Income Tax exemptions: Supreme Court strikes down exclusion of "old settlers", Sikkimese women married to non-Sikkimese

The Supreme Court last week struck down the exclusion of Sikkimese women who married persons from outside the State after April 1, 2008, and old settlers in the State whose names had not been recorded in a Sikkim Subjects Register, from availing exemptions under the Income Tax Act, 1961 granted to all Sikkimese individuals [Association of Old Settlers of Sikkim and ors vs Union of India and anr]. .A bench of Justices MR Shah and BV Nagarathna concluded that these two categories of persons are also “Sikkimese” in terms of Section 10(26AAA) of the Act, which deals with income tax exemptions for Sikkimese individuals. .Justice Shah observed:"Section 10(26AAA) to the extent it excludes the Old Indian settlers, who have settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975, but whose names are not recorded as “Sikkim Subjects”, from the definition of “Sikkimese” is ultra vires, being arbitrary, discriminatory and violative of Article 14 of the Constitution of India. The definition of “Sikkimese” in Section 10(26AAA) of the Income Tax Act shall also include all Indians, who have permanently settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975 irrespective of the fact that whether their names have been recorded in the register maintained under the Sikkim Subjects Regulations, 1961 or not".He further ruled that the proviso excluding Sikkimese women who married non-natives after April 1, 2008, from exemptions, must be struck down for similar reasons..In her concurring opinion, Justice Nagarathna also invoked the top court's powers under Article 142 of the Constitution to rule that a proviso including "old settlers" in the definition of Sikkimese individuals must be read into the provision dealing with exemptions for the Sikkimese (Section 10 (26AAA), Income Tax Act, 1961). .In this regard, the Judge directed the addition of the following proviso in reading the said provision, until an amendment for the same was passed by the Parliament:"... any other individual, whose name does not appear in the Register of Sikkim Subjects but it is established that such individual was domiciled in Sikkim on or before 26th April, 1975.".Background.Sikkim was merged with the Union of India in 1975. Certain income tax exemptions were extended to Sikkimese persons, but these exemptions only applied to those Sikkimese persons whose names were included in the list of Sikkimese subjects prepared in the wake of the merger.The term 'Sikkim Subject', for the purpose of the list, was defined as a person who was born in and/or is resident of the territory of Sikkim, with the caveat that they had given up citizenship of any other country at the time. Due to this, the petitioners, and other similarly-placed Indian citizens, whose ancestors had settled down in Sikkim for generations but did not surrender their citizenship of India ("old settlers") were not included in the register maintaining the list of Sikkim subjects. The Association of Old Settlers of Sikkim moved the Supreme Court challenging such exclusion. Additionally, the exclusion of Sikkimese women who married persons from outside the State from availing the exemption was also challenged. The petitioners argued that such exclusions were arbitrary and unconstitutional for being against Articles 14, 15, and 21 of the Constitution. The counsel for the respondents countered that such provisos were put in place after due consideration, but supported doing away with exclusion of Sikkimese woman who married those from outside the State after April 1, 2008. .Justice Shah noted that the petitioners are entitled to the exemptions under Section 10(26AAA) of the Income Tax Act. Referring to the exclusion of Sikkimese women who married non-Sikkimese individuals, the judge opined. " ... the same is clearly hit by Articles 14, 15 and 21 of the Constitution of India. The discrimination is based on gender, which is wholly violative of Articles 14, 15 and 21 of the Constitution of India. It is to be noted that there is no disqualification for a Sikkim man, who marries a non-Sikkimese after 01.04.2008. As rightly submitted, a woman is not a chattel and has an identity of her own, and the mere factum of being married ought not to take away that identity.".Justice Nagarathna's reasoning.Justice Nagarathna, who has been in the news lately for her dissents, at the outset addressed the proviso dealing with married women. She observed,"The retrospectivity of the proviso takes away a vested benefit extended to such category of women covered under the proviso w.e.f., 1st April, 1990 without there being a rationale for the same."Noting that married men were not excluded on such grounds, Justice Nagarathna made it clear that such deprivations are not permissible. "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 ... the proviso is inherently arbitrary and discriminatory against a particular category of Sikkimese women ... [and] antithetical to the Explanation and the Section as well."She elaborated on the same in length, explaining that a proviso is added only to qualify or create exceptions, and not state a general rule. It cannot nullify or take away rights already conferred for that would be discriminatory and falling foul of Article 14. Justice Nagarathna, therefore, struck down the provisions for being manifestly arbitrary and ultra vires Articles 14, 15 and 21 of the Constitution. .On the proviso dealing with Sikkim subjects, Justice Nagarathna noted that the same should be read to exclude a citizen of India ordinarily resident in the State only on or after April 26, 1975. "This would imply that if an individual from British India or any other part of India after its Independence was domiciled in Sikkim prior to 26th April, 1975 and has become a citizen of India by virtue of 98 Part II of the Constitution and the Citizenship Act, 1955, enacted by the Parliament and Orders made thereunder, pursuant to the merger of Sikkim Kingdom with India, such individual ought to now be included in the Register of Sikkim Subjects if not included till date. Similarly, the expression “any other country” in Regulation (4) of the 1961 Regulation must be read to mean “any other country other than India”." Such interpretations would also enable those who had domiciled in Sikkim to be considered subjects if their ancestors were on the list, she said. The petitioners and other similarly-placed persons could register themselves to apply as Sikkim Subjects, it was opined. " ... 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," Justice Nagarathna observed..Justice Nagarathna, therefore, ordered that all Indian individuals domiciled in Sikkim up to April 26, 1975 shall be entitled to the income tax exemption under Section 10 (26AAA) from the current financial year i.e., April 1, 2022 onwards. "This direction is being issued in exercise of powers under Article 142 of the Constitution so as to eliminate discrimination and disparity in respect of the aforesaid category of Sikkimese, who subsequently have become citizens of India w.e.f. 26th April, 1975 and to save the Explanation from being rendered unconstitutional vis-à-vis such individuals who form a small percentage of Sikkimese and who are also entitled to such an exemption", the Judge said. Such a direction under the top court's plenary powers would persist till the Parliament makes an amendment to the Explanation to Section 10 (26AAA) of Income Tax Act, she added."The reason for such a direction is to save the explanation from unconstitutionality and to ensure parity in the facts and circumstances of the case," the judgment stated..Senior Advocate KV Viswanathan with advocate Pooja Dhar appeared for the petitioners. Additional Solicitor General N Venkataraman appeared for the Central government, and Advocate General Vivek Kohli represented the Sikkim government. .[Read Judgment]