Carbon Credit Sale Receipts Are Capital Gains, Not Taxable Before AY 2017-18 : ITAT New Delhi

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) on 13 July held that receipts from the sale of carbon credits are capital receipts and are not taxable for Assessment Years 2012-13 and 2013-14.

Judicial Member Satbeer Singh Godara and Accountant Member Manish Agarwal dismissed the Revenue's appeals and partly allowed the appeals filed by Jindal Saw Ltd. (formerly known as Saw Pipes Ltd.). The Bench observed:

“We conclude in this factual backdrop that the assessee's impugned identical receipt(s) derived from sale/transfer of carbon credits is not taxable being capital in nature which also deserve to be excluded for section 115JB MAT computation in very terms.”

Jindal Saw Ltd. had earned receipts from the sale of carbon credits during the relevant assessment years. The Assessing Officer treated the carbon credit receipts as taxable income. The taxpayer challenged the addition.

The Tribunal noted that the Andhra Pradesh High Court in CIT v. My Home Power Ltd. had already held that receipts from the sale of carbon credits are capital receipts. It further noted that Parliament introduced Section 115BBG of the Income Tax Act (which taxes income from transfer of carbon credits) through the Finance Act, 2017. Since the provision applied prospectively from Assessment Year 2017-18, the Tribunal held that it could not apply to Assessment Years 2012-13 and 2013-14.

The Bench also held that the carbon credit receipts earned during the relevant years could not be taxed. It also held that such receipts had to be excluded while computing book profits under Section 115JB of the Income Tax Act (which provides for Minimum Alternate Tax).

Jindal Saw Ltd. had also raised an additional ground regarding incentives received under the Focus Product Scheme (FPS). The Tribunal held that such incentives were capital receipts and could not be included while computing Minimum Alternate Tax.

Further, the Tribunal considered whether interest earned on deposits kept as mandatory security with the Government of Rajasthan for obtaining mining rights could be assessed under the heading “Income from Other Sources”.

It held that the deposits were made as a condition for carrying out mining operations and not for earning interest. However, it directed the Assessing Officer to verify the supporting documents before granting relief on this issue.

Accordingly, the ITAT dismissed the Revenue's appeals and partly allowed Jindal Saw Ltd.'s appeals.

Appearances for the Assessee: Rohit Jain, Saksham Singhal and Tavish Verma appeared for the assessee.

Appearances for the Revenue: Shankar Gupta, Senior Departmental Representative, appeared for the Revenue.