TMI Blog2021 (5) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under Section 80IA of the Act is allowable only on profits and gains derived by an undertaking. Thus the questions of law are decided against the Revenue and in favour of the assessee. - T.C.A.Nos.10, 11, 21, 158, 161, 438, 439, 304, 332 of 2015, 724, 476, 493 of 2016, 554, 647 of 2014 - - - Dated:- 29-4-2021 - Hon'ble Mr. Justice M.Duraiswamy And Hon'ble Mrs.Justice R.Hemalatha For the Appellants (in all TCAs) : Mr.T.R.Senthil Kumar, Senior Standing Counsel assisted by Mrs.K.G.Usha Rani, Standing Counsel For the Respondent : Mr.R.Senniappan (TCA.Nos.158, 161, 21/2015, 493/2016), Mr.R.Sivaraman (TCA.Nos.10 11/2015, 554/2014), Mr.R.Kumar (TCA.Nos.332, 438, 439/2015, 724/2016), Mr.M.P.Senthil Kumar (TCA.Nos.304/2015, 476/2016), no appearance (TCA.No.647/2014) COMMON JUDGMENT M.DURAISWAMY, J. Challenging the order passed in I.T.A.No.630/Mds/2013 on the file of the Income Tax Appellate Tribunal, Chennai, A Bench in respect of the Assessment Year 2009-10, the Revenue has filed the appeal in T.C.A.No.10 of 2015. 2.Challenging the order passed in I.T.A.No.746/Mds/2014 on the file of the Income Tax Appellate Tribunal, Chennai, B Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtified 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? 2)Whether in the facts and circumstances of the case and in law, the Appellate Tribunal is correct in holding that sale of Carbon Credits is to be considered as Capital Receipt and not liable for tax under any head of income under the Income Tax Act, 1961? 3)Whether in the facts and circumstances of the case and in law, Income Tax Appellate Tribunal is correct in holding that there is no cost of acquisition or cost of production to get entitlement for the Carbon Credits, without appreciating that generation of Carbon Credits is intricately linked to the machinery and processes employed in the production process by the assessee? 4)Whether in the facts and circumstances of the case and in law, the Income Tax Appellate Tribunal is correct in holding that the Technology Up-gradation Fund (TUF) subsidy and compensation receivable on non-performance of the Energy Generation are capital receipts and not liable for tax under any head of income under Income Tax Act, 1961? 9.2.The appellant/Revenue has raised the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax, Circle I(3), 3 Gandhi Road, Salem 636 007] wherein the Division Bench held as follows: ... 14.With regard to the disallowance on the deduction under Section 80IA of the Act, the CIT(A) noted the decision of the Chennai Tribunal relied on by the assessee in the case of Ambica Cotton Mills Ltd., vs. DCIT [I.T.A.No.1836/Mds/2012, dated 16.04.2013] , wherein it was held that carbon credit receipts cannot be considered as business income and it is a capital receipt. Hence, the assessee's claim under Section 80IA of the Act is untenable, as deduction under Section 80IA of the Act is allowable only on profits and gains derived by an undertaking. ... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held that the Tribunal had jurisdiction to examine 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ph Nos. 4 and 5 observed thus: 4. Now an expenditure 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lebrated test is that laid down by Lord 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 20/37 https://www.mhc.tn.gov.in/judis/ T.C.A.No.451 of 2018 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure in question can be clearly referred to the acquisition of an asset which falls 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt or income. In the circumstances, we do not find any element of law 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. ... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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