CBDT Circulars Do Not Bind Courts, Supreme Court Rejects Section 80HHC Claims on Export-Quota Premium

The Supreme Court has reiterated that CBDT circulars may guide tax administration but do not bind courts when they interpret the Income-tax Act.

Background

The ruling arose from appeals by assessees claiming deduction under Section 80HHC on premium earned from sale of export quota. The provision historically granted deductions linked to export profits, subject to the statutory conditions then in force.

Legal issue and Court's reasoning

The assessees relied on the tax administration's understanding of the provision. The Court, however, stressed the institutional distinction between an executive circular and judicial interpretation of a statute.

A circular can bind departmental authorities in appropriate circumstances, but it cannot compel a court to adopt an interpretation inconsistent with the statutory text or binding precedent. The legal character of the receipt therefore had to be determined from the Act rather than from the executive's view alone.

Result and practical consequence

Applying that approach, the Supreme Court rejected the claim that the export-quota premium qualified for the deduction asserted in the appeals.

The batch of appeals was dismissed.