2023 (1) TMI 583 - SC - Income Tax

Constitutional validity of the the proviso to Clause (26AAA) - Constitutional validity the Explanation - Scope of the definition of Sikkimese in Section 10 (26AAA) - it excludes Indians who have settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975 - Proviso excludes from the exempted category, Sikkimese women who marries a non-Sikkimese after 01.04.2008 - discrimination on the basis of marriage against Sikkimese women with reference to an arbitrary date i.e., 1st April, 2008 . HELD THAT - when a benefit is being given to a Sikkimese individual which would include all genders under the provision, by way of the Explanation being added, which is in the nature of a definition, the proviso cannot exclude a certain category of married Sikkimese women from the said Explanation and thereby, deprive them of the said benefit of exemption from payment of income tax on the basis of to whom they are married to. When the Explanation refers to an individual , it includes both Sikkimese men and women, in fact, all genders; it cannot have a restrictive or myopic reference to only Sikkimese men and exclude those Sikkimese women covered under the proviso. A proviso cannot over arch a provision. But in the instant case, the proviso is overriding the provision as well as the Explanation in respect of those categories of married Sikkimese women referred to in the proviso which is impermissible. Thus, the proviso is inherently arbitrary and discriminatory against a particular category of Sikkimese women. In other words, the Explanation to Section 10 (26AAA) of the I.T. Act, 1961 includes both Sikkimese men as well as women. Such being the interpretation, in my view, the proviso is antithetical to the Explanation and the Section as well. On a conspectus consideration of the 1961 Regulation in light of the Government Orders passed subsequent to the merger of Sikkim with India by which Sikkim became a State in India and by which the Sikkim Subjects domiciled in Sikkim had their names included in the Register of Sikkim Subjects, the proviso should not have discriminated against Sikkimese women in the manner analysed above, only because a Sikkimese woman who, though, may have had her name registered in the Register of Sikkim Subjects, married a non-Sikkimese, that too, only on or after, 1st April, 2008, would be excluded from the exemption clause. Such a category of women cannot be deprived of the benefit of the provision under Section 10 (26AAA) of the I.T. Act, 1961 The proviso to Clause (26AAA) of Section 10 of the I.T. Act, 1961 is struck down as being in violation of Articles 14 and 15 of the Constitution of India. Constitutional validity the Explanation - three categories of individuals entitled to the benefit. - HELD THAT - If the criterion of domicile has been the basis for registration of persons in the Register under the 1961 Regulations, then by the very same basis, individuals such as the petitioners and all similarly situated persons domiciled in Sikkim on or before 26th April, 1975 which is the day on which Sikkim merged with India must be given the benefit of the exemption even if their names are presently not registered in the Register of Sikkim Subjects in order to remove the vice of discrimination vis-a-vis such individuals. Hence, persons such as the petitioners and other similarly situated persons who have not been registered under the Register of Sikkim Subjects can now seek registration in view of the aforesaid discussion as registration under the said Register is the basis for extending the exemption under Section 10 (26AAA) of the I.T. Act, 1961. Hence, directions have been issued so as to include persons such as the petitioners and other similarly situated persons. All Indian nationals who have become domiciled in Sikkim till 26th April, 1975 must be given the benefit of the exemption clause under the I.T. Act, 1961. This is in order to eliminate the disparity amongst the individuals who are all now citizens of India settled/domiciled in Sikkim prior to 26th April, 1975. Therefore, directions have been issued in this regard so as to save the Explanation from the vice of being ultra vires under Articles 14 and 15 of the Constitution of India. In view of the above interpretation, in my view, 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. Hence, directions in that regard have to be issued to fill the Legislative vacuum and amendment to the Explanation is necessary. However, those individuals who have been domiciled in Sikkim subsequent to 26th April, 1975 shall not be entitled to the benefit of exemption from payment of income tax. It has to be directed that till such amendment is made to the down the Explanation to Section 10(26AAA) of the I.T. Act, 1961, 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. This direction is being issued in exercise of powers under Article 142 of the Constitution

Summary

Issues Involved:
1. Constitutionality of the definition of "Sikkimese" under Section 10(26AAA) of the Income Tax Act, 1961.
2. Constitutionality of the proviso to Section 10(26AAA) excluding Sikkimese women who marry non-Sikkimese after 01.04.2008.

Issue-Wise
Detailed Analysis:

1. Constitutionality of the definition of "Sikkimese" under Section 10(26AAA) of the Income Tax Act, 1961:

Background and Arguments:
- The petitioners argued that the definition of "Sikkimese" under Section 10(26AAA) is discriminatory as it excludes Indians who settled in Sikkim before its merger with India on 26.04.1975. They claimed this exclusion is arbitrary and violates Articles 14 and 15 of the Constitution, as it fails to provide a rational nexus to the objective of the statute.
- The petitioners contended that the exclusion of old Indian settlers from the benefits of tax exemption under Section 10(26AAA) is unjustified, as these settlers are similarly situated to those whose names are recorded in the Sikkim Subjects Register.
- The respondents argued that the classification is based on historical and social considerations unique to Sikkim and its integration with India. They maintained that the distinction between Sikkim Subjects and other residents was necessary to maintain social harmony.

Judgment:
- The court noted that the purpose of Section 10(26AAA) is to grant tax exemptions to residents of Sikkim. It found no rational basis for excluding old Indian settlers who settled before 26.04.1975 but whose names were not recorded in the Sikkim Subjects Register.
- The court held that the exclusion of old Indian settlers from the definition of "Sikkimese" is arbitrary, discriminatory, and violative of Article 14 of the Constitution. It ruled that the definition of "Sikkimese" should include all Indians who settled in Sikkim before 26.04.1975, regardless of whether their names are recorded in the Sikkim Subjects Register.
- The court directed that old Indian settlers who settled in Sikkim before 26.04.1975 are entitled to the tax exemption under Section 10(26AAA).

Separate Opinion:
- Another judgment emphasized the need for an amendment to the Explanation to Section 10(26AAA) to include all Indian citizens domiciled in Sikkim on or before 26.04.1975. It suggested that until such an amendment is made, the benefit of the exemption should be extended to these individuals.

2. Constitutionality of the proviso to Section 10(26AAA) excluding Sikkimese women who marry non-Sikkimese after 01.04.2008:

Background and Arguments:
- The petitioners argued that the proviso is discriminatory and violates Articles 14, 15, and 21 of the Constitution, as it excludes Sikkimese women who marry non-Sikkimese men after 01.04.2008 from the tax exemption.
- They contended that this exclusion is based on gender and lacks any rational basis, as it does not apply to Sikkimese men who marry non-Sikkimese women.
- The respondents attempted to justify the proviso based on customary laws and social considerations but failed to provide a convincing rationale.

Judgment:
- The court found the proviso to be discriminatory and violative of Articles 14, 15, and 21 of the Constitution. It noted that the proviso creates an unjustifiable distinction between Sikkimese women and men, as well as between Sikkimese women married before and after 01.04.2008.
- The court emphasized that a woman's identity should not be compromised by marriage, and the proviso's gender-based discrimination is unconstitutional.
- The court struck down the proviso to Section 10(26AAA) as it excludes Sikkimese women who marry non-Sikkimese men after 01.04.2008.

Separate Opinion:
- Another judgment concurred with the main judgment, providing additional reasons and emphasizing the need to eliminate gender-based discrimination. It highlighted international conventions and previous judicial decisions supporting gender equality.

Conclusion:
- The exclusion of old Indian settlers from the definition of "Sikkimese" in Section 10(26AAA) is unconstitutional, and they are entitled to tax exemptions.
- The proviso excluding Sikkimese women who marry non-Sikkimese men after 01.04.2008 is discriminatory and unconstitutional, and it has been struck down.