Orient Crafts Limited Vs CIT (Supreme Court of India)
CBDT Circular Cannot Rewrite the Act — Export Quota Premium Not Eligible for Section 80HHC Benefit
Summary: The Supreme Court has held that premium received on the sale of export quota cannot be equated with the export incentives specified in Sections 28(iiia) to 28(iiic) merely because a CBDT Office Memorandum prescribed such treatment. While the Circular may bind departmental officers, it cannot bind constitutional courts or create a legal fiction contrary to the Income-tax Act.
The Court also upheld the Commissioner’s exercise of revisional jurisdiction under Section 263 in the case of Orient Crafts Ltd.
Facts of the Case
The assessees were engaged in the manufacture and export of readymade garments. Export quotas were allotted to them by the Apparel Export Promotion Council based on their export performance. Surplus quota entitlements were transferred to third parties for a premium.
The assessees claimed deduction under Section 80HHC on the quota-sale premium by relying upon a CBDT Office Memorandum dated 23 February 1998. The Memorandum stated that export quota premium could technically be equated with the items specified in Sections 28(iiia) to 28(iiic), such as:
- profit on the sale of import licences;
- cash assistance against exports; and
- customs or excise duty drawback.
In the case of Orient Crafts Ltd., the Assessing Officer accepted the deduction under Section 80HHC. The Commissioner subsequently invoked Section 263 on the ground that the Assessing Officer had failed to exclude 90% of the quota premium under Explanation (baa) to Section 80HHC.
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