Sections 2(24) read with sections 4 and 28(i) of the Income Tax Act, 1961 – Amount realised on sale of carbon credits is a Capital Receipt and it cannot be taxed as a Revenue Receipt.

Sections 2(24) read with sections 4 and 28(i) of the Income Tax Act, 1961 – Amount realised on sale of carbon credits is a Capital Receipt and it cannot be taxed as a Revenue Receipt.

The Tribunal, relying on the decision of the Supreme Court in the case of CIT vs. Maheshwari Devi Jute Mills Ltd. (1965) 57 ITR 36 (SC), held that sale of carbon credits is to be considered as a capital receipt.

The Tribunal held as under :

Carbon credit is in the nature of “an entitlement” received to improve world atmosphere and environment by reducing carbon, heat and gas emissions. It is not generated or created due to carrying on business but it is accrued due to “world concern”. It has been made available assuming character of transferable right or entitlement only due to world concern.

Further, carbon credits cannot be considered as a by-product. It is a credit given to the assessee under the Kyoto Protocol and because of international understanding. The persons having carbon credits get benefit by selling the same to a person who needs carbon credits to overcome one’s negative point carbon credit. Carbon credit is entitlement or accretion of capital and, hence, income earned on sale of these credits is capital receipt.

Thus, the amount received for carbon credits has no element of profit or gain and it cannot be subjected to tax in any manner under any head on income. It is not liable for tax for the assessment year under consideration in terms of sections 2(24), 28, 45 and 56.