THE OLD SETTLERS OF SIKKIM

Income Tax Appellate Tribunal - Madras

N. Manonmani vs Income-Tax Officer on 12 January, 1996

Equivalent citations: 1996 58 ITD 53 Mad

ORDER
Shri M. M. Cherian, Accountant Member
1. This appeal has been filed by the assessee, Smt. N. Manonmani, against the order of the Dy. Commissioner of Income-tax (Appeals), Coimbatore for the assessment year 1985-86.
2. The assessee is an individual assessed to tax for the assessment year 1985-86 on the amount she received as prize money on the Sikkim State Lottery in the draw held on 6-12-1984. On the prize amount of Rs. 1 lakh the Sikkim Government had deducted tax of Rs. 8,088 and only the balance amount was paid to the assessee. In the assessment the Assessing Officer brought to tax the prize amount after allowing deduction for the agent's commission, collection charges, etc. Before the Assessing Officer, the assessee claimed Double Income-tax Relief with the plea that on the same income the Sikkim Government as also the Indian Government had levied tax. The claim was not allowed.
3. In the first appeal, the Dy. CIT (Appeals) held that Sections 90 and 91 of the Income-tax Act dealing with Double Income-tax Relief would not apply in this case as during the relevant period Sikkim was a State in India. The appellate authority held that as the Sikkim Government had deducted Rs. 8,088 as tax and paid the assessee only the balance amount, that amount only was liable to tax. The result is that in giving effect to the appellate order deduction was allowed for the sum of Rs. 8,088 collected as tax by the Sikkim Government. Not satisfied with the relief allowed by the first appellate authority, the assessee has come in the present appeal before this Tribunal.
4. On behalf of the assessee, the learned counsel, Shri Vijayaraghavan, Advocate submitted that the Dy. Commissioner (Appeals) was not correct in holding that the assessee was not entitled to get the Double Income-tax Relief on the income which had suffered tax under the Sikkim Tax Laws. The counsel stated that in this case the income arose in Sikkim as the money was received from the Sikkim Government, even though the lottery ticket was purchased in India. It was pointed out that even though Sikkim became a State in the Indian Union in 1975, the Indian Tax Laws were not made there applicable immediately, but only w.e.f. 1-4-1989 by Finance Act, 1989, sec. 26. It was submitted that during the period from 1975 to 1989 though Sikkim was part of India, it was not a territory to which Indian Tax Laws extended and in that sense it was to be deemed as a place outside India. Referring to Section 91 of the Income-tax Act, 1961, the learned counsel submitted that for the limited purpose of applying Section 91 Sikkim should be considered as a country outside India for the period prior to 1-4-1989 and so the assessee was eligible for the relief in respect of the income which had suffered tax in Sikkim. It was submitted that not only under equity but also on a harmonious construction of the provisions of Section 26 of Finance Act, 1989 read with Section 91 of the Income-tax Act, the assessee was entitled to Double Income-tax Relief on the lottery income, which had suffered tax of Rs. 8,088 in Sikkim and then with the present assessment under the Tax Laws in India. The learned counsel also refereed to the decision of the Calcutta High Court in the case of Anjan Banerjee v. Union of India [1994] 207 ITR 130.
5. Apart from claiming Double Income-tax Relief, the counsel raised another contention that the assessment in this case was bad in law as according to him, no tax was leviable under the Income-tax Act on the income that arose in Sikkim during the period when the Income-tax Laws were not applicable. Shri Vijayaraghavan stated that by clause (k) of Article of 371F of the Constitution all the laws in force in Sikkim before the date of merger continued to be in force until amended or repealed by competent legislation and that the Sikkim Laws regarding taxation continued to be in force during the period from 1975 to 1989 even after Sikkim became a State in the Indian Union. According to him, levy of tax by the Sikkim Government during the period prior to 1989 had the constitutional sanction in view of clause (k) of Article 371F (vide Anjan Banerjee's case (supra) and so when the Legislature had permitted the Sikkim Tax Laws to continue during the relevant period, it was not justifiable to levy tax again on the same income under the Indian Tax Laws. It was submitted that since Sikkim Tax Laws were repealed and Indian Tax Laws were made applicable in that State only subsequently from 1-4-1989, the Legislature had intentionally allowed Sikkim Laws to prevail and that was why Indian Tax Laws were not made retrospectively applicable. The counsel strongly contended that the assessment of the same income in the hands of the assessee two times was not permitted by law. Arguing on the above lines, the learned counsel submitted that the income was thus not taxable under the Indian Tax Laws, as the same had been taxed under Sikkim Tax Laws, which had the sanction of the Constitution, under Article 371F(k).
6. The Departmental Representative who appeared for the department strongly supported the order of the first appellate authority and submitted that it was incorrect to consider Sikkim as a country outside India after 1975, for the purpose of Double Income-tax Relief under Section 91 of the Income-tax Act. Simply because Income-tax Act had not been made applicable, it cannot be said that Sikkim was a foreign country, even after the merger with India, the Departmental Representative contended. As regards the assessee's argument that the present assessment was not authorised by law, the Departmental Representative submitted that it was a constitutional issue, not coming under the Income-tax Act.
7. Section 91 of the Income-tax Act provides that if any person who is resident in India in any previous year, proves that in respect of his income which accrued or arose during that previous year outside India, he has paid in that country with which there is no agreement under Section 90 for relief or Avoidance of Double Taxation, income-tax by deduction or otherwise under the law in force in that country, he shall be entitled to the deduction from the Indian Income-tax payable by him a sum calculated on the doubly taxed income.............
8. As held by the Supreme Court in K. V. AL. M. Ramanathan Chettiar v. CIT [1973] 88 ITR 169, the object of Section is that the amount of Income-tax paid or amount of tax paid in the foreign country, whichever is lower, is allowed as a reduction from the tax payable under the Act on such double taxed income. In order to be able to obtain the relief the assessee must show that his income on which relief is claimed, had accrued or arisen in a country outside India with which there is no agreement for avoidable of double taxation. The question to be considered is, whether Sikkim was a foreign country on 6-12-1984 when the Sikkim State Lottery draw was held and the income by way of Prize Money accrued or arose to the assessee. Sikkim was admitted as a State to the Union of India on 26-4-1975. But the Indian Tax Laws came into force in the State of Sikkim later only. A notification was issued by the Ministry of Finance on 24-2-1989, whereby 1st day of April, 1989 was appointed as the date on which the Income-tax Act, 1961 shall come into force in the State of Sikkim (see 176 ITR (St.) 222). The assessee's contention is that as the Indian Income-tax Act came into force in Sikkim w.e.f. 1-4-1989, during the period prior to that date Sikkim should be deemed to be a country outside India for the purpose of section 91 of the Income-tax Act, 1961. The Dy. CIT(A) has taken the view that merely because the Income-tax Act has not been made applicable to Sikkim, it cannot be deemed to be a foreign country, during the period from 26-4-1975 to 1-4-1989. We are not persuaded to take a different view in the matter. There is no merit in the contention that Sikkim should be deemed to be a country outside India, even after its merger in the Union of India. Income that accrued or arose to the assessee in Sikkim cannot be considered as income accruing or arising in a country outside India to qualify for the double income-tax relief. The assessee's claim of double Income-tax relief has been rightly rejected by the first appellate authority.
9. Regarding the plea that the present assessment is invalid as it has resulted in the same income being assessed twice, it is necessary to point out that the two assessments are under two different tax laws. Regarding the levy of tax under the Sikkim State Income-tax, the observation made by the Calcutta High Court in the case of Anjan Banerjee (supra) is relevant. It is reproduced below :
"... Moreover, the Manual handed up in Court contains a series of composite tax laws. It is not something corresponding to the Income-tax, 1961. There is a tax under business heading, which is in the nature of a turnover tax. The levy is on "gross sale-proceeds of previous year of all persons engaged in business". Thereafter, there is a tax on agricultural produce (maze and paddy). There is also tax on employees of the Sikkim State under the head "Salary". Other employees of any other employers are not affected by this tax. There is also patta tax and also tax on "principal loans in cash or in kind above Rs. 2,000". A uniform rate of three per cent of tax has been provided in all the aforesaid headings. The field of operation of the Sikkim State Income-tax Manual appears to be quite distinct and separate from the Income-tax Act, which levies a tax on the "total income" of every person to be calculated in the manner laid down in the Income-tax Act."
It can thus be seen that the assessee has been taxed twice under different laws (and not under the same tax law), even though on the same income. Section 5(1) of the Income-tax Act provides that the total income of any previous year of a person who is a resident includes all incomes from whatever sources derived which -
(a) is received or is deemed to be received in India in such year by or on behalf of such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year; or
(c) accrues or arise to him outside India during such year.
The assessee was a resident during the previous year relevant to the assessment year 1985-86. In accordance with clause (b) of section 5(1), the total income in her case includes all income that accrues or arises or deemed to accrue or arise to her in India during the previous year. Sikkim being a State of the Indian Union w.e.f. 26-4-1975, the income accrued or arose to her on 6-12-1984 was rightly included in her total income. The contention of the learned counsel that in view of Article 371F(k) of the Constitution, the levy of tax under the Sikkim Tax Laws had the approval of the Constitution and so, at the same time, there would not have been another levy by the Indian Income-tax, and so it was unconstitutional, cannot be entertained by this Tribunal. It would not be proper to challenge before this Tribunal the levy of tax under the Income-tax Act as being inconsistent with the provisions of Article 371F(k). This is not the forum to adjudicate on a constitutional issue.
10. In the above circumstances, the order passed by the Dy. Commissioner (Appeals) in this case for the assessment year 1985-86 is confirmed. The appeal filed by the assessee thus fails.
source:http://www.indiankanoon.org/doc/575763/