Case Number: ITA 5930/DEL/2019
Appellant: DCIT Central Circle-31, New Delhi
Respondent: A.D. Hydro Power Ltd., New Delhi
Assessment Year: 2014-15
Result: 2014-15
Case Filed on: 2019-07-08
Order Type: Final Tribunal Order
Date of Order: 2022-07-13
Pronounced on: 2022-07-13
The case involves an appeal by the Revenue (DCIT Central Circle-31, New Delhi) against A.D. Hydro Power Ltd., New Delhi. The dispute arose over the treatment of income earned from carbon credits and the applicability of Minimum Alternate Tax (MAT) provisions under Section 115JB of the Income Tax Act for the assessment year 2014-15. The appeal was heard by the Delhi Bench ‘A’ of the Income Tax Appellate Tribunal (ITAT).
The Revenue filed the appeal challenging the decision of the Commissioner of Income Tax (Appeals)-30, New Delhi, who had treated the income earned from carbon credits as capital receipts and excluded it from the MAT provisions. The grounds of appeal were primarily focused on the incorrect classification of carbon credits income and the exclusion of this income from MAT provisions.
The case was heard on 21.06.2022, and the order was pronounced on 13.07.2022. The key issues addressed in the proceedings were:
A.D. Hydro Power Ltd. earned income from the sale of carbon credits. The Assessing Officer (AO) treated this income as a revenue receipt, taxable under normal provisions and MAT provisions. However, the CIT(A) classified the income from carbon credits as a capital receipt, relying on previous ITAT decisions for the holding company, M/s. Malana Power Company Limited, for assessment years 2009-10 to 2011-12 and 2013-14.
The ITAT upheld this decision, noting that the income from the sale of carbon credits is capital in nature, as it arises from an asset created out of environmental benefits, and is not a regular business income. The tribunal referred to the Jaipur Bench of the ITAT’s decision in the case of Shree Cements Ltd., which also classified such income as a capital receipt.
The Revenue argued that the CIT(A) erred in excluding the income earned from the sale of carbon credits from the MAT provisions while computing book profits under Section 115JB of the Income Tax Act. The CIT(A) excluded this income, stating that capital receipts are not part of book profits for MAT purposes.
The ITAT upheld this exclusion, emphasizing that since the income from the sale of carbon credits is classified as a capital receipt, it cannot be included in the computation of book profits under Section 115JB. The tribunal referred to the decision of the co-ordinate bench in the case of M/s. Malana Power Company Limited and followed the principles laid down in that judgment.
The ITAT dismissed the Revenue’s appeal, upholding the CIT(A)’s order. The tribunal reiterated that the income from the sale of carbon credits is capital in nature and should not be included in the computation of book profits under the MAT provisions.
Order pronounced in the open court on 13th July, 2022.
(Challa Nagendra Prasad, Judicial Member)
(Pradip Kumar Kedia, Accountant Member)
Copy forwarded to:
ASSISTANT REGISTRAR, ITAT, NEW DELHI
The case of DCIT Central Circle-31, New Delhi vs A.D. Hydro Power Ltd. pertains to the assessment year 2014-15. The initial order by the Commissioner of Income Tax (Appeals)-30, New Delhi, dated 30.04.2019, was contested by the Revenue. The core issues revolved around the classification of income from carbon credits and the applicability of MAT provisions.
The Revenue filed an appeal against A.D. Hydro Power Ltd., a company engaged in the generation of hydroelectric power. The appeal was aimed at addressing the treatment of income earned from carbon credits and its inclusion in the MAT provisions under Section 115JB of the Income Tax Act.
A.D. Hydro Power Ltd. earned income from the sale of carbon credits, which are certificates awarded for reducing carbon emissions. The company argued that this income should be treated as a capital receipt, not taxable under normal provisions or MAT provisions. The AO, however, treated this income as revenue receipt, taxable under both provisions.
The CIT(A) classified the income from carbon credits as a capital receipt, relying on the ITAT’s decisions in the case of its holding company, M/s. Malana Power Company Limited. The CIT(A) noted that carbon credits are generated from an asset created out of environmental benefits, and therefore, the income from their sale should be treated as capital in nature.
The ITAT upheld this view, stating that the income from the sale of carbon credits is not a regular business income but arises from an asset created to reduce carbon emissions. The tribunal referred to the Jaipur Bench of the ITAT’s decision in the case of Shree Cements Ltd., which also classified such income as a capital receipt. The ITAT emphasized that the classification of carbon credits income as a capital receipt is consistent with judicial precedents and the principles of taxation.
The Revenue argued that the CIT(A) erred in excluding the income from the sale of carbon credits from the MAT provisions while computing book profits under Section 115JB. The CIT(A) excluded this income, stating that capital receipts are not part of book profits for MAT purposes. The CIT(A) relied on the decision of the co-ordinate bench in the case of M/s. Malana Power Company Limited, which had excluded such income from MAT provisions.
The ITAT upheld the exclusion, stating that since the income from the sale of carbon credits is classified as a capital receipt, it cannot be included in the computation of book profits under Section 115JB. The tribunal referred to the decision of the co-ordinate bench in the case of M/s. Malana Power Company Limited and followed the principles laid down in that judgment. The ITAT noted that the exclusion of capital receipts from MAT provisions is consistent with the legislative intent and judicial interpretations.
The ITAT’s decision reaffirmed the classification of carbon credits income as a capital receipt and its exclusion from MAT provisions, providing clarity on the tax treatment of such income for companies engaged in environmentally beneficial activities.
Order pronounced in the open court on 13th July, 2022, marks the conclusion of this case, with the tribunal dismissing the Revenue’s appeal and upholding the CIT(A)’s order.
Dispute Over Carbon Credits and MAT: DCIT CC-31 vs A.D. Hydro Power Ltd. (2014-15)
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