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2010 (10) TMI 508 - HC - Income TaxBest judgement assessment - It is with this backdrop of the case, the Assessing Officer, passed the impugned assessment order dated 11-12-2009 against the assessee for the Assessment Years 1995-1996 and 1996-1997 confirming the earlier orders of assessment dated 9-7-2001 and 28-3-2001 based on the best judgment under section 144/147 of the Income-tax Act, 1961, respectively holding that the writ petitioner-assessee is liable to pay the Income-tax demanded, and has also reserved the right to levy interest under section 220(2) of the Income-tax Act, 1961 for default in payment of tax separately Board s Instruction No. 8/2008 dated 29-7-2008 states that clause (26AAA) of sec. 10 of the IT. Act, 1961 exempts from tax in respect of income arising or accruing to a Sikkimese individual in relation to income accruing to him/her from (a) any source in the State of Sikkim; or (b) by way of dividend or interest on securities - Assessing Officer has committed an illegality in confirming the earlier orders of assessment dated 9-7-2001 and 28-3-2001 for the Assessment Years 1995-96 and 1996-97 respectively which were made on best judgment - It is apparent on the face of the records that Section 10(26AAA) of the Income-tax Act, 1961 as well as Instruction No. 8 of 2008 dated 29-7-2008 issued by the CBDT have come into force w.e.f. 01-4-1990 even before the disposal of the Writ Petitions (C) No. 31 and 38 of 2001 by order dated 15-7-2009 - t is a settled law, that instruction of CBDT issued under section 199(2) of the Income-tax Act, 1961 are binding on the income-tax authorities, even if they deviate from the provisions of the Act, so long as they seek to mitigate the rigour of a particular section for the benefit of the assessee (Vide UCO Bank v. CIT 1999 (5) TMI 3 - SUPREME COURT ) - It is the settled law that benevolent circulars (Instruction No. 8 of 2008 dated 29-7-2008) providing administrative relief to the assessee have to be given effect to even if they are issued subsequent to the decision (best judgment orders dated 9-7-2001 and 28-3-2001) by an authority under the Act (Vide Bajaj v. CIT 1996 (8) TMI 98 - PUNJAB AND HARYANA HIGH COURT - The writ petition is ordered accordingly
Issues Involved:
1. Whether the income of non-Sikkimese residing in Sikkim is taxable. 2. Validity of the impugned assessment order dated 11-12-2009. 3. Applicability of Section 10(26AAA) of the Income-tax Act, 1961 and Instruction No. 8 of 2008 by CBDT. 4. Principles of natural justice and fair hearing. 5. Discrimination in tax assessment and relief. Issue-wise Detailed Analysis: 1. Whether the income of non-Sikkimese residing in Sikkim is taxable: The central issue was whether the income of non-Sikkimese individuals residing in Sikkim is taxable. The court had previously referred this question to a committee, and the decision was pending. The Finance Act, 2008, introduced Section 10(26AAA) to the Income-tax Act, 1961, exempting Sikkimese individuals from tax on income accruing in Sikkim. However, this exemption did not extend to non-Sikkimese individuals. 2. Validity of the impugned assessment order dated 11-12-2009: The impugned assessment order dated 11-12-2009 confirmed earlier best judgment assessments for the years 1995-96 and 1996-97. The assessee contended that this order was violative of principles of natural justice as he was not given a fair hearing. The court found that the Assessing Officer proceeded technically without providing a fair opportunity to the petitioner, especially considering the retrospective effect of Section 10(26AAA) and Instruction No. 8 of 2008 from 1-4-1990. 3. Applicability of Section 10(26AAA) of the Income-tax Act, 1961 and Instruction No. 8 of 2008 by CBDT: Section 10(26AAA) exempts Sikkimese individuals from tax on income arising in Sikkim. Instruction No. 8 of 2008 by CBDT provided certain reliefs to non-Sikkimese individuals for assessment years up to 2007-08, including dropping proceedings and accepting returns without reassessment. The court noted that these instructions are binding on the income-tax authorities and should mitigate the rigour of the statutory provisions for the benefit of the assessee. 4. Principles of natural justice and fair hearing: The court emphasized that the impugned order violated principles of natural justice as the assessee was not given a fair hearing. The Assessing Officer failed to provide a reasonable opportunity to the assessee, who had requested an adjournment on medical grounds. The court held that the Assessing Officer should have been guided by principles of justice, equity, and good conscience. 5. Discrimination in tax assessment and relief: The court found that the refusal to extend the benefits of Instruction No. 8 of 2008 to the petitioner was discriminatory. The instruction applied even to reassessment cases, and the court held that the Assessing Officer's decision to exclude the petitioner from these benefits was arbitrary and unreasonable. The court noted that benevolent circulars should be given effect even if issued after the original assessment. Conclusion: The court quashed the impugned assessment order dated 11-12-2009 for the assessment years 1995-96 and 1996-97, directing the Assessing Officer to proceed with the matter after obtaining necessary clarifications from CBDT. The writ petition was ordered accordingly with no cost.
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