Thursday, July 24, 2014

Sum received on transfer of carbon credits isn’t taxable, as no profit element is involved on their transfer

Where assessee, engaged in business of power generation, received carbon credits, such carbon credits not being linked with power generation, amount received on their transfer did not have element of profit or gain, and it could not be charged to tax.


a)The assessee-company was engaged in business of power generation through biomass power generation unit. It received carbon credits, namely, carbon Emission Reduction Certificates for its project activity of conversion of fossil fuel from naptha and diesel to biomass;

b)It transferred said carbon credits and offered receipt from said transfer as capital receipt. However, the revenue treated said receipt as business income and brought it to tax. c)Further, the Tribunal held in favour of assessee and it opined that carbon credit had no element of profit or gain.

On appeal, the High Court held in favour of assessee as under:

1)The Tribunal had factually found that "Carbon Credit was not an offshoot of business but an offshoot of environmental concerns. No asset was generated in the course of business but it was generated due to environmental concerns."

2)We agree with this factual analysis as the assessee was carrying on the business of power generation. The Carbon Credit was not even directly linked with power generation.

3)On the sale of excess Carbon Credits the income was received and, hence, as correctly held by the Tribunal it was capital receipt and it could not be deemed as business receipts or income. Thus, the appeal was to be dismissed.- CIT V. MY HOME POWER LTD [2014] 46 314 (Andhra Pradesh)