that the disallowance u/s.14A should be made even though no expenditure has been incurred relating to the exempt income? (iii).Whether the Tribunal is right in law in holding that the notional interest disallowance made by the Assessing Officer is correct u/s.36(1)(iii) of the Income Tax Act, 1961? and 4.Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer observed that from the balance sheet, it is seen that the assessee had invested a sum of ₹ 9 Crores in the subsidiary companies and it had not claimed any expenditure. Therefore, he was satisfied that the provisions of Section 14A of the Act read with Rule 8D of the Income Tax Rule, 1962 (hereinafter referred to as the Rules ) have to be applied and accordingly, worked out the same. 8.On the above terms, the assessment was completed by order dated 10.03.2014 under Section 143(3) of the Act. Aggrieved by such order, the assessee preferred appeal before the Commissioner of Income Tax (Appeals), Salem (for brevity the CIT(A) ). 9. With regard to the carbon credit, the assessee contended that without prejudice to their claim for deduction under Section 80IA, the carbon credit revenue is to be held as a capital receipt and ought to have been excluded from the taxable income. 10.With regard to the interest disallowance, the assessee contended that their current year profit was ₹ 7,52,37,357/- and free reserves was ₹ 35,81,22,243/- and there was no necessity to divert the cash credit borrowings for making interest free loans to the subsidiary companies. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly or indirectly during the year when the investments were made. 17.On a reading of the impugned order, more particularly in paragraph 6, we are unable to decipher as to how the Tribunal had concluded the issue. We may point out that the Tribunal has not dealt with the issue with regard to the correctness of the disallowance under Section 14A of the Act. 18.With regard to the claim for deduction under Section 80IA of the Act, the Tribunal took note of the submission made by the assessee, the decisions relied on and confirmed the finding of the CIT(A) largely on the ground that the assessee themselves regarded it as a business income and claimed deduction under Section 80IA of the Act. 19.We may point out that the Tribunal did not consider the specific aspect, which was focused by the assessee before the CIT(A) that the carbon credit received has been held to be capital receipt and thus, ought to have been excluded from the taxable income. Challenging the correctness of the order passed by the Tribunal, the assessee is before us. 20.We have elaborately heard Mr.V.S.Jayakumar, learned counsel for the appellant/assessee and Ms.V.Pushpa, learned Senior Standing Counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manding the issue with regard to interest disallowance under Section 36(1)(iii) of the Act, ought to have remanded the issue with regard to disallowance under Section 14A of the Act as well. But, however failed to do so and therefore, we are of the view that this issue needs to be remanded back to the Assessing Officer for fresh consideration. Accordingly, the finding rendered by the Tribunal with regard to the disallowance under Section 14A of the Act is set aside and the matter is remanded to the Assessing Officer for fresh consideration. 27.In the result, substantial question of law nos.1 and 2 are left open. 28.Insofar as substantial question of law no.4 is concerned, it deals with carbon credit. The question, as to the manner in which carbon credit receipt has to be treated, has been considered by several High Courts and it has been held that the receipt should be treated as a capital receipt. In this regard, it would be beneficial to refer to the decision in the case of CIT vs. Subhash Kabini Power Corporation Ltd., [(2016) 385 ITR 0592 (Karn.)]. In the said decision, the Karnataka High Court approved the view taken by the ITAT, Hyderabad Bench, which decision wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne a question of law which arose from the fact as found by the Income Tax authorities and having a bearing on the tax liability of the assessee. As far as the nature of the receipt from sale of carbon credit is concerned, it is available from the assessment stage. It is not disputed even by the learned Commissioner, the dispute is, whether it has been derived from the eligible industrial undertaking for qualifying the grant of deduction u/s 80IA. The learned Commissioner felt that this receipt has not been derived from the industrial undertaking which will be eligible for grant of deduction u/s 80IA and the Assessing Officer committed an error in including the receipt in the eligible profit. Those facts are already on the record. It is to be seen, whether the receipt is of capital nature or of a revenue nature. Even in case the order of the CIT is upheld, then, in law, it will affect the computation of income, ultimately because the receipt will not be taxable, it will not come under the ambit of computation of income. Simultaneously it will be excluded from the deduction u/s 80IA as well as of the total income. The result will remain as it is. It is a revenue neutral case. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture incurred by an assessee can qualify for deduction under Section 10(2) (xv) only if it is incurred wholly and exclusively for the purpose of his business, but even if it fulfils this requirement, it is not enough; it must further be of revenue as distinguished from capital nature. Here in the present case it was not contended on behalf of the Revenue that the sum of ₹ 2,03,255 was not laid out wholly and exclusively for the purpose of the assessee s business but the only argument was and this argument found favour with the High Court, that it represented capital expenditure and was hence not deductible under Section 10(2) (xv). The sole question which therefore arises for determination in the appeal is whether the sum of ₹ 2,03,255 paid by the assessee represented capital expenditure or revenue expenditure. We shall have to examine this question on principle but before we do so, we must refer to the decision of this Court in Maheshwari Devi Jute Mills case since that is the decision which weighed heavily with the High Court, in fact, compelled it to negative the claim of the assessee and hold the expenditure to be on capital account. That was a converse case where t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cave, L.C., in Atherion v. British Insulated and Halsby Cables Ltd. where the learned law Lord stated: When an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital. This test, as the parenthetical clause shows, must yield where there are special circumstances leading to a contrary conclusion and, as pointed out by Lord Radcliffe in Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd., it would be misleading to suppose that in all cases, securing a benefit for the business would be prima facie capital expenditure so long as the benefit is not so transitory as to have no endurance at all . There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature, acquired by an assessee that brings the case within the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s within one or the other of these two categories, such a test would be a critical one. But this test also sometimes break down because there are many forms of expenditure which do not fall easily within these two categories and not infrequently, as pointed out by Lord Radcliffe in Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd., the line of demarcation is difficult to draw and leads to subtle distinctions between profit that is made out of assets and profit that is made upon assets or with assets. Moreover, there may be cases where expenditure, though referable to or in connection with fixed capital, is nevertheless allowable as revenue expenditure. An illustrative example would be of expenditure incurred in preserving or maintaining capital assets. This test is therefore clearly not one of universal application. But even if we were to apply this test, it would not be possible to characterise the amount paid for purchase of loom hours as capital expenditure, because acquisition of additional loom hours does not add at all to the fixed capital of the assessee. The permanent structure of which the income is to be the produce or fruit remains the same; it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this appeal. The aforesaid shows that the Andhra Pradesh High Court has confirmed the view of the Tribunal 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 the power generation and the income is received by sale of the excess carbon credits. It was found that the Tribunal has rightly held that it is capital receipt and not business income. 7. As such, in our view, when the issue is already covered by the decision of the Andhra Pradesh High Court, wherein the view taken by the Tribunal of Hyderabad Bench has been followed in the present case, one may say that no substantial question of law would arise for consideration. 29.The Hon'ble Division Bench of this Court in the case of PCIT vs. Arun Textiles Pvt. Ltd., [T.C.A.No.606 of 2016, dated 29.08.2016], after referring to the decision in My Home Power Ltd., (supra), dismissed the appeal filed by the Revenue and confirmed the order passed by the ITAT holding that sale of carbon credits ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be said that in accepting the contention of the assessee that the cash credits represented income from the business withheld from the books, the Tribunal made out a new case inconsistent with the assessee's own plea. In any event, the Tribunal is not precluded from adjusting the tax liability of the assessee in the light of its findings merely because the findings are inconsistent with the case pleaded by the assessees. 33.In Mahalakshmi Textile Mill's case, it was held as hereunder:- Under sub-s. (4) of s. 33 of the Indian Incometax Act, 1922, the Appellate Tribunal is competent to pass such orders on the appeal as it thinks fit . There is nothing in the Income-tax Act which restricts the Tribunal to the determination of questions raised before the departmental authorities. All questions whether of law or of fact which relate to the assessment of the assessee may be raised before the Tribunal. If' for reasons recorded by the departmental authorities in rejecting a contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the departmental authorities and the Tribunal, and indeed they would be under a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic elements of adversary proceedings. It, therefore, follows that the discussion and the scope of the appellate jurisdiction of the Tribunal and the other authorities under the tax code cannot be pursued by drawing a parallel to civil litigation with particular reference to appeal from decrees, and the like. Further, it was pointed out that in the case of Mahalakshmi Textile Mills Ltd., the Hon'ble Supreme Court observed that the Tribunal is not precluded from adjusting the tax liabilities of the assessee in the light of its findings merely because, the findings are inconsistent with the case pleaded by the assessee. The decision of the Hon'ble Full Bench of this Court in the case of State of Tamil Nadu vs. Arulmurugan Co., [(1982) 51 STC 381] was referred to wherein, it was held that the Appellate Authorities perform precisely the same functions, as the assessing authority. The above decision and the findings rendered are a clear answer to the arguments raised before us by the Revenue contending that substantial question of law no.4, as framed has to be decided against the assessee. We, thus, have no hesitation to hold that the Tribunal failed to exercise its p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under utter confusion as to under which provision of the Act, they should make a claim for deduction and having left with no other option, had been making the claim under Section 80IA of the Act and merely because the assessee due to uncertainty in the legal position, had made a claim under Section 80IA of the Act that cannot be a reason to deny a benefit granted in favour of the assessee. The submission, made by Mr.V.S.Jayakumar, learned counsel for the appellant, in this regard, is well found and accepted. 40.For the above reasons, substantial question of law no.4 is answered in favour of the assessee. 41.In the result, the tax case appeal is allowed to the extent indicated hereinbelow:- (i) Substantial question of law nos.1 and 2 are left open and the issue with regard to the disallowance under Section 14A of the Act read with Rule 8D of the Rules is remanded to the Assessing Officer for fresh decision on merits and in accordance with law, after opportunity to the assessee; (ii) Substantial question of law no.3 is not pressed by the assessee, as pursuant to the order of remand passed by the Tribunal, the Assessing Officer has allowed the relief to the assessee. Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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