|A chemical company by installing sophisticated equipment for pollution control generates carbon credit. Carbon credit which is sold for Rs. 20/- crores. The Income tax Department is of the view that the proceeds are liable to tax under business income. The auditor is of the view that the income is taxable under capital gains.
|In My Home Power Ltd. v. DCIT [IT Appeal No. 1114 (Hyd.) of 2009 dt. Nov. 02, 2012] the Hyderabad Tribunal has held as under:
“Carbon credit is in the nature of an entitlement received to improve world atmosphere reducing carbon, heat and gas emissions. The entitlement earned for carbon credits can, at best, be regarded as a capital receipt and cannot be taxed as revenue receipt. It is not generated or created due to carrying on business but it is accrued due to “world concern”. The source of carbon credit is world concern and environment. Due to that the assessee gets a privilege in the nature of transfer of carbon credits. Thus, the amount received for carbon credit has no element of profit or gain and it cannot be subjected to tax in any manner under the head of income. Carbon credits are made available to the assessee on account of saving of energy consumption and not because of its business. Further, carbon credits cannot be considered as a bi-product. It is a credit given to the assessee under the Kyoto Protocol and because of International understanding. Thus, the assessee who has surplus carbon credits can sell them to other assessee to have capped emission commitment under the Kyoto Protocol. Transferable carbon credit is not a result or incidence of one’s business and it is a credit for reducing emissions. The person having carbon credits gets benefit by selling the same to person who needs carbon credit to overcome one’s negative point carbon credit. The amount received is not received by producing and/or selling any product, bi-product or for rendering any service for carrying on the business. Thus, carbon credit is entitlement or accretion of capital and hence income earned on sale of these credit is capital receipt.”
This decision has been approved by the Andhra Pradesh High Court in CIT v. My Home Power Ltd. (365 ITR 82).
The above decisions have been followed by Chennai Tribunal in Ambika Cotton Mills Ltd. v. DCIT [40 Taxmann.Com 171] and in Sri Velayudhaswamy Spinning Mills (P) Ltd. v. DCIT [40 taxmann. Com 141]. Recently Jaipur Tribunal in Shree Cement Ltd. v. ACIT [ITA BO. 503/JP/ 2012 dated Jan. 27, 2014] has also taken similar view.
|CA. H. N. Motiwalla
|capital gains, Capital receipts, Carbon Credit
Opinion Of Eminent Legal Luminaries On Controversial Issues
Whether Income From Sale Of Carbon Credit Is Taxable Under Capital Gains?
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