CBDT Circulars Not Binding On Courts; Export Quota Premium Not Eligible For Section 80HHC Deduction: SC

New Delhi, Sep 21 (KNN) The Supreme Court has reiterated that Central Board of Direct Taxes (CBDT) circulars cannot bind courts and held that premium earned from the sale of export quota does not qualify as export income eligible for deduction under Section 80HHC of the Income Tax Act.

The Court dismissed a batch of appeals by assessees engaged in manufacturing and exporting readymade garments, who had relied on a 1998 CBDT circular to claim deductions on income earned from the sale of export quota for assessment years 2000-01 and 2001-02.

It held that the premium could not be treated as income generated from exports as the transaction did not involve the earning of foreign exchange. It therefore could not be categorised as income from exports for claiming the Section 80HHC deduction.

CBDT Circular Not Binding on Courts

The 1998 CBDT circular had stated that export quota premium could technically be equated with items covered under Section 28(iiia) to (iiic), including profits on the sale of import licences, cash assistance and duty drawback.

However, relying on the Constitution Bench judgment in CCE, Bolpur v. Ratan Melting & Wire Industries (2008), the Supreme Court said the circular could not bind courts where its interpretation was contrary to the Income Tax Act.

The Court also endorsed the Delhi High Court’s 2012 ruling in Commissioner of Income Tax v. Nagesh Knitwears P. Ltd., which held that premium or profit from the sale of export quotas or licences does not fall within Sections 28(iiia) to (iiic) and is therefore not eligible for deduction under Section 80HHC.

The Supreme Court observed that the basic characteristics of the transactions covered by the relevant provisions, including receipt of foreign exchange, were absent in the sale of export quotas.

CIT Was Justified in Revising Assessment

The dispute arose after the Assessing Officer had allowed the assessees the Section 80HHC deduction on export quota premium. The Commissioner of Income Tax (CIT) subsequently exercised revisional powers under Section 263 and withdrew the benefit.

The Income Tax Appellate Tribunal (ITAT) restored the deduction, relying on the CBDT circular, but the Delhi High Court subsequently allowed the Revenue’s appeal and set aside the ITAT’s order.

The Supreme Court upheld the High Court’s findings, holding that the CIT had legitimately exercised revisional jurisdiction under Section 263.

It reiterated that Section 263 can be invoked only when an assessment order is both ‘erroneous’ and ‘prejudicial to the interests of the Revenue’.

The Court said an order may be considered erroneous where it is based on an incorrect assumption of facts, misapplies the law, violates principles of natural justice or is passed without proper application of mind. It added that where an Assessing Officer fails to conduct basic inquiries, the Commissioner can exercise revisional jurisdiction.

The Court, comprising Justices SVN Bhatti and NV Anjaria, accordingly declined to interfere with the Delhi High Court’s judgment and dismissed the appeals.

(KNN Bureau)