Circular No. 691

Effect of decision of the Supreme Court in Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120

What this is

Circular No. 691 was issued by the Central Board of Direct Taxes on 5 September 1994. Its subject is Effect of decision of the Supreme Court in Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120.

What it does

Withdraws Circular No. 341 dated 10th May 1982 for all assessment years. That circular had been issued in the wake of the Supreme Court's judgment in Cloth Traders (P.) Ltd., and the Board records that the decision was later overruled by the Supreme Court in Distributors (Baroda) (P.) Ltd. v. Union of India, which therefore states the correct legal position. Circular No. 341 accordingly ceases to have any application.

Why it was issued

The foundation of the earlier circular had gone once the Supreme Court overruled the judgment on which it rested.

Who it reaches

Assessees who relied on Circular No. 341 in pending assessments or appeals
Assessing Officers applying the earlier circular
Appellate authorities with matters pending on the point
Companies computing the deduction the overruled judgment had governed

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

Effect of decision of the Supreme Court in Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120
Circular No. 341, dated 10-5-1982 (Annex) had been issued in the, wake of the Supreme Court’s judgment in the case of Cloth Traders (P.) Ltd [1979] 118 ITR 243/1 Taxman 335. This decision was subsequently overruled by the Supreme Court in the case of Distributors (Baroda) (P.) Ltd v. Union of India [1985] 155 ITR 120/22 Taxman 49 which therefore gives the correct legal position. It is therefore clarified that Circular No. 341 ceases to have applicability for any assessment year consequent to the decision of Supreme Court in the case of Distributors (Baroda) (P.) Ltd (supra).
Circular : No. 691, dated 5-9-1994.

What to watch

The withdrawal is for every assessment year, not from the date of the circular, so it reaches back into open assessments.
The circular names the two decisions itself, and the later one is stated to give the correct position.
It is a bare withdrawal; it does not set out what the correct computation now is, which must be taken from the judgment.
The provision the overruled judgment construed has since been recast, so this is relevant to assessments of that era.

Where you meet it

In an assessment or appeal of that period where an assessee relied on Circular No. 341 for the manner of computing the deduction.

← Circular No. 692 · Circular No. 690 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.