Amount of carbon credit received is a capital receipt

Godavari Sugar Mills Pvt Ltd Vs ACIT (ITAT Mumbai)

ITAT Mumbai held that proceeds received by assessee-company carrying on business of power generation on sale of certified emission reduction credit (carbon credit) is a capital receipt and not business income.

Facts- The assessment of the assessee was completed u/s 143(3) which resulted into disallowance of Rs. 36,62,266/-. CIT(A) confirmed disallowance of Rs.36,62,266/- on account of cane transportation charges for the reason that the payment does not prove the year of liability or the crystallisation of the liability. The assessee is aggrieved with that order and preferred appeal before us.

Assessee took up additional ground stating at amount of Rs. 12.49 crores in respect of estimated value of carbon credits/ certified emission reductions was not taxable as income of the assessee.

Conclusion- Hon’ble madras High Court in case of Commissioner of Income Tax, Chennai V Ambika Cotton Mills Ltd has held that proceeds received by assessee-company carrying on business of power generation on sale of certified emission reduction credit (carbon credit) is a capital receipt and not business income as carbon credit is not an offshoot of business, but an offshoot of environmental concerns. Accordingly, we direct the learned assessing officer to verify the amount of carbon credit received by the assessee during the year, consider it is a capital receipt.

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