Supreme Court: In a big win for Sikkimese, the bench of MR Shah and BV Nagarathna, JJ has 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 the Income Tax Act, 1961 is unconstitutional and hence struck down. Consequently, 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.
- Exclusion of “a Sikkimese woman, who marries a non-Sikkimese after 01.04.2008” from exempted category as per the proviso to Section 10(26AAA) of the 1961 Act is without any reasonable justification and hence, struck down for being unconstitutional.
While the judgment was authored by MR Shah, J, Nagarathna, J wrote a detailed concurring opinion, assigning additional reasons and directions to the Union of India.
The ruling came after the writ petitioners successfully argued before the Court that by excluding the Indians from the definition of Sikkimese, the exemption granted under Section 10(26AAA) of the Act 1961, is not available to the Indian Settlers resulting in discrimination. There is no valid ground for discriminating against this section of the residents of Sikkim alone. Further, the Proviso to Section 10(26AAA), insofar as it excludes from the exempted category, “Sikkimese women” who marries a non-Sikkimese after 01.04.2008, is discriminatory and violative of Articles 14, 15 and 21 of the Constitution of India as the exclusion is based on gender. It was submitted that 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.
Issues
- Indians, who have settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975, whether “Sikkimese” as per the definition under Section 10(26AAA)
- Constitutionality of exclusion of “a Sikkimese woman, who marries a non-Sikkimese after 01.04.2008” from exempted category as per the proviso to Section 10(26AAA) of the 1961 Act
Issue 1: Indians, who have settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975, whether “Sikkimese” as per the definition under Section 10(26AAA)?
The Court took note of the fact that all those Sikkimese/Old Indian Settlers in Sikkim, who might have settled in Sikkim prior to 26.04.1975 but whose names are not registered as “Sikkim Subjects” in the register maintained under the Sikkim Subjects Regulations, 1961 are not entitled to the exemption available under Section 10(26AAA) of the Income Tax Act.
It is worth noting that 94% of the residents of Sikkim are exempted from payment of Income Tax under the Income Tax Act, 1961. However, 5% of the residents of Sikkim of which about 1% are the people like the petitioners, who, as such are also the bona fide settlers of Sikkim, are being singled out from exemption from payment of income tax on the sole ground that they are not recorded in the register under the Sikkim Subjects Regulation 1961. Approximately 500 such families are affected by the definition of the “Sikkimese”.
Noting the purpose of Section 10(26AAA) i.e. to grant exemption to the residents of Sikkim from payment of income tax under the Income Tax Act, the Court observed that 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”.
The Court observed that,
“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.”
Upon Union of India’s failure 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, the Court held that the 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.
Hence, the “Sikkimese” like the petitioners, who are old Indian settlers and who have settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975 shall also be entitled to the exemption under Section 10(26AAA) of the Income Tax Act, 1961.
Nagarathna, J’s additional reasons and directions
Rather than striking down the Explanation to Section 10(26AAA) of the I.T. Act, 1961 which would have the effect of withdrawing the benefit of exemption even from those categories of persons who are presently eligible for the same, Nagarathna, J has asked the Union of India to make the requisite amendment to the Explanation to Section 10(26AAA), Nagarathna, J, directed that all individuals domiciled in Sikkim up to 26th April, 1975 shall be entitled to the exemption under the said provision from the current financial year i.e., 1st April, 2022 onwards so as to eliminate discrimination and disparity in respect of the aforesaid category of Sikkimese, who subsequently have become citizens of India w.e.f. 26th April, 1975 and to save the Explanation from being rendered unconstitutional vis-à-vis such individuals who form a small percentage of Sikkimese and who are also entitled to such an exemption.
Noticing that under the Explanation, the Register of Sikkim Subjects is the basis for granting an exemption from payment of income tax under the 1961 Act to a Sikkimese, Nagarathna, J observed that the Government of India has extended opportunities for the names of individuals to be recorded in the Register of Sikkim Subjects even after the merger of Sikkim as a State with India on 26th April, 1975, by issuance of Government Orders dated 07.08.1990 and 08.04.1991. Further, names of individuals which do not appear in the Register of Sikkim Subjects but it is established beyond doubt that the names of such individual’s father or husband or paternal grandfather or brother from the same father have been recorded in that Register, could also be included in the said Register. Hence, even as of now, if any individual’s name is not entered in the Register, such individual’s name could be entered into the Register by virtue of clause (iii) of the Explanation to Section 10 (26AAA) of the I.T. Act, 1961. The object of providing clause (iii) of the Explanation, which is in the nature of an omnibus clause, is to extend the benefit of the exemption under Section 10 (26AAA) of the I.T. Act, 1961 to all Sikkimese as per the conditions mentioned therein by providing individuals whose names do not appear in the Register, an opportunity of getting their names registered in the said Register so as to avail the benefit of exemption from payment of income tax as per the aforesaid provision.
Hence, it has been held that the Explanation must be construed strictly as it is in the nature of a definition of the expression “Sikkimese” for the purpose of granting an exemption from payment of income tax under the I.T. Act, 1961. However, the exemption must be extended to incorporate all such individuals who have been domiciled in Sikkim as on 26th April, 1975 and who have since then become citizens of India. This would mean that all other citizens of India who do not fall within the ambit of the Explanation and who have been domiciled in Sikkim State subsequent to 26th April, 1975 would not have the benefit of exemption under Section 10 (26AAA) of the I.T. Act, 1961.
Nagarathna, J, hence, opined that the Explanation has to be saved from being in violation of Articles 14 or 15 of the Constitution of India as there is rationale in the three clauses of the Explanation which is a reasonable classification which has a nexus to the object sought to be achieved, which is to grant of exemption from payment of income tax only to those individuals who would qualify as ‘Sikkimese’ in terms of the Explanation to clause (26AAA) of Section 10 of the I.T. Act, 1961.
However, noticing that this would however be discriminatory insofar as those settlers in Sikkim are concerned who have been domiciled in Sikkim subsequent to promulgation of 1961 Regulation and till 26th April, 1975 when Sikkim merged with India. Holding that they are also entitled to the exemption under Section 10 (26AAA), Nagarathna, J, observed that directions in that regard have to be issued to fill the Legislative vacuum and amendment to the Explanation is necessary.
Hence, until the amendment is made, Nagaratha, J, has directed that the following clause shall be read as a part of the Explanation to Section 10(26AAA) of the I.T. Act, 1961, possibly as sub-clause (iv) thereof:
“(iv) any other 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.”
This provision would extend the benefit of exemption to those individuals, domiciled in Sikkim on the day it merged with India, i.e., 26th April, 1975.
Issue 2: Exclusion of “a Sikkimese woman, who marries a non-Sikkimese after 01.04.2008” from exempted category as per the proviso to Section 10(26AAA) of the 1961 Act
[Association of Old Settlers of Sikkim v. Union of India, 2023 SCC OnLine SC 38, decided on 13.01.2023]
Judgment Authored by: Justice MR Shah
Concurrent opinion by: Justice BV Nagarathna
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For Writ Petitioners: Senior Advocate K.V. Viswanathan, Advocate Pooja Dhar
For Revenue: ASG N. Venkataraman
For State of Sikkim: AG Vivek Kohli