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Tax Publishers Ramgad Minerals & Mining Ltd. v. ACIT [ITA Nos. 1270 & 1271/Bang/2019, dt. 4-11-2020] : 2020 TaxPub(DT) 4559 (Bang-Trib) Special Purpose Vehicle Charges (SPV) and Rehabilitation and recouping (R&R) amounts paid on mining operations under order of Supreme court whether allowable expenditure under section 37(1). Carbon credits received are these taxable under MAT provisions under section 115JB *Facts:* Assessee was into iron ore mining operations. Arising out of allegations of illegal mining operations across the industry the Apex Court had passed an order where by a certain percentage will need to be paid out of the extracted iron ore and on e-auction proceeds of iron ore as SPV charges. In addition, recouping and rehabilitation charges will also need to be paid so as to check and control mining activity by all mining companies also to preserve the loss caused in the ecosystem. The SC order also held that post review of the overall spends incurred on certain societal welfare activities surplus if any would be returned back to the assessee out of the SPV charges. It was the plea of the revenue that the said SPV charges and R&R charges were nothing but penalty and deserved disallowance under explanation to section 37(1). R&R charges were nothing but CSR activity spends also need disallowance was also canvassed by the revenue. Besides the above the assessee was in receipt of Carbon credits which was offered in the return as income under MAT and then revised in the revised return by claiming it as exempt being a capital receipt under MAT provisions. This was not accepted by the assessing officer/Commissioner (Appeals). On higher appeal - Held in favour of the assessee that the SPV charges and R&R expenses were allowable as an expenditure as they had risen out of a Supreme Court order and were not akin to penalty as they did not arise out of infraction of any law. The notion that these were CSR spends was also jettisoned by ITAT. Income which is not taxable cannot be brought into MAT provisions. Carbon credits are capital receipts thus are outside the realm of MAT. *Editorial Note:* As to whether the SPV charges is diversion of income by overriding title has also been briefly dealt and held as application of income relying on Sitaldas Tirathdas (1961) 41 ITR 367 (SC) : 1961 TaxPub(DT) 0145 (SC). Carbon credits cannot be brought into MAT was decided based on the principle what is not income cannot be taxed indirectly under MAT. Finance Act, 2017 with effect from 1-4-2018 (Assessment Year 2018-19) has ushered in section 115BBG which taxes Carbon credits/CER at a presumptive rate of 10% with no expenditure being allowed on the same -- this is a special provision so MAT may not be able to tax carbon credits rather a concessional tax of 10% will be levied on presumptive basis. 115BBG. Tax on income from transfer of carbon credits.--(1) Where the total income of an assessee includes any income by way of transfer of carbon credits, the income-tax payable shall be the aggregate of -- (a) the amount of income-tax calculated on the income by way of transfer of carbon credits, at the rate of ten per cent; and (b) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (a). (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) of sub-section (1). Explanation.--For the purposes of this section, "carbon credit" in respect of one unit shall mean reduction of one tonne of carbon dioxide emissions or emissions of its equivalent gases which is validated by the United Nations Framework on Climate Change and which can be traded in market at its prevailing market price.

Tax Publishers

Ramgad Minerals & Mining Ltd. v. ACIT [ITA Nos. 1270 & 1271/Bang/2019, dt. 4-11-2020] : 2020 TaxPub(DT) 4559 (Bang-Trib)

Special Purpose Vehicle Charges (SPV) and Rehabilitation and recouping (R&R) amounts paid on mining operations under order of Supreme court whether allowable expenditure under section 37(1).

Carbon credits received are these taxable under MAT provisions under section 115JB

Facts:

Assessee was into iron ore mining operations. Arising out of allegations of illegal mining operations across the industry the Apex Court had passed an order where by a certain percentage will need to be paid out of the extracted iron ore and on e-auction proceeds of iron ore as SPV charges. In addition, recouping and rehabilitation charges will also need to be paid so as to check and control mining activity by all mining companies also to preserve the loss caused in the ecosystem. The SC order also held that post review of the overall spends incurred on certain societal welfare activities surplus if any would be returned back to the assessee out of the SPV charges. It was the plea of the revenue that the said SPV charges and R&R charges were nothing but penalty and deserved disallowance under explanation to section 37(1). R&R charges were nothing but CSR activity spends also need disallowance was also canvassed by the revenue.

Besides the above the assessee was in receipt of Carbon credits which was offered in the return as income under MAT and then revised in the revised return by claiming it as exempt being a capital receipt under MAT provisions. This was not accepted by the assessing officer/Commissioner (Appeals).

On higher appeal -

Held in favour of the assessee that the SPV charges and R&R expenses were allowable as an expenditure as they had risen out of a Supreme Court order and were not akin to penalty as they did not arise out of infraction of any law. The notion that these were CSR spends was also jettisoned by ITAT.

Income which is not taxable cannot be brought into MAT provisions. Carbon credits are capital receipts thus are outside the realm of MAT.

Editorial Note:

As to whether the SPV charges is diversion of income by overriding title has also been briefly dealt and held as application of income relying on Sitaldas Tirathdas (1961) 41 ITR 367 (SC) : 1961 TaxPub(DT) 0145 (SC).

Carbon credits cannot be brought into MAT was decided based on the principle what is not income cannot be taxed indirectly under MAT.

Finance Act, 2017 with effect from 1-4-2018 (Assessment Year 2018-19) has ushered in section 115BBG which taxes Carbon credits/CER at a presumptive rate of 10% with no expenditure being allowed on the same -- this is a special provision so MAT may not be able to tax carbon credits rather a concessional tax of 10% will be levied on presumptive basis.

115BBG. Tax on income from transfer of carbon credits.--(1) Where the total income of an assessee includes any income by way of transfer of carbon credits, the income-tax payable shall be the aggregate of --

(a) the amount of income-tax calculated on the income by way of transfer of carbon credits, at the rate of ten per cent; and

(b) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (a).

(2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) of sub-section (1).

Explanation.--For the purposes of this section, "carbon credit" in respect of one unit shall mean reduction of one tonne of carbon dioxide emissions or emissions of its equivalent gases which is validated by the United Nations Framework on Climate Change and which can be traded in market at its prevailing market price.