Revenue from sale of carbon credits not taxable

As per a recent ruling by Andhra Pradesh High Court, the revenue accrued on account of sale of carbon credits is “not taxable”. The judgement came in a case between The commissioner of Income Tax, Hyderabad vs My Home Power Limited (a company involved in process of biomass based power generation). The later had sold carbon credits to an Irish company and did not offer the receipts for taxation after claiming losses.

After hearing the case in detail, the court was of the view that carbon credits were not generated or created due to carrying on business but it accrued due to “world concern”. It said –

“The consideration received on account of carbon credits could not be considered as income, as carbon credit is 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. Credit for reducing carbon emission or greenhouse effect could be transferred to another party in need of reduction of carbon emission. It did not increase profit in any manner and did not need any expenses. It was a nature of entitlement to reduce carbon emission but there was no cost of acquisition or cost of production to get this entitlement. Carbon credit was not in the nature of profit or in the nature of income and it could not be subjected to tax in any manner under any head of income. It was not liable for tax in terms of sections 2(24), 28, 45 and 56 of the Income-tax Act, 1961. Hence, carbon credit was held to be an entitlement or accretion of capital and hence income earned on sale of these credits was capital receipt.”

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