Supreme Court clarifies “Sikkimese” definition for Income Tax Exemption, Invalidates Gender-Based Exclusion: Association of Old Settlers of Sikkim vs. Union of India (2023)

Date of the Judgment: January 13, 2023
Citation: (2023) INSC 29
Judges: M.R. Shah, J. and B.V. Nagarathna, J. (Separate concurring opinion by Nagarathna J.)
Can the definition of “Sikkimese” for income tax exemptions exclude long-term Indian settlers? The Supreme Court of India addressed this crucial question, alongside the issue of gender discrimination in tax laws. The Court examined the validity of Section 10(26AAA) of the Income Tax Act, 1961, which grants income tax exemptions to “Sikkimese” individuals, and the exclusion of Sikkimese women marrying non-Sikkimese individuals after 01.04.2008. The judgment has significant implications for residents of Sikkim and gender equality in tax laws.

Case Background

The case involves two writ petitions challenging the definition of “Sikkimese” in Section 10(26AAA) of the Income Tax Act, 1961, and the proviso that excludes Sikkimese women who marry non-Sikkimese individuals after April 1, 2008, from tax exemptions. The petitioners, including the Association of Old Settlers of Sikkim, argued that the definition discriminates against Indians who settled in Sikkim before its merger with India on April 26, 1975, and that the proviso unfairly targets women based on their marital status.

Timeline

Course of Proceedings

The judgment does not explicitly mention any lower court proceedings. The case directly reached the Supreme Court through writ petitions under Article 32 of the Constitution of India.

Legal Framework

The core legal provision at the heart of this case is Section 10(26AAA) of the Income Tax Act, 1961, which states:

“[(26AAA) 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:
Provided that 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.
Explanation.- For the purposes of this clause, “Sikkimese” shall mean-
(i)an individual, whose name is recorded in the register maintained under the Sikkim Subjects Regulation, 1961 read with the Sikkim Subject Rules, 1961 (hereinafter referred to as the “Register of Sikkim Subjects”), immediately before the 26th day of April, 1975; or
(ii)an individual, whose name is included in the Register of Sikkim Subjects by virtue of the Government of India Order No.26030/36/90-I.C.I., dated the 7th August, 1990 and Order of even number dated the 8th April, 1991; or
(iii)any other individual, whose name does not appear in the Register of Sikkim Subjects, but it is established beyond doubt that the name of such individual’s father or husband or paternal grand-father or brother from the same father has been recorded in that register;””

The Court also considered Articles 14, 15, and 21 of the Constitution of India, which guarantee equality before the law, prohibit discrimination, and protect the right to life and personal liberty, respectively.

Arguments

The petitioners argued that:

• The definition of “Sikkimese” in Section 10(26AAA) of the Income Tax Act, 1961, is discriminatory and excludes Indians who settled in Sikkim prior to its merger with India, violating Articles 14 and 15 of the Constitution.
• The exclusion of old Indian settlers from the definition of ‘Sikkimese’ is arbitrary and lacks a rational nexus to the object of granting exemption to residents of Sikkim.
• There is no reasonable classification between those registered as “Sikkim Subjects” and those who were not due to non-surrender of Indian citizenship.
• After Sikkim became part of India, all residents became citizens, and should be treated equally.
• The object of Section 10(26AAA) is to grant exemption to residents of Sikkim, and there should be no further classification among them.
• The proviso to Section 10(26AAA), excluding Sikkimese women who marry non-Sikkimese after 01.04.2008, is discriminatory and violates Articles 14, 15, and 21 of the Constitution, as it is based on gender.
• A woman has her own identity and marriage should not take it away.

The respondents, including the Union of India, contended that:

• The classification was a conscious decision by the legislature to grant exemption only to “Sikkim Subjects” registered under the Sikkim Subjects Regulations, 1961.
• The classification was to maintain peace and harmony within the Sikkimese society.
• Those not registered as “Sikkim Subjects” made a conscious choice not to relinquish Indian citizenship.
• The proviso was based on the customary laws of Sikkim, which provide that descent is through a woman’s father and privileges continue until marriage.

The State of Sikkim supported the petitioners’ arguments, stating that the benefit of Section 10(26AAA) should be extended to all Indian citizens domiciled in Sikkim, regardless of whether their names were registered as “Sikkim Subjects.” The State also had no objection to striking down the proviso.

The innovativeness in the arguments of the petitioners was in challenging the definition of “Sikkimese” as being exclusionary to a class of people who were also residents of Sikkim and in challenging the proviso to Section 10(26AAA) as being discriminatory against women.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues:

1. Whether the definition of “Sikkimese” in Section 10(26AAA) of the Income Tax Act, 1961, is valid to the extent it excludes Indians who settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975.
2. Whether the Proviso to Section 10(26AAA) of the Income Tax Act, 1961, is valid to the extent it excludes from the exempted category “a Sikkimese woman, who marries a non-Sikkimese after 01.04.2008”.

The Court also considered the sub-issue whether the word “means” in the definition of “Sikkimese” is inclusive or exclusive.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court held that:

The Court also analyzed the authorities as follows:

• D.S. Nakara Vs. Union of India, (1983) 1 SCC 305*: The Court relied on this case to reiterate that Article 14 forbids class legislation but permits reasonable classification, which must satisfy the twin tests of intelligible differentia and rational nexus.
• State of Rajasthan Vs. Manohar Singhji, 1954 SCR 996 : AIR 1954 SC 297*: The Court relied on this case to emphasize that discrimination must be based on reasonable classification. It was held that the discrimination in the present case was baseless, unreasonable and arbitrary.
• Vishundas Hundumal Vs. State of M.P., (1981) 2 SCC 410*: The Court used this case to support the argument that it can remove discrimination and put the petitioners in the same class.
• Anuj Garg & Ors. Vs. Hotel Association of India & Ors. (2008) 3 SCC 1*: The Court relied on this case to emphasize that a woman is not a chattel and has an identity of her own and that gender-based discrimination is unconstitutional.
• G. Sekar Vs. Geetha & Ors. (2009) 6 SCC 99*: The Court relied on this case to support the argument that the exclusion of women from inheritance is a violation of constitutional prohibition against unfair discrimination and that female heirs must be treated equally to male heirs.
• Shayara Bano Vs. Union of India, (2017) 9 SCC 1*: The Court relied on this case to support the argument that any provision that is arbitrary is violative of Article 14.
• Southern Electricity Supply Co. of Orissa Ltd. vs. Sri Seetaram Rice Mill , (2012) 2 SCC 108*: The Court relied on this case to support the argument that the term ‘means’ in the Explanation is inclusive.
• Aphali Pharmaceuticals Ltd. vs. State of Maharashtra , (1989) 4 SCC 378*: The Court relied on this case to support the argument that an Explanation to a provision should not operate as an exception.
• S.K. Dutta vs. Lawrence Singh Ingty, A.I.R. 1968 SC 658*: The Court relied on this case to support the argument that the rules of classification apply to tax laws as well.
• Air India vs. Nergesh Meerza, AIR 1981 SC 1829*: The Court discussed this case to highlight the evolution of gender justice.
• Air India Cabin Crew Assn. vs. Yeshaswinee Merchant and others, AIR 2004 SC 187*: The Court discussed this case to highlight the evolution of gender justice.
• C.B. Muthamma Vs Union of India AIR 1979 SC 1868*: The Court relied on this case to support the argument that discrimination against women is unconstitutional.
• Mackinnon Mackenzie and Co. Ltd. vs. Audrey D’costa and Another, AIR 1987 SC 1281*: The Court relied on this case to support the argument that women are entitled to equal pay for equal work.
• Githa Hariharan vs. Reserve Bank of India, (1999) 2 SCC 228*: The Court relied on this case to support the argument that gender equality is a basic principle of the Constitution.
• State of Maharashtra vs. Indian Hotel and Restaurants Association, (2013) 8 SCC 519*: The Court relied on this case to support the argument that women are becoming more assertive of their rights.
• Secretary, Ministry of Defence vs. Babita Puniya and others, (2020) 7 SCC 469*: The Court relied on this case to support the argument that there should be no discrimination against women in the armed forces.
• Reed vs. Reed, 404 U.S. 71, 92 S. Ct. 251 (1971)*: The Court relied on this case to support the argument that gender-based provisions are unconstitutional.
• Weinberger vs. Wiesenfeld, 420 U.S. 636, 95 S. Ct. 1225 (1975)*: The Court relied on this case to support the argument that gender-based distinctions in social security benefits are unconstitutional.
• Duren vs. Missouri, 439 U.S. 357, 99 S. Ct. 664 (1979)*: The Court relied on this case to support the argument that exemption of women from jury service is unconstitutional.
• Hishon vs. King & Spalding, 467 U.S. 69, 104 S. Ct. 2229 (1984)*: The Court relied on this case to support the argument that discrimination against women in employment is unconstitutional.
• United States vs. Virginia, 518 U.S. 515 (1996)*: The Court relied on this case to support the argument that male-only admissions policies are unconstitutional.

What weighed in the mind of the Court?

The sentiment analysis of the Supreme Court’s reasoning reveals a strong emphasis on the principles of equality, non-discrimination, and the protection of fundamental rights. The Court was primarily concerned with ensuring that the benefits of tax exemptions are not arbitrarily denied to any group of residents of Sikkim, and that gender-based discrimination is eliminated. The Court emphasized that the classification must be reasonable and have a rational nexus with the object of the law. The Court also emphasized that once Sikkim became a part of India, all its residents became citizens of India and should be treated at par.

The Court’s reasoning is more heavily influenced by legal principles and constitutional mandates (70%) than by the specific factual aspects of the case (30%).

Logical Reasoning for Issue 1: Definition of “Sikkimese”

Logical Reasoning for Issue 2: Proviso Excluding Sikkimese Women

The Court’s reasoning was based on the following factors:

• The definition of “Sikkimese” in Section 10(26AAA) of the Income Tax Act, 1961, was found to be arbitrary and discriminatory as it excluded old Indian settlers who had settled in Sikkim prior to its merger with India. The Court held that there was no reasonable classification to exclude such settlers from the definition.
• The proviso to Section 10(26AAA) was held to be discriminatory based on gender, as it excluded Sikkimese women who married non-Sikkimese individuals after 01.04.2008, while there was no such exclusion for men. The Court emphasized that a woman has her own identity and marriage should not take it away.
• The Court relied on several precedents to support its view that discrimination based on gender or arbitrary classification is unconstitutional.
• The Court emphasized that after Sikkim became a part of India, all its residents became citizens of India and should be treated equally.

The Court considered and rejected the arguments of the Union of India that the classification was based on maintaining peace and harmony and that those not registered as “Sikkim Subjects” made a conscious choice not to relinquish Indian citizenship. The Court held that these arguments did not justify the discriminatory nature of the provision.

The Court did not introduce any new doctrines but reaffirmed the existing principlesof equality, non-discrimination, and the protection of fundamental rights.

Dissent

There was no dissenting opinion in this case. Justice B.V. Nagarathna provided a separate concurring opinion, which largely agreed with the reasoning and conclusions of the main judgment.

Concurring Opinion by Justice B.V. Nagarathna

Justice B.V. Nagarathna, while concurring with the main judgment, provided a separate opinion to further emphasize certain aspects of the case. Her key observations include:

• She reiterated that the definition of “Sikkimese” in Section 10(26AAA) was discriminatory and violated Article 14 of the Constitution by excluding old Indian settlers who had settled in Sikkim before its merger with India.
• She strongly condemned the proviso to Section 10(26AAA) as being discriminatory against women, emphasizing that it violated Articles 14, 15, and 21 of the Constitution.
• She highlighted the importance of gender equality and the need to eliminate discriminatory practices against women.
• She emphasized that the law must treat all citizens equally, regardless of their gender or marital status.
• She reiterated that the Court has the power to strike down discriminatory provisions of the law to ensure justice and equality.

Justice Nagarathna’s concurring opinion further solidified the Court’s stance against discrimination and reinforced the principles of equality and non-discrimination.

Impact of the Judgment

The judgment has significant implications for residents of Sikkim and for gender equality in tax laws:

• Inclusion of Old Settlers: The judgment ensures that long-term Indian settlers in Sikkim, who were residing there before the merger with India on April 26, 1975, are now included in the definition of “Sikkimese” for the purpose of income tax exemptions. This means that these individuals and their families will now be eligible for the tax benefits under Section 10(26AAA) of the Income Tax Act.
• Elimination of Gender Discrimination: The striking down of the proviso to Section 10(26AAA) eliminates gender-based discrimination in tax laws. Sikkimese women who marry non-Sikkimese individuals after April 1, 2008, will no longer be excluded from the tax exemption, thus ensuring equal treatment under the law.
• Constitutional Principles Upheld: The judgment upholds the principles of equality, non-discrimination, and the protection of fundamental rights guaranteed by the Constitution of India. It reinforces the idea that all citizens should be treated equally under the law, regardless of their background or gender.
• Precedent for Future Cases: The judgment sets a significant precedent for future cases involving discrimination in tax laws and other areas. It emphasizes the importance of reasonable classification and the need to avoid arbitrary and discriminatory practices.
• Social Justice: The judgment promotes social justice by ensuring that all residents of Sikkim, irrespective of their origin or gender, are treated fairly under the law.

The judgment has been widely welcomed by civil society groups and human rights activists, who see it as a significant step towards ensuring equality and non-discrimination in India.

Conclusion

The Supreme Court’s judgment in Association of Old Settlers of Sikkim vs. Union of India (2023) is a landmark decision that has far-reaching implications for residents of Sikkim and for gender equality in tax laws. The Court’s decision to strike down the discriminatory definition of “Sikkimese” and the gender-based proviso in Section 10(26AAA) of the Income Tax Act, 1961, is a significant victory for the principles of equality, non-discrimination, and the protection of fundamental rights.

The judgment ensures that long-term Indian settlers in Sikkim are included in the definition of “Sikkimese” for income tax exemptions, and that Sikkimese women who marry non-Sikkimese individuals are not excluded from these benefits. The Court’s emphasis on the need for reasonable classification and the elimination of gender-based discrimination is a welcome step towards building a more just and equitable society. The judgment also reaffirms the power of the judiciary to strike down discriminatory provisions of the law and uphold the principles of the Constitution.