Details of the case-
Citation- (2023) 5 SCC 717 Decided On-13.01.2023
Bench: Hon’ble Justices M.R. Shah and B.V. Nagarathna.
Introduction:
On January 13th, 2023, Sikkim woke up to the glorious news that the “old settlers”, also known as the ‘left-out category’ of people will now be allowed the exemption from payment of Income tax just like the other Sikkimese people under Section 10(26AAA) of the Income Act 19612. After decades of fighting for their rights, this was something nothing short of a celebration for the old settlers of Sikkim and all affected groups. The Sikkimese women, who married non- Sikkimese husbands and were earlier not allowed to take benefit of the tax exemption, were also overjoyed. The same was done in the landmark judgment of the Supreme Court in the Association of Old Settlers Of Sikkim and Ors. Vs. Union of India and Others.
Facts Of The Case:
The 36th Constitution Amendment Act of 19753 caused Sikkim, a Chogyal-ruled Himalayan monarchy, to become the 22nd state of the Indian Union. Up until 2008, the state was regulated by its own IT handbook. The Income Tax Act of 19614 was revised in 2008, and Clause (26AAA) was added to Section 10 of the act, exempting native “Sikkimese” from paying income tax on income that came from sources within the state of Sikkim.
Nonetheless, the definition of “Sikkimese” in the explanation of the paragraph said that it refers to a person whose name appears in the register maintained in accordance with the Sikkim Subjects Regulations, 1961. 5. This meant that some individuals who were legitimate settlers
1 Association Of Old Settlers Of Sikkim vs. Union Of India, (2023) 5 SCC 717.
2 Income Tax Act, No 10(26AAA). 43 of 1961, (India).
3 The Constitution (Thirty-sixth Amendment) Act, 1975, No. 81, Acts of Parliament, 1975 (India).
4 Supra note 2
5 Sikkim Subjects Regulations, 1961 (India)
in Sikkim but were not listed in the registry were not exempt. Additionally, the section’s proviso stated that a Sikkimese woman would not be eligible for the tax exemption benefit if she married a non-Sikh after April 1, 2008.
The Association of Old Settlers of Sikkim subsequently filed a writ petition in this case in accordance with Article 32 of the Indian Constitution. They requested that Section 10(26AAA) of the Income Tax Act of 1961 be overturned by the court. The petitioners claimed that old Indian settlers who came to Sikkim prior to the state’s April 26, 1975 union with India are unfairly left out of this portion because their names are not included among the “Sikkim Subjects.” Additionally, they asked that the clause excluding “Sikkimese women” from the exemption group be removed if they marry non-Sikkimese after April 1, 2008.
Issues Raised:
Issue I: Are Indians who immigrated to Sikkim before to the state’s April 26, 1975 unification with India, but whose names are not listed in the Sikkim Subjects Regulations, 1961 6as “Sikkim Subjects,” as defined in Section 10(26AAA) still regarded as “Sikkimese”?
Issue 2: Is the clause in Section 10(26AAA) discriminatory and in breach of Articles 14, 15, and 21 of the Indian Constitution if it keeps a Sikkimese woman from being exempted if she marries a non-Sikkimese after April 1, 2008?
Contentions:
The petitioners argued that although about 95% of Sikkimese citizens are immune from the granted exemption, only a small number of people—including 1%–2% of older Indian settlers—are subject to taxes. In this case, a particular class of people—Indian citizens—is requesting to be taxed differently. They argued that since everyone who moved to Sikkim before the state’s union with India was in a comparable situation, they ought to be treated equally.
Even if the groups are in comparable situations, the division of people into them is discriminatory and goes against Article 14 of the Indian Constitution. If a classification is made, it must be based on distinguishable factors that differentiate one group from another. Furthermore, the proviso to Section 10(26AAA) must be reasonably related to the goals and purposes that the law intends to achieve. Since neither of the first two requirements is met in
6 Supra note 6.
this instance, it would be arbitrary to divide the two similarly situated groups and would violate Article 14 of the Constitution. Therefore, there is no legitimate cause or categorization to disqualify Indians who settled in Sikkim prior to the state’s unification with India on April 26, 1975, based only on the only on the ground that, at the relevant time, they had not given up their Indian citizenship, so their names were not listed as “Sikkim Subjects”
The Petitioners further pointed out that the primary goal of Section 10(26AAA) of the Income Tax Act 7is to exempt local Sikkim residents from paying taxes under the Act; this is the goal that is intended to be accomplished by offering the tax exemption under Section 10(26AAA) of the Income Tax Act. 8The law’s intent is defeated when elderly settlers are exempted merely because their names are not listed in the register as Sikkim subjects. As a result, they requested that the court interpret the term “means” in the definition of “Sikkimese” as inclusive and include Indian settlers in this category..
The petitioners strongly denounced the exemption granted to a Sikkimese woman who marries a non-Sikkimese person after April 1, 2008, claiming that it is discriminatory and based on gender inequity, entirely violating Articles 14, 15, and 21 of the Indian Constitution. Furthermore, it was observed that a male Sikkimese citizen who marries a non-Sikkimese person is not excluded from the exemption provided by Clause (26AAA) of Section 10 of the Income Tax Act. 9They emphasized that a woman “has an identity of her own and is not a chattel; the mere fact that she is married should not take that identity away.” 10
The Respondents’ attorney, however, disputed that these provisions were implemented after careful thought and backed eliminating the prohibition on Sikkimese women from marrying foreigners after April 1, 2008.
Judgment:
The bench, which consists of Honorable Judges M.R. Shah and B.V. Nagarathna, renders the decision. It was decided that the definition of “Sikkimese” in Section 10(26AAA) of the Income Tax Act, 196111 should not include elderly Indian settlers who had permanently settled in Sikkim prior to its merger with India on April 26, 1975. This was deemed to be discriminatory
7 supra note 2.
8 supra note 2.
9 Supra note 2.
10 Ashok KM, Woman Not A Chattel, Has Identity Of Her Own; Marriage Won’t Take Away Her Identity’ : Supreme Court Strikes Down Income Tax Provision, LIVE LAW (Jan. 13, 2023), https://livelaw-nlul.refread.com/top- stories/supreme-court-income-tax-provision-sikkimese-women-218917
11 Supra note 2
and arbitrary, and it violated Article 14 of the Indian Constitution. As a result, the provision was invalidated.
Therefore, regardless of whether their name is on the register kept under the Sikkim Subjects Regulations, 1961 12and the Sikkim Subject Rules, 196113, all Indians and old Indian settlers who permanently settled in Sikkim prior to Sikkim’s merger with India on April 26 will be eligible for the benefit under Section 10(26AAA) of the Income Tax Act.14
Furthermore, the 1961 Act’s proviso to Section 10(26AAA), which prohibited a Sikkimese lady from receiving tax exemptions for marriages to non-Sikkimese people after April 1, 2008, without a valid reason, was declared invalid.15
The Rationale Of The Court:
The court said in its ruling that the intent of Section 10(26AAA) is to exempt Sikkimese citizens from income tax. It stated that there is no discernible distinction between Indians who immigrated to Sikkim prior to its merger and those whose names are on file in the register created by the Sikkim Subjects Regulations, 196116.
The court concluded that some Indians who arrived in Sikkim prior to the Sikkim Subjects Regulations, 1961 being passed did not automatically lose their Indian citizenship or have their names or the names of their ancestors listed in the register as a result of those regulations. There’s no logical relationship or justification for distinguishing between these people. As a result, everyone who moved to Sikkim prior to the region’s union with India ought to be treated fairly and given the title of Sikkimese. All are hence Sikkimese.
In her concurring opinion, Justice B.V. Nagarathna pointed out that the union should make the necessary changes to the explanation to Section 10(26AAA) 17of the act instead of invalidating it, which would have the effect of completely withdrawing the benefit of the exemption. The explanation ought to be read in accordance with the original intent of the statute, while also
12 Supra note 6.
13 Sikkim Subject Rules, 1961 (India).
14 Taxmann, SC ends discrimination against Sikkimese woman marrying a non-Sikkimese; struck down proviso to Sec. 10(26AAA), https://www.taxmann.com/post/blog/sc-ends-discrimination-against-sikkimese-woman- marrying-a-non-sikkimese-struck-down-proviso-to-sec-1026aaa/ (last visited July 2, 2024)
15 Abhimanyu Hazarika, Income Tax exemptions: Supreme Court strikes down exclusion of “old settlers”, Sikkimese women married to non-Sikkimese, BAR AND BENCH (Jan, 16 2023)
https://www.barandbench.com/news/litigation/income-tax-exemptions-supreme-court-strikes-down-exclusion- old-settlers-sikkimese-women-married-non-sikkimese
16 Supra note 6.
17 Supra note 2
encompassing all those who were residents of Sikkim on April 26, 2975, and who subsequently obtained Indian citizenship. As a result, those who moved to Sikkim following its merger with India will not be qualified for the advantage of income tax exemption.
The court concluded that the proviso to Section 10(26AAA), 18which prohibits a Sikkimese woman from being exempted if she marries a non-Sikkimese, violates Articles 14, 15, and 21 of the Indian Constitution because no explanation was given for this exclusion. The court agreed that a woman’s identity shouldn’t be lessened by marriage and that she shouldn’t be viewed like a mere possession. It was also mentioned that the deadline that was set had no logical foundation or explanation. Therefore, it was decided that it was arbitrary, discriminatory, and unconstitutional to deny the tax exemption advantage to a Sikkimese woman who marries a non-Sikkimese after the cut-off date. As a result, the provision was overturned.
In her concurring opinion, Justice B.V. Nagarathna observed that the proviso could not exclude a particular group of married Sikkimese women from the income tax exemption based on their choice of spouse. She found such a proviso to be inherently arbitrary and discriminatory. Since the explanation refers to individuals broadly, including all genders, it could not be narrowly interpreted to apply only to Sikkimese men while excluding Sikkimese women covered by the proviso and such an interpretation would be “restrictive” and “myopic”.
Defect Of Law:
The judgment, though welcomed by the people for the exemption provided to the old settlers and women, has also simultaneously been a point of rage and protest in Sikkim due to the callous branding of Nepali-speaking Sikkimese as ‘immigrants’ by the remark “persons of foreign origin settled in Sikkim”. The same was seen as a threat to the “Sikkimese identity” of the citizens and widespread protests were followed. While the Supreme Court subsequently removed the statement to rectify the position, such instances sow seeds of internal disharmony, discord, and anti-patriotic sentiments in the hearts of the affected individuals.19
Inference:
The ruling provides a breath of relief for the disgruntled Sikkimese people who had previously been denied the exemption under the 1961 Act only because the Sikkim Subjects Regulations,
18 Supra note 2
19 AK Rai, Sikkim ‘old settlers’ work to have court observation ‘rectified’, THE KALIMPONG NEWS (Jan. 30, 2023), https://kalimpongonlinenews.blogspot.com/2023/01/sikkim-old-settlers-work-to-have-court.html
1961-maintained registry did not list their names as “Sikkim Subjects.” Before this ruling, there was a serious inaccuracy in Section 10(26AAA) of The Income Tax Act, 1961 20that neglected to consider the distinct historical background of Sikkim and its people. This oversight led to the exclusion of a significant group of residents and infringed their fundamental rights. The Supreme Court has taken an applaudable approach by giving back to the old settlers of Sikkim their rights.
In accordance with Article 142 of the Constitution, the Court has also issued an order that states that anyone whose name is not on the Register of Sikkim Subjects but who can demonstrate that they were a resident of Sikkim on or before April 26, 1975, shall be eligible for an exemption. These measures illuminate the role of the Judiciary in addressing and resolving legislative deficiencies in India.
Further, the Supreme Court has taken commendable steps towards gender equality and the need for inclusive legislation in India that takes into account the rights of all the affected groups, men and women alike. The court, by declaring the proviso to Article Section 10(26AAA) 21unconstitutional has taken positive steps towards securing equal rights of men and women. The bench noted that the proviso, which contained a narrow and myopic view of society, where the identity of a woman is directly linked solely to the person she marries, as inherently arbitrary and discriminatory in nature. Such judgments by the apex court go a long way in slowly and gradually correcting the historical gender bias in India.
20 Supra note 2
21 Supra note 2
Anusha Singh.
Dr. Ram Manohar Lohiya National Law University, Lucknow.