1987 (5) TMI 1 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Income-tax Officer to assess or demand tax on income earned in Sikkim.
2. Status of the petitioner as a resident or non-resident for the purposes of the Income-tax Act, 1961.
3. Taxability of the petitioner's retainer and professional fees received from the Government of Sikkim.
4. Legality of charging interest under section 217 of the Income-tax Act, 1961.
5. Refund of the amount withheld for the assessment year 1982-83.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Income-tax Officer:
The petitioner challenged the jurisdiction of the Income-tax Officer to assess or demand tax on his income earned in Sikkim, arguing that the Income-tax Act, 1961, had not been extended to Sikkim. The court held that the writ petition was maintainable despite the availability of an alternative remedy, as the jurisdictional challenge was based on perverse findings of jurisdictional facts.

2. Status as Resident or Non-resident:
The court examined whether a resident of Sikkim is a non-resident for the purposes of the Income-tax Act, 1961. It was established that Sikkim was treated as outside India for the purposes of the Income-tax Act, 1961, based on circulars from the Ministry of Finance and the affidavit of the Income-tax Officer. The court held that the petitioner, being a resident of Sikkim during the relevant period, was a non-resident for the purposes of the Income-tax Act, 1961.

3. Taxability of Retainer and Professional Fees:
The court considered whether the petitioner's retainer and professional fees received from the Government of Sikkim were taxable. The petitioner had shown his income from Sikkim in his returns and claimed exemption. The court found the Income-tax Officer's finding that the petitioner was a resident and that part of the income arose outside Sikkim to be perverse. It was held that the entire professional income of Rs. 1,00,000 was earned in Sikkim and could not be taxed under the Income-tax Act, 1961.

The court also rejected the argument that the retainer of Rs. 30,000 could be taxed under section 9(1)(iii) of the Income-tax Act, 1961, noting that the Government of Sikkim was not governed by the said Act and that taxing the retainer again would result in double taxation and violate Article 14 of the Constitution.

4. Legality of Charging Interest:
The court found that charging interest under section 217 of the Income-tax Act, 1961, was illegal in this case, as the petitioner was a non-resident during the relevant period and his income earned in Sikkim was exempt from taxation.

5. Refund of Amount Withheld:
The petitioner complained that Rs. 1,268 refundable to him for the assessment year 1982-83 had been illegally withheld. The court directed that this amount be refunded forthwith.

Conclusion:
The court quashed the impugned order of assessment and notice of demand dated February 20, 1986. It directed the Income-tax Officer to reassess the petitioner's income for the assessment year 1983-84, excluding the exempt amount of Rs. 1,00,000. The court also ordered the refund of Rs. 1,268 withheld for the assessment year 1982-83 and directed the reassessment of the estimated income from vacant house property based on previous assessments. There was no order as to costs.