| Sep-28-2021

No income tax payable on sales proceeds of Certified Emission Reduction Credit procured on Clean Development Mechanism

In The Commissioner of Income Tax, Chennai v. M/S. Wescare (India) Ltd [Tax Case Appeal No.434 of 2021 dated September 02, 2021], the Commissioner of Income Tax, Chennai ("the Appellant") had filed an appeal under Section 260A of the Income Tax Act, 1961 ("the IT Act") against the order dated March 12, 2021 (“Impugned Order”) passed in ITA No. 509/Chny/2017 on the file of the Income Tax Appellate Tribunal, Chennai Bench (“the ITAT”) regarding the Assessment Year 2009-2010.

The ITAT, in the Impugned order, had held that the proceed realized by M/S. Wescare (India) Ltd (“the Respondent”) on the sale of Certified Emission Reduction (“CER”) Credit, which the Respondents had procured on the Clean Development Mechanism (“CDM”) in their wind energy operations, was a capital receipt and, therefore, was not taxable.

The Appellant had challenged the very correctness of ITAT’s Order at hand.  

Taking cognizance of all the facts and evidences, the Honorable Madras High Court, while relying on the judgment of S.P. Spinning Mills Pvt. Ltd. v. Asst. Commissioner Of Income Tax, Circle, Salem [2021 (1) TMI 1081 - MADRAS HIGH COURT dated January 19, 2021], held that Carbon Credit is not a commercial product, but a product of environmental concerns. By Carbon Credit, no asset is generated commercially, but it is generated due to environmental concerns.

The Court also found that the carbon credit is not even directly linked with the power generation and the income is received by sale of the excess carbon credits. Lastly, the Court inferred that the Tribunal had rightly held that it is a capital receipt and not business income.

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