Income tax Paid in Sikkim- not to be included in India's Return

" the assessee has paid the income tax at source in the State of Sikkim as per law applicable at the relevant time in Sikkim, the same income was not includible in the assessee's total income"

Ghisalal Agarwala vs Commissioner Of Income Tax on 3
January, 2001

Equivalent citations: (2001) 165 CTR Gau 667

Author: C M Jain

JUDGMENT

M C. Jain, C. J.

At the instance of the assessee Ghisalal Agarwala under section 256(1) of the Income Tax Act, the following question of law has been referred by the Tribunal by its order dated 2nd Dec., 1996, to this court for our opinion. The question of law reads as follows -

"Whether in the facts and in the circumstances of the case, the learned Tribunal did not err in law in holding that tie amount of Rs. 76,912 received by the assessee from the Sikkim lottery is includible in the assessee's total income ? "

2.

Before we answer the aforementioned question of law, it is necessary to have a brief look at the facts of the case. The assessee had received Rs. 76,912 as a result of winning of prize from Sikkim lottery and it remains undisputed before us that a sum of Rs. 8,088 was deducted at source under the Sikkim Income Tax Rules.

3.

The assessee while giving its income-tax return, did not include the income earned in Sikkim. The assessing officer vide his order dated 23-3-1990, Annexure-A, assessed the assessee for that income also which was earned by him by way of Sikkim. lottery ticket. The assessment order was subjected to a challenge by the assessee before the Dy. Commissioner (Appeals), Guwahati Range, and he vide order dated 23-10-1990, deleted the income derived from Sikkim lottery and reversed the order of the assessing officer. The revenue filed an appeal before the Tribunal which reversed the judgment of the Dy. Commissioner (Appeals) and held the assessee liable for the income derived by him from the Sikkim lottery. It was held by the Tribunal while following the judgment given by Jaipur Bench of Tribunal in the case of Mahaveer Kurnar Jain v. Income Tax Officer (1993) 45 ITD 634 (Jp-Trib) that the income-tax deduction made for winnings from Sikkim lotteries would debar the assessment of that income as per provisions of the Income Tax Act and that such assessment would not suffer from double taxation on the ground of income-tax having been charged by the Sikkim income-tax authorities. It has further been held that the payment of tax at Sikkim would not make any material difference in the instant case as the assessee is a resident of India and governed by the Income Tax Act, 1961.

4.

It is in the light of the aforementioned decisions of the tax authorities that the question of law has been referred to us by the Tribunal Before determining the precise questions of law which has been referred to us, we must make a note of certain undisputed facts. It has remained undisputed before us that Sikkim was not a part of India in 1975 and initially, the State of Sikkim under a hereditary monarch, subject to British Paramountancy. Later, a treaty was entered into between Sikkim and the Government of India and the latter took responsibility with regard to defence, external affairs and communications of Sikkim. Thus Sikkim became a protectorate of the Union of India. Thereafter, the Constitution (Thirty-sixth Amendment) Act, 1975, was passed whereby Sikkim was admitted into the Union of India as a State. The said amendment inserted article 375F in the Constitution of India incorporating special provisions with respect to the State of Sikkim. By virtue of the powers under clause (n) of article 371F of the Constitution, the President vide Notification dated 7-11-1988 extended the Income Tax Act, 1961, to the State of Sikkim and later, the Central Government issued Notification dated 23-2-1989, appointing 1-4-1989, as the date on which the Income Tax Act came into force in the State of Sikkini in relation to the previous year relevant to the assessment year commencing on 1-4-1989. However, the Income Tax Act was later extended to the State of Sikkim with effect from 1-4-1990, in relation to assessment year 1990-91 and subsequent years.

The law corresponding to the Income Tax Act, 1961, which immediately was in force in the State of Sikkim was to continue to be in force for and upto the previous year beginning with 1-4-1988, and ending on 31-3-1989. Before the extension of the Income Tax Act, 1961, Sikkim State Income Tax Manual of 1948 was applicable in Sikkim and under that Manual of 1948. income-tax of Rs. 8,088 was deducted at source from the Sikkim lottery in case of the petitioner.

5.

It is in the light of the aforementioned factual data that we have to decide the precise question referred to us. Although this court is not bound by the decision given by the Tribunal on the precise question involved herein, yet we do intend to take note of the two decisions referred to us during the course of argument by the counsel for the assessee and by the counsel for the revenue . The Tribunal Bench at Delhi in Anuj (Toffee) Garg v. Income Tax Officer (1990) 84 CTR (Del-Trib) 83, has taken a decision in favour of the assessee. The relevant observations of the Delhi Bench are as follows :

"The result, therefore, is that, while undoubtedly section 5 would be applicable, the existing notifications of Sikkim also would be applicable. Thus, on the same income, it would appear that income-tax would be payable under the notification of the Government of Sikkim as well as under Income Tax Act, 1961. But such a position would not be acceptable in law. Since Sikkim is part of India for the accounting year, there would appear to be, on the same income, two types of income taxes. The Supreme Court has observed in Lakshmipat Singhania v. CIT (1969) 72 ITR 291 (SC), 'It is a fundamental rule of law of taxation that, unless otherwise expressly provided, income cannot be taxed twice.' The Patna High Court in the case of Tata Iron & Steel Co. Ltd. v. Union of India (1970) 75 ITR 676 (Pat) had stated, 'A taxing statute should not be interpreted in such a manner that its effect will be to cast a burden twice over for the payment of tax on the taxpayer unless the language of the statute is so compelling that the court has no alternative than to accept it. In a case of reasonable doubt, the construction most beneficial to the taxpayer is to be adopted.'

So it is clear enough that only one tax law would be applicable and not both. By virtue of clause (i) to article 371F, it would be clear that only the Sikkim Regulations on income-tax would be applicable. Therefore, is cannot be brought to tax by applying the rates of Income Tax Act, 1961.

6.

Contrary to the decision of Delhi Bench, the Jaipur Bench in Mahaveer Kumai Jain v. Income Tax Officer (supra) has taken a different view and the relevant observations read as under:

"The provisions contained in clauses (k) and (n) of Art. 371F of the Constitution would not, in our opinion, come into way in this case, once the provisions of section 5 have started their operation. In the application of those provisions of the Constitution it shall have to be kept in mind that what is under consideration is inclusion of such income to the total income as is being received in India by a resident and ordinarily resident of India at a place outside the territories comprising State of Sikkim and to whom the Sikkim Regulation of 1948 and the notifications issued thereunder were not applicable. The assessee herein is to be assessed as per provisions of the Sikkim Regulation, 1948, and the notifications issued thereunder. Therefore, deductions made from winnings from Sikkim lotteries on account of agent's/seller's commission and/or payment of tax called income-tax, would not debar the assessment of that income as per provisions of the Income Tax Act, 1961.

In the instant case, as has been pointed out above Explanation 2 to section 5, which provides safeguard against double taxation does not apply for the obvious reason that the income in question had not earlier been included in the total income of the assessee. The provisions contained in Chapters III and IX are obviously not applicable hereto. Thus, the inclusion of the income in question in the total income of the asses see for the year under consideration does not, in our opinion, suffer from the vice of double taxation."

7.

Forgetting the two decisions of Delhi Bench and Jaipur Bench for a moment, we can bank upon the decision of the Hon'ble Supreme Court in the case of Jain Brothers v. Union of India (1970) 77 ITR 107 (SC). It has been held in the case of Jain Brothers (supra) as under:

It is not disputed that there can be double taxation if the legislature has distinctly enacted it. It is only when there are general words of taxation and they have to be interpreted, they cannot be so interpreted as to tax the subject twice over to the same tax (vide Channell J. in Stevens v. Durban Roodepoort Gold Mining Co. Ltd.). The Constitution does not contain any prohibition against double taxation even if it be assumed that such a taxation is involved in the case of a firm and its partners after the amendment of section 23(5) by the Act of 1956. Nor is there any other enactment which interdicts such taxation. It is true that section 3 is the general charging section. Even if section 23(5) provides for the machinery for collection and recovery of the tax, once the legislature has, in clear terms, indicated that the income of the firm can be taxed in accordance with the Finance Act of 1956 as also the income in the hands of the partners, the distinction a charging and a machinery section is of no consequence. Both the sections have to be read together and construed harmoniously. It is significant that similar provisions have also been enacted, in the Act of 1961. Sections 182 and 183 correspond substantially to section 23(5) except that the, old section did not have a provision similar to sub-section (4) of section 182, After 19b6, therefore, so far as registered firms are concerned the tax payable by the turn itself has to be assessed and the share of each partner in the income of the has to be included in his total income and assessed to tax accordingly. It any double taxation is involved, the legislature itself has, in express words, sanctioned it. It is not open to any one thereafter to invoke the general principles that the subject cannot be taxed twice over."

8.

Once it has been held by the Apex Court that double taxation is permissible provided specific provision has been made by the legislature, the only question remains to be decided is whether in fact there is a specific provision for including the income earned from the Sikkim lottery ticket prior to 1-4-1990 and after 1975, in the income-tax return or not. We have gone through the relevant provisions of the Income Tax Act and the counsel for the revenue could not point out to any provision wherein a specific provision has been made by the legislature for including such an income by an assessee from lottery ticket Since there is no specific provision made in the Income Tax Act, the relevant observation by the Patna High Court in the case of Tata Iron & Steel Ltd. v. Union of India & Ors. (1970) 75 ITR 676 (Pat) can be quoted, and the relevant observations are as under :

"A taxing statute should not be interpreted in such a manner that its effect will be to cast a burden twice over for the payment of tax on the taxpayer unless the language of the statute is so compelling that the court has no alternative than to accept it. In a case of reasonable doubt, the construction most beneficial to the taxpayer is to be adopted. "

9.

In view of the aforementioned discussions, we are of the considered view that once the assessee has paid the income tax at source in the State of Sikkim as per law applicable at the relevant time in Sikkim, the same income was not includible in the assessee's total income and he was not bound to show it in the income tax return. The question of law, thus, stands answered in favour of the assessee and against the revenue .

source:
http://www.indiankanoon.org/doc/322201/