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TMI Blog2004 (4) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... ted as Income-tax at source while making the payment of Rs. 5,67,912. The Assessing Officer, however, did not give credit for the said sum of Rs. 62,088 as the tax deducted from the prize money of the lottery by the Sikkim State Government was not paid to the Indian treasury and tax was not deducted as per section 199 of the Income-tax Act, 1961. The petitioner approached the Commissioner of Income-tax, Bombay City IV, in his revisional jurisdiction under section 264. When the revision petition was filed by the petitioner before the Commissioner of Income-tax, her thrust in challenging the assessment order was that she should have been given credit for TDS certificate of Rs. 62,088. At the time of hearing, the petitioner raised additional grounds, inter alia, that no tax was payable by the petitioner on the prize money of the Sikkim lottery under the Income-tax Act, 1961. The Commissioner of Income-tax, Bombay City IV, by his order dated June 25, 1991, modified the order of the Assessing Officer only to the extent holding that the prize money of the lottery needed to be reduced by Rs. 62,088 as the assessee did not receive the said amount. The Commissioner of Income-tax held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er members of Parliament, except that the representatives of Sikkim would not be entitled to vote at the election of the President or Vice-President of India. There is little doubt that the 35th Amendment Act, 1974, introduced innovations into the original scheme of the Constitution of India. There was no room for any 'associate State' under the Constitution of 1949. The criticism of the introduction of the status of an 'associated State' into the Indian federal system has, however, lost all practical significance, because Sikkim has shortly thereafter been admitted into the Indian Union as the 22nd State in the First Schedule of the Constitution of India, and both article 2A and the 10th Schedule, which were added by the Constitution (35th Amendment) Act, 1974, were omitted by the Constitution (36th Amendment) Act, 1975, which followed in quick succession, and was given retrospective effect from April 26, 1975. We shall now advert to this later development. While the Indian Parliament was enacting the Constitution (35th Amendment) Act, the Chogyal resented and sought to invoke international intervention. This provoked the progressive sections of the people of Sikkim and led to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the adaptations and modifications so made, and any such adaptation or modification shall not be questioned in any court of law . . ." In State of Sikkim v. Surendera Prasad Sharma, AIR 1994 SC 2342, the special provisions relating to the State of Sikkim as provided in article 371F came up for consideration before the Supreme Court. The Supreme Court in paragraphs 15, 20 and 21 held thus: "15. Now we have already noticed that the Establishment Rules of 1974 were promulgated by the Chogyal of Sikkim as its absolute monarch for regulating the appointments to the Civil Services of the State and they were undoubtedly in existence before Sikkim acquired the status of an associate State by the 35th Amendment and a full-fledged State of the Indian Union by the 36th Amendment. In view of the developments and political activity that had preceded these constitutional changes to bring the people of Sikkim within the mainstream of a democratic polity, certain provisions in the nature of transitory provisions had to be made. They are to be found in article 371F. This article begins with a non obstante clause which, to the extent relevant and contextually permissible, applies to all the claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (k) in which this expression occurs, it seems clear to us that the said expression is wide enough to include the Establishment Rules of 1974. If any authority is needed reference could be made to the decision of this court in Edward Mills Co. Ltd., Beawar v. State of Ajmer, AIR 1955 SC 25 at pages 30-31; [1955] 1 SCR 735 wherein a similar expression used in article 372 was construed. There can, therefore, be no doubt that the Establishment Rules of 1974 which were in force in the territories comprised in the State of Sikkim prior to April 26, 1975, would stand covered by the expression 'all laws in force' used in clause (k) of article 371-F and would continue in force even after the appointed date as existing law until amended or repealed. This meaning given to the said expression is consistent with the definitions of 'existing law' and 'law', employed in the Adaptation of Sikkim Laws (No. 1) Order, 1975. In the proviso to rule 4(4) extracted earlier there is reference to Sikkimese nationals and non-Sikkimese nationals. The said proviso posits that non-Sikkimese nationals may be appointed only when suitably qualified and experienced Sikkimese nationals are not available and furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laws which were in force immediately 1 before merger were enacted at a time when Sikkim was under the Chogyal's rule and could not, therefore, be in accord with the constitutional mandates of the free democratic republic. Therefore, to give effect to the political commitments and assurances given to the people of Sikkim, special provisions had to be made in respect of the new State of Sikkim by the insertion of article 371F in the Constitution. Just as in the case of article 35(b), this provision also had to begin with a non obstante clause to grant temporary immunity from the other provisions of the Constitution. If it were not to be so, the laws in force in the erstwhile territory of Sikkim would conflict with the provisions of the Constitution and would be hit by article 13. But at the same time it must be realised that the said article does not use the phraseology of making the same subject to the provisions of the Constitution. It must also be borne in mind that article 2 does not make use of a non obstante clause and, therefore, the terms and conditions prescribed thereunder must accord with the other constitutional requirements. Thus article 371F occupies a special position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aptation and modification with a view to making such law consistent with the Constitution of India. The adaptation or modification made by the President in exercise of the special power as provided in clause (1) does not have the effect that the existing laws cease to be the law in force within the meaning of clause (k) of article 371F. By virtue of clause (n), an Indian Act or enactment specified in the President's notification extends to Sikkim, superseding the constitutional law even without any repeal of that Sikkim law. The President of India in exercise of his powers conferred by clause (n) of article 371F of the Constitution, extended to the State of Sikkim, the Income-tax Act, 1961, vide Notification No. S. O. 1028(E),.dated November 7,1988, with effect from April 1, 1989. However, the commencement of the Income-tax Act, 1961, was deferred for one year making it effective from April 1, 1990, applicable from the assessment year 1990-91 and onwards. The legal position that emerges, thus, is that the Income-tax Act, 1961, was made applicable and came into force in the State of Sikkim from the assessment year 1990-91 (previous year 1989-90) and on the coming into force or th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbay-26, as first prize in ticket No. N-503303 in seventh draw of Snow Lion Weekly Lotteries. The prize money less Income-tax has been remitted to the said Smt. Nirmala Labh Shanker Mehta by demand draft No. 035569 dated August 28, 1987. (Sd.).............. Director of Lotteries, Government of Sikkim". It would be, thus, seen that the Income-tax from the prize money of Rs. 6,30,000 was deducted as per the Sikkim Income-tax Manual, 1948, and the remaining amount of the prize money was paid to the petitioner. The prize money was won by the petitioner from the lottery floated by one of the States of the Indian Union. The petitioner won the prize money within the territory of India, though in the said territory a special income-tax law, viz., Sikkim Tax Manual, 1948, was applicable. The said prize money won by the petitioner has been charged to tax as per the law applicable in the Sikkim State where the prize money was won. The Income-tax Act, 1961, was not applicable at the relevant time in Sikkim. So long as the Income-tax Act, 1961, did not become applicable to the State of Sikkim, Income-tax Act, 1961, could not be applied to the income earned in Sikkim. In the circumstances, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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