CBDT circulars cannot override Income Tax Act: Supreme Court
New Delhi, September 20, 2026
The Supreme Court clarified that CBDT circulars and instructions bind only subordinate executive authorities under the Act.
Administrative circulars issued by the Central Board of Direct Taxes (CBDT) cannot override the statutory provisions of the Income Tax Act, 1961, and are not binding on constitutional courts while interpreting the law, the Supreme Court has held.
A bench of Justices S V N Bhatti and N V Anjaria made the observation while dismissing appeals filed by Orient Crafts Limited, a public limited company engaged in manufacturing and exporting readymade garments.
The court ruled that premium received from the sale of an export quota does not fall within the scope of Sections 28(iiia) to (iiic) of the Act, as it lacks the character of export incentive income contemplated by those provisions. Instead, it constitutes an incidental business advantage under the residuary clause of Section 28(iv).
The dispute pertained to assessment years 2000-01 and 2001-02 and centred on the company’s claim for deduction under Section 80HHC.
The assessee had included Rs 73.49 lakh received as premium on the sale of export quota in its business profits, relying on a CBDT circular of February 23, 1998, which equated such premium with profits from sale of import licences, cash assistance and duty drawback.
The Supreme Court clarified that CBDT circulars and instructions bind only subordinate executive authorities under the Act.
“They represent the Executive’s understanding of statutory provisions and cannot be used to impose tax burdens contrary to the Statute or to prevent courts from adjudicating the true legal meaning of a provision,” the bench observed.
It further held that the Commissioner’s revisional jurisdiction under Section 263 is validly invoked when an assessment order is both erroneous and prejudicial to the interests of the Revenue.
An order is erroneous if it rests on an incorrect assumption of facts, misapplies the law, or is passed without application of mind—even if based on an administrative circular inconsistent with the statute, the bench said.
Upholding the Delhi High Court’s decision that had set aside the Income Tax Appellate Tribunal’s orders, the apex court declined to interfere or remand the matter, noting that the Commissioner had rightly exercised powers under Section 263 after the Assessing Officer failed to apply the correct statutory criteria.
[Deccan Herald]
