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TMI Blog2021 (7) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... JUDGMENT M.DURAISWAMY, J. Challenging the order passed in I.TA.No.651/Mds/2013 in respect of the Assessment Year 2009-10 on the file of the Income Tax Appellate Tribunal, Chennai, C Bench, the Revenue has filed the above appeal. 2.The assessee, a Company, engaged in the business of manufacturing of yarn, filed its return of income for the Assessment Year 2009-10 on 29.09.2009, admitting a total income of ₹ 2,07,27,600/- under normal computation and NIL amount under Section 155JB. The return of income was processed under Section 143 (1). The case was selected for scrutiny and notice under Section 143(2) was issued and served on the assessee. The assessee-Company is a member in the project called Bundled Wind Power Project in Tamil Nadu, India, coordinated by Tamil Nadu Spinning Mills Association and received a sum of ₹ 4,07,53,169/- towards Clean Development Mechanism (CDM) receipts. These receipts were included in the Profit and Loss Account in the annual report of the Company pertaining to the Assessment Year 2009-10. In the total income statement, while computing total income of the assessee, the CDM receipts were not included in the total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 taken by the ITAT, Hyderabad Bench, which decision was upheld by the High Court of Andhra Pradesh in the case of CIT vs. My Home Power Ltd. [(2014) 365 ITR 0082 (AP)] , which was subsequently followed by the ITAT, Chennai and Jaipur Benches. The operative portion of the judgment reads as follows:- 11.The decision has been upheld by the Hon ble Andhra Pradesh High Court. This decision has been subsequently followed by the ITAT Chennai and Jaipur Benches. There is no decision either from the Hon ble Supreme Court or from the Hon ble jurisdictional High Court. These decisions indicate that sale of carbon credit would result capital r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction 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. Therefore, in view of the ratio laid down by the Hon ble jurisdictional High Court in the case of Gopala Gowda (Supra), the second condition for taking action u/s 263 does not exist. The assessment order is not prejudicial to the interests of the Revenue. In view of the above discussion, we allow the appeal of the assessee and quash the impugned order of the learned CIT passed u/s 263 of the Income Tax Act. The aforesaid shows that, so far as the question as to whether, the income by sale of carbon credit could be termed as capital receipt or profit, is concerned, the Tribunal h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture 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 the question was whether an amount received by the assessee for sale of loom hours was in the nature of capital receipt or revenue receipt. The view taken by this Court was that it was in the nature of capital receipt and hence not taxable. It was contended on behalf of the Revenue, relying on this decision, that just as the amount realised for sale of loom hours was held to be capital receipt, so also the amount paid for purchase of loom hours must be held to be of capital nature. But this argument suffers from a double fallacy. 5. In the first place it is not a universally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, 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 principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee s trading operations or enabling the management and conduct of the assessee s business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 enlarged. We are not sure whether loom hours can be regarded as part of circulating capital like labour, raw material, power etc., but it is clear beyond doubt that they are not part of fixed capital and hence even the application of this test does not compel the conclusion that the payment for purchase of loom hours was in the nature of capital expenditure. After making the aforesaid observation, at paragraph No. 10, the Apex Court, on the basis of the facts of the said case concluded as under: Similarly, if payment has to be made for securing additional power every week, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur 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 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. Accordingly, this question is not required to be answered; and (iii) For the reasons assigned in the preceding paragraphs, substantial question of law no.4 is answered in favour of the assessee. No costs. 5.On a reading of the judgment cited supra, it is clear that the question of law involved in the present appeal is cove ..... X X X X Extracts X X X X X X X X Extracts X X X X
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