Export quota premium is not export-derived income for Section 80HHC, Supreme Court tells Orient Crafts
Dismissing the assessee’s appeals, a Division Bench upholds the CIT’s Section 263 revision and holds that premium on the sale of export quota is not income derived from exports.
Premium earned from selling an export quota is not income “derived” from exports, and so does not qualify for the full export-profits deduction under Section 80HHC of the Income Tax Act, 1961. On that basis the Supreme Court, in Orient Crafts Limited v. Commissioner of Income Tax, New Delhi, dismissed a batch of appeals by the readymade-garment exporter on 18 September 2026. A Division Bench of Justice S.V.N. Bhatti and Justice N.V. Anjaria held that the Commissioner of Income Tax had rightly exercised revisional jurisdiction under Section 263 to correct the assessment, and declined to interfere with the Delhi High Court’s view.
How the deduction was questioned
Orient Crafts Limited, engaged in manufacturing and exporting readymade garments, claimed a deduction under Section 80HHC for the assessment years 2000-01 and 2001-02. Its return included, within the profits eligible for the deduction, a premium of over Rs.51 lakh earned on the sale of export quota. The Assessing Officer completed the assessment by order dated 13 August 2003 and accepted the claim.
The Commissioner of Income Tax then invoked Section 263, which allows a Commissioner to revise an assessment order found to be erroneous and prejudicial to the interests of the Revenue. By order dated 1 February 2005, the Commissioner set aside the assessment, holding that the export quota premium had to be treated as “other receipts” under Explanation (baa) to Section 80HHC — ninety per cent of which is excluded from business profits for the deduction — producing an excess deduction of Rs.51,23,151.
The route through the Tribunal and High Court
The assessee challenged the Commissioner’s revision, and the Income Tax Appellate Tribunal ruled in its favour. The Revenue took the matter to the Delhi High Court, which set aside the Tribunal’s orders and restored the Commissioner’s Section 263 revision, recording that the Commissioner had rightly exercised his revisional jurisdiction. The dispute reached the Supreme Court in Orient Crafts’ appeals.
Two points the Court settled
On the substance, the Court proceeded on the footing that premium on the sale of export quota permits is not income “derived” from exports, so it does not attract the Section 80HHC deduction in the manner the assessee claimed — export quota is not among the receipts enumerated in Sections 28(iiia) to 28(iiic) that the provision treats as export profits.
On procedure, the Court affirmed that the Revenue may challenge an erroneous interpretation before the appellate authorities and courts, notwithstanding beneficial administrative circulars — here, a CBDT office memorandum on the treatment of export quota premium. A circular favourable to the assessee did not foreclose the Commissioner’s power under Section 263 to revise an assessment that had wrongly allowed the deduction.
Order
Finding that the High Court had correctly upheld the Commissioner’s exercise of Section 263 jurisdiction, the Court declined to interfere or to remand the matter. The appeals failed and were dismissed, and the accompanying identical appeals were dismissed for the same reasons, with no order as to costs.