Association of Old Settlers of Sikkim & Ors Vs Union of India(Supreme Court)
Date-13th January 2023
Sub-Whether those Indian citizens who had settled in Sikkim before it became an Indian State w.e.f 26-04-1975 are eligible for exemption u/s 10(26AAA) of Income-tax Act,1961 and Whether proviso which bars a Sikkim woman upon marrying a non-Sikkim from tax benefits w.e.f 1-4-2008 is ultra vires the constitution as it treats woman as a chattel?

Two judges bench of Supreme Court where Justice M R Shah delivered the lead judgement but Justice B V Nagarathna chose to deliver additional arguments in support of the judgement was dealing with the vires of the provisions of Section 10(26AAA) as per which in case of an individual, being a Sikkimese, any income which accrues or arises to him-(a) from any source in the State of Sikkim; or (b) by way of dividend or interest on securities is exempt. Also as per the proviso, nothing contained in this clause shall apply to a Sikkimese woman who, on or after the 1st day of April, 2008, marries an individual who is not a Sikkimese.
The court noted the entire history behind the Kingdom of Sikkim which was formed in the year 1642 and until merger with India in 1975 it was being ruled for 333 years by the Kingdom. At the time of merger, there was a concept called Sikkim Subject register which basically incorporated those names who were originally Sikkimese or those who surrendered their citizenship of other state and adopted Sikkim Citizenship. In the process certain Indian families who were even though living in Sikkim, did not surrender their Indian Citizenship and thus were left out of the Sikkim Subject register. As the tax benefits were made available only to those whose name was recorded in the register, the dispute went up to the Supreme Court on grounds of arbitrary, unreasonable and ultra vires.
The court upholding the arguments of petitioners declared the Explanation to Section 10(26AAA) as ultra vires and directed the Union of India to amend the explanation until which date all those who had settled in Sikkim before 26-04-1975 would be eligible to get the tax benefits u/s 10(26AAA) and also irrespective of a woman marrying a non-Sikkimese, she would be eligible to get the tax benefit. It appears that Justice Nagarathna being a lady judge was touched by unreasonable classification and she chose to write at length on this aspect.

This judgement though limited in scope regarding those living in Sikkim will be helpful in dealing with vires of provision as well interpretation of “proviso”.

Ramesh Patodia
13-01-2023