Income Tax | Administrative CBDT Circulars Cannot Override Statutory Provisions Or Tie The Hands Of A Court: Supreme Court

"A Constitution Bench of this Court in Ratan Melting & Wire Industries (supra) held that Circulars issued by the CBDT bind only the Administrative Departmental Authorities. They merely represent the Executive's understanding of a statutory provision and are never binding on the High Courts or the Supreme Court." Supreme Court, in a judgment dated September 18, 2026, has authoritatively held that administrative circulars or Office Memoranda issued by the Central Board of Direct Taxes (CBDT) cannot prevail over the plain text of statutory provisions or judicial interpretations.

A bench comprising Justice S.V.N. Bhatti and Justice N.V. Anjaria emphasized that while such circulars bind departmental officers, they cannot curtail the judiciary's power to interpret the law or restrict the Revenue's right to appeal against erroneous interpretations.

Court Reaffirms Judicial Primacy In Statutory Interpretation

The court observed that accepting an assessee's argument that an administrative circular is binding on courts would undermine the entire constitutional framework governing tax liability. The bench noted that if the Revenue were permanently barred by its own circular from questioning a legal interpretation, the true meaning of a statute could never be adjudicated by the higher judiciary, thereby compromising the doctrine of binding precedents under Article 141 of the Constitution.

Administrative Circulars Lack Binding Force On Courts

The judgment clarified that administrative instructions merely reflect the Executive’s understanding, which cannot override the legislative intent expressed in the Income Tax Act, 1961. The court asserted that any administrative clarification running contrary to statutory provisions or established judicial declarations carries no force in the eyes of the law.

Binding Nature Of Circulars Limited To Executive

The court highlighted that the CBDT O.M. dated February 23, 1998, which attempted to equate export quota premiums with specific export incentives under Section 28(iiia) to (iiic), effectively created a "legal fiction" not supported by the Act. The bench ruled that applying such a fiction contrary to the explicit statutory position is impermissible, as the sale of export quotas generates domestic business advantages rather than the foreign exchange earnings contemplated by the relevant sections of the Act.

Export Quota Premiums Not Eligible Under Section 80HHC

The court concluded that export quota premiums are not explicitly enumerated in the relevant sections of the Income Tax Act, 1961. Consequently, these receipts must be treated as general business benefits falling under the residuary ambit of Section 28(iv). Because this category is not included in the first proviso to Section 80HHC(3), the court held that the assessee was not entitled to the claimed deductions, affirming the High Court's decision to favor the Revenue's stance.

Date of Decision: 18 September 2026