Exclusion Of 'Old Indian Settlers' From Definition Of Sikkimese In Section 10(26AAA) Income Tax Act Unconstitutional: Supreme Court

Ashok KM

14 Jan 2023 4:52 AM GMT

  • Exclusion Of Old Indian Settlers From Definition Of Sikkimese In Section 10(26AAA) Income Tax Act Unconstitutional: Supreme Court

    The Supreme court held that the exclusion of old Indian settlers, who have permanently settled in Sikkim prior to merger of Sikkim with India on 26.04.1975 from the definition of “Sikkimese” in Section 10(26AAA) of Income Tax Act is unconstitutional .The bench of Justices M R Shah and B V Nagarathna held that these old indian settlers, irrespective of whether his/her name is recorded in...

    The Supreme court held that the exclusion of old Indian settlers, who have permanently settled in Sikkim prior to merger of Sikkim with India on 26.04.1975 from the definition of “Sikkimese” in Section 10(26AAA) of Income Tax Act is unconstitutional .

    The bench of Justices M R Shah and B V Nagarathna held that these old indian settlers, irrespective of whether his/her name is recorded in the register maintained under the Sikkim Subjects Regulations, 1961 read with Sikkim Subject Rules, 1961 or not, are entitled to the said exemption.

    Section 10 (26AAA) IT Act

    Section 10 of the Income Tax Act describes incomes not included in total income. Section 10 (26AAA) reads as follows: In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included—....in case of an individual, being a Sikkimese, any income which accrues or arises to him- (a) from any source in the State of Sikkim; or (b) by way of dividend or interest on securities: Provided that nothing contained in this clause shall apply to a Sikkimese woman who, on or after the 1st day of April, 2008, marries an individual who is not a Sikkimese.

    As per the explanation to this provision, "Sikkimese" shall mean-

    (i) an individual, whose name is recorded in the register maintained under the Sikkim Subjects Regulation, 1961 read with the Sikkim Subject 2 Rules, 1961 (hereinafter referred to as the "Register of Sikkim Subjects”), immediately before the 26th day of April, 1975; or

    (ii) an individual, whose name is included in the Register of Sikkim Subjects by virtue of the Government of India Order No.26030/36/90-I.C.I., dated the 7th August, 1990 and Order of even number dated the 8th April, 1991; or

    (iii) any other individual, whose name does not appear in the Register of Sikkim Subjects, but it is established beyond doubt that the name of such individual's father or husband or paternal grandfather or brother from the same father has been recorded in that register..

    Writ Petition

    Association of Old Settlers of Sikkim challenged the constitutional validity of the definition of “Sikkimese” in Section 10 (26AAA) to the extent it excludes Indians who have settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975. They also sought to striked down proviso to this provision insofar as it excludes from the exempted category, “Sikkimese women” who marries a non-Sikkimese after 01.04.2008.

    The contended that the exemption which has been granted to 'Sikkimese" people residing in Sikkim essentially exempts 95% of the residents of Sikkim while taxing only a handful of persons including the 1% / 2% old Indian settlers. There is no reasonable classification between the residents/origins of Sikkim whose names were registered as “Sikkim Subjects” under the Sikkim Subjects Regulations, 1961 and those Indian old Sikkim settlers, whose names could not be registered as “Sikkim Subjects” as their forefathers did not surrender the Indian citizenship, they contended.

    While allowing the writ petition, Justice M R Shah, who authored the judgment, observed:

    Exclusion of old Indian settlers discriminatory

    It is to be noted that as such the purpose of Section 10(26AAA) is to grant exemption to the residents of Sikkim from payment of income tax under the Income Tax Act. Therefore, all such Indians/citizens, who have settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975 are to be treated at par and they form the same group/class and are entitled to the exemption under Section 10(26AAA) of the Income Tax Act. As such, there is no difference and/or distinction between those “Sikkim Subjects”, whose names are recorded in the register maintained under the Sikkim Subjects Regulations, 1961 and those Indians, who have settled in Sikkim prior to the merger of Sikkim, but whose names were not recorded as “Sikkim Subjects” in the register maintained under the Sikkim Subjects Regulations, 1961. All are “Sikkimese”. Merely because at the relevant time and when the Sikkim Subjects Regulations, 1961 was enacted, the Indians settled in Sikkim did not surrender their Indian citizenship or their fathers/forefathers’ names were not entered into the register maintained under the Sikkim Subjects Regulations, 1961, by itself, it cannot be said that they cease to be the “Sikkimese”. All of them are similarly situated with those “Sikkimese” / “Sikkim Subjects”, who all have settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975. As observed above, the object and purpose of Section 10(26AAA) is to grant benefit of exemption from payment of income tax under the Income Tax Act to the residents of Sikkim. 

    No nexus sought to be achieved

    The court added that, there is no nexus sought to be achieved in excluding the Indians, who have settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975 but their names are not recorded as “Sikkim Subjects”.

    "The Union of India has failed to satisfy any reasonable classification and/or nexus to exclude such class of Indians, who, in fact, have settled in Sikkim prior to 26.04.1975. Therefore, exclusion of old Indian settlers, who have settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975 from the definition of “Sikkimese” in Section 10(26AAA) is arbitrary, discriminatory and violative of Article 14 of the Constitution of India. ", the bench observed.

    Justice B V Nagarathna, in a separate but concurring opinion, issued the following directives:

    i) That the benefit of income-tax exemption presently is restricted only to those Sikkimese who fall within the three clauses of the Explanation to Section 10(26AAA) of the I.T. Act, 1961, or those persons domiciled in Sikkim, or are Sikkimese as covered under the 1961 Regulation
    ii) In terms of the Sikkim (Citizenship) Order, 1975 as amended by the Sikkim (Citizenship) Amendment Order, 1989, issued by the Government of India any person who was a Sikkim Subject under the 1961 Regulation was to be deemed to be a citizen of India w.e.f. 26th April, 1975. Conversely, it is held that all citizens of India, having a domicile in Sikkim on the day it merged with India i.e. 26th April, 1975 must be covered under the Explanation in order to avail the benefit of the exemption under Section 10(26AAA) of the I.T. Act, 1961.
    iii) The Union of India shall make an amendment to Explanation to Section 10 (26AAA) of I.T. Act, 1961, so as to suitably include a 116 clause to extend the exemption from payment of income tax to all Indian citizens domiciled in Sikkim on or before 26th April, 1975. The reason for such a direction is to save the explanation from unconstitutionality and to ensure parity in the facts and circumstances of the case.
    iv) Till such amendment is made by the Parliament to the Explanation to Section 10 (26AAA) of I.T. Act, 1961, any individual whose name does not appear in the Register of Sikkim Subjects but it is established that such individual was domiciled in Sikkim on or before 26th April, 1975, shall be entitled to the benefit of exemption.

    Headnotes

    Constitution of India, 1950 ; Article 14 - Income Tax Act, 1961 ; Section 10(26AAA) -  The exclusion of Old Indian settlers, who have permanently settled in Sikkim prior to merger of Sikkim with India on 26.04.1975 from the definition of “Sikkimese” in Section 10(26AAA) is hereby held to be ultra vires to Article 14 of the Constitution of India and is hereby struck down - (Para 13- 17)

    Constitution of India, 1950 ; Article 14, 15, 21 - Income Tax Act, 1961 ; Section 10(26AAA) Proviso - Proviso to Section 10(26AAA) inasmuch as it excludes from the provision of exemption a Sikkimese woman merely because she marries a non-Sikkimese after 01.04.2008 is totally discriminatory and violative of Articles 14, 15 and 21 of the Constitution of India -  A woman is not a chattel and has an identity of her own, and the mere factum of being married ought not to take away that identity. (Para 15-17.1)

    Income Tax Act, 1961 ; Section 10(26AAA) - Sikkim Subject Rules, 1961 - Sikkim Subjects Regulations, 1961 - All Indians/old Indian settlers, who have permanently settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975, irrespective of whether his/her name is recorded in the register maintained under the Sikkim Subjects Regulations, 1961 read with Sikkim Subject Rules, 1961 or not, are entitled to the exemption under Section 10(26AAA) of the Income Tax Act. (Para 17)

    Constitution of India, 1950 ; Article 14, 15 -  The female heirs, subject to the statutory rule operating in that field, are required to be treated equally to the male heirs. Gender equality is recognised by the world community in general in the human rights regime - Exclusion of women from inheritance on the ground of gender was a clear violation of the constitutional prohibition against unfair discrimination - Referred to G. Sekar Vs. Geetha & Ors. (2009) 6 SCC 99 (Para 15)

    Constitution of India, 1950 ; Article 14 - Article 14 forbids class legislation but permits reasonable classification for the purpose of legislation, which classification must satisfy the twin tests of classification being founded on an intelligible differentia which distinguishes persons or things that are grouped together from those that are left out of the group and that differentia must have a rational nexus to the object sought to be achieved by the statute in question - Referred to D.S. Nakara Vs. Union of India (1983) 1 SCC 305 (Para 13.2) 

    Case details

    Association of Old Settlers of Sikkim vs Union of India | 2023 LiveLaw (SC) 28 | WP(C) 59 OF 2013 | 13 January 2023 | Justices M R Shah and B V Nagarathna

    For Petitioner(s) Mr. Senthil Jagadeesan, AOR Ms. Haripriya Padmanabhan, Adv. Ms. Pooja Dhar, AOR

    For Respondent(s) M/S. Arputham Aruna And Co, AOR Mr. N Venkataraman, A.S.G. Mr. H R Rao, Adv. Mr. Devashish Bharukha, Adv. Mr. Sughosh Subramanium, Adv. Mr. Rajat Nair, Adv. Mr. Bhuvan Kapoor, Adv. Mr. Pranay Ranjan, Adv. Mr. Vikrant Yadav, Adv. Ms. C. Bharti, Adv. Mrs. Gargi Khanna, Adv. Mr. Raj Bahadur Yadav, AOR Mrs. Anil Katiyar, AOR Mr. Sameer Abhyankar, AOR Ms. Nishi Sangtani, Adv. Ms. Vani Vandana Chhetri, Adv. Mr. Narendra Kumar, AOR Ms. Neha Rathi, AOR Mr. Pranav Sachdeva, Adv. Mr. Kamal Kishore, Adv. Mr. Jatin Bhardwaj, Adv.

    Click here to Read/Download Judgment 

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