Supreme Court rejects export-quota premium tax deduction and says CBDT circulars are not binding
The Supreme Court ruled that premiums from export-quota sales cannot be treated as export income for a deduction under Section 80HHC and held that CBDT circulars do not bind courts.
In a decision concerning Orient Crafts Ltd and Samtex Fashions Ltd, the Supreme Court held that premiums earned from selling export quotas do not qualify as export income because the transactions involve no foreign-exchange receipt, making them ineligible for a deduction under Section 80HHC of the Income Tax Act. The bench, comprising Justices SVN Bhatti and NV Anjaria, emphasized that circulars issued by the Central Board of Direct Taxes are not binding on courts when they contradict statutory provisions.
The ruling overturns earlier rulings by the Income Tax Appellate Tribunal and the Delhi High Court, which had allowed the deduction based on a 1998 CBDT circular. The Court also validated the Commissioner of Income Tax’s use of Section 263 to revise the assessment, noting the original order was erroneous and prejudicial to revenue. This judgment clarifies the limits of departmental guidance in tax matters.
Why it matters
It confirms that tax department guidance cannot override law, affecting how exporters claim deductions.
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