1993 (3) TMI 16 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of the Sikkim State Income-tax Manual, 1948, versus the Income-tax Act, 1961.
2. Legislative Competence of Parliament and the State of Sikkim regarding income tax.
3. Validity of the Finance Act, 1989, and Presidential Notifications extending the Income-tax Act, 1961, to the State of Sikkim.

Detailed Analysis:

1. Applicability of the Sikkim State Income-tax Manual, 1948, versus the Income-tax Act, 1961:
The petitioner argued that, as a resident of India within the meaning of section 6 of the Income-tax Act, 1961, and given that the Income-tax Act, 1961, was extended to Sikkim from April 1, 1989, his income-tax should be governed under the Income-tax Act, 1961, rather than the Sikkim State Income-tax Manual, 1948. The court noted that the Sikkim State Income-tax Manual contained a series of composite tax laws distinct from the Income-tax Act, 1961, which levies a tax on the "total income" of every person. The court concluded that any law corresponding to the Income-tax Act, 1961, which was in force in Sikkim, ceased to be operative from the date the Income-tax Act, 1961, became applicable to Sikkim.

2. Legislative Competence of Parliament and the State of Sikkim regarding income tax:
The court emphasized that the State of Sikkim does not have legislative competence to pass laws concerning tax on income, which falls exclusively within the domain of Parliament under entry 82 of List I of the Seventh Schedule. Article 371F(k) of the Constitution ensures that all laws in force in Sikkim before the merger continue until amended or repealed by a competent authority. The court held that only Parliament could legislate on "Taxes on income other than agricultural income," and any income tax law prevailing in Sikkim before the merger was repealed by a competent Legislature.

3. Validity of the Finance Act, 1989, and Presidential Notifications extending the Income-tax Act, 1961, to the State of Sikkim:
The court examined the Presidential Notifications dated November 7, 1988, and February 23, 1989, which extended the Income-tax Act, 1961, to Sikkim. The Finance Act, 1989, further clarified that the Income-tax Act, 1961, would come into force in Sikkim from the previous year relevant to the assessment year commencing on April 1, 1990. The court rejected the argument that the Income-tax Act could not have been extended to Sikkim by the Finance Act, 1989, stating that the extension was validly done by the President under clause (n) of article 371F. The court also noted that the enabling provisions of clause (n) of article 371F did not restrict Parliament's power to legislate on income tax matters concerning Sikkim.

Conclusion:
The writ petition was successful, and the court ordered in favor of the petitioner, stating that the income-tax of the petitioner should be governed under the provisions of the Income-tax Act, 1961, and not under the Sikkim State Income-tax Manual, 1948. The court refused the stay of operation of this order as prayed for by the respondent's counsel. Each party was directed to bear its own costs, and the Department was instructed to supply xerox copies of the order to the advocates on usual charges and an undertaking to apply for and obtain a certified copy of the order.