Calcutta High Court
D.P. Choudhury vs Union Of India (Uoi) And Ors. on 8 May, 1987
Equivalent citations: 1990 186 ITR 329 Cal
Bench: M Majumdar
JUDGMENT
Mahitosh Majumdar, J.
1. This writ petition is for quashing/setting aside an order of assessment dated February 20, 1986, made under Section 143(3) of the Income-tax Act, 1961, and a notice of demand dated February 20, 1986, under Section 156 of the said Act (annexure "G" to the writ petition). The impugned order of assessment and notice of demand were made by Smt. K. Dhar, Income-tax Officer, I Ward, District III(I), Calcutta, for the assessment year 1983-84, the corresponding financial year being April 1, 1982, to March 31, 1983.
2. The facts of the case are briefly as follows :
The petitioner is a senior advocate of this court. He was appointed as Advocate-General of Sikkim and joined the post on March 12, 1980. Soon thereafter, he shifted his residence to Gangtok, Sikkim. When practising in Calcutta, he was an assessee within the jurisdiction of the Income-tax Officer, I-Ward, Dist. III (I), Calcutta.
3. Some time after shifting his residence to Gangtok, Sikkim, the petitioner wrote from Gangtok four letters to the aforesaid Income-tax Officer, I-Ward. The letters are dated June 9, 1980, September 12/14, 1980, November 3, 1980, and February 16, 1981 (annexure "B" to the petition). The contents of the letters may be briefly summarised as follows :
(i) that the petitioner had joined as Advocate-General of Sikkim on March, 1980, and was residing in Gangtok, Sikkim, since then ;
(ii) that the Income-tax Act, 1961, has not been extended to Sikkim ;
(iii) that, in Sikkim, the Sikkim income-tax law continues to be in force and income-tax was being deducted at source from his retainer by the Government of Sikkim, according to the Sikkim income-tax law ;
(iv) that he was not liable to pay income-tax under the Income-tax Act, 1961, on his income earned in Sikkim, so long as he continues to reside in Sikkim ;
(v) in his letter dated September 12/14, 1980, he made the following request to the Income-tax Commissioner in paragraph (iv) of the letter : "... I shall be highly obliged if you let me know if I am liable to pay income-tax under the Indian Income-tax Act under the circumstances aforesaid. I shall be grateful to hear from you at an early date so that I can discharge my legal obligations, if any."
4. No reply was given by the Income-tax Officer to the aforesaid letters of the petitioner.
5. The petitioner had a house property in Calcutta and also some income from bank interest from banks in Calcutta. He accordingly, filed income-tax returns for the assessment years 1981-82 and 1982-83 in due time. In the aforesaid income-tax returns, he (a) described his status as "resident of Sikkim", (b) showed his income in Sikkim, i.e., retainer and fees, (c) showed his income from bank interest in Calcutta banks and (d) showed notional income from vacant house property in Calcutta, (annual municipal value--Rs. 2,160). Prior to the filing of the income-tax returns for the assessment years 1981-82 and 1982-83, the petitioner paid advance tax only in respect of his income from bank interest in Calcutta and notional income from house property in Calcutta. As in his income-tax returns for the assessment years 1981-82 and 1982-83 he claimed exemption from tax in respect of his income earned in Sikkim, he did not pay advance tax for income earned in Sikkim.
6. The notices of demand under Section 156 for the assessment years 1981-82 and 1982-83 were sent to the petitioner to his Gangtok address, (annexures "L" and "M" to the affidavit-in-reply). The petitioner had paid advance tax of Rs. 4,305 for his income from house property in Calcutta and bank interest in Calcutta for the financial year April 1, 1980, to March 31, 1981.
7. The notice of demand for the assessment year 1981-82 shows that income-tax due from the petitioner for the assessment year 1981-82 was only Rs. 713 and Rs. 3,592 was refundable to him. It is apparent from the aforesaid notice of demand under Section 156 that his claim for exemption of income earned in Sikkim was accepted by the Income-tax Officer. The petitioner had paid Rs. 1,400 as advance tax for the financial year April 1, 1981, to March 31, 1982, only on his income from bank interest and notional income from vacant house property in Calcutta. The notice of demand for the assessment year 1982-83 shows that income-tax due from the petitioner was only Rs. 132 and Rs. 1,268 was refundable to him. It is apparent from the notice of demand for the assessment year 1982-83 that the petitioner's claim for exemption of income earned in Sikkim was accepted. The petitioner complains that though Rs. 3,592 refundable to him was duly refunded to the petitioner, the sum of Rs. 1,268 refundable to him has been illegally withheld by respondent No. 1.
8. The petitioner resigned from the post of Advocate-General of Sikkim with effect from April 1, 1983 and came back to Calcutta. His last financial year in Sikkim was April 1, 1982 to March 31, 1983 (assessment year 1983-84). He filed his income-tax return for the assessment year 1983-84 in due time and also paid advance tax of Rs. 2,000 on his income from bank interest in Calcutta and notional income from vacant house property in Calcutta. As in the two earlier years, he claimed exemption in respect of his income in Sikkim which he stated as Rs. 1 lakh (approximately) in the relevant financial year April 1, 1982 to March 31, 1983. He described his status as "resident of Sikkim" as he did in his earlier income-tax returns.
9. The order of assessment and notice of demand dated February 20, 1986. in respect of the assessment year 1983-84 are the subject-matter of challenge in this writ petition.
10. Mr. A.C. Maitra, senior counsel for the respondents, challenged the maintainability of the writ petition on the ground that the petitioner had not only adequate alternative remedy but had availed of the same by filing an appeal which is pending. The case was first heard by me on March 27, 1987. On April 7, 1987, I was informed by Mr. S. Pal, senior counsel for the petitioner, that the petitioner has withdrawn his appeal on April 3, 1987. Mr. S. Pal submitted that, in the writ petition, the petitioner had challenged the jurisdiction of respondent No. 1 to assess or demand tax in respect of the petitioner's income in Sikkim when he was a resident of Sikkim. Mr. Pal has further submitted that respondent No. 1 has jurisdiction on perverse findings of jurisdictional facts and as such the writ court is the appropriate court for redressing his client's grievance. For the reasons which will be apparent from reasons given by me lateral accept Mr. Pal's submission and hold that the writ petition is maintainable. The only other point raised by Mr. Maitra was that the petitioner's retainer of Rs. 30,000 is taxable under Section 9(1)(iii) of the Income-tax Act, 1961. I shall deal with this point later. With his usual fairness, Mr. Maitra did not support the impugned order on any other ground.
11. Let me now turn to the impugned order dated February 20, 1986, in respect of the assessment year 1983-84 with which I am concerned in this petition.
12. Respondent No. 1 has computed the income of the petitioner for the financial year April 1, 1982, to March 31, 1983, as follows (annexure 'G' to the petition) :
__________________________________________________________________
Rs.
1. Income from house property estifmated ... 12,000
2. Professional income ... 1,00,000
3. Income from other sources -- bank interest ... 20,000 __________________________________________________________________
1,32,000
Less : deduction under section 80L ... 6,000
__________________________________________________________________
Total income ... 1,26,000
__________________________________________________________________ __________________________________________________________________
Assessed as above, give credit for tax paid under Section 210. Issue D N.challan and a copy of A/O. C. D. S. payment made Rs. 1,000."
13. The notice of demand under Section 156 of the Income-tax Act, 1961, shows that a sum of Rs. 83,376 was determined as payable by the petitioner. After giving credit for Rs. 2,000 paid under Section 210 as advance tax, the actual demand for the Assessment year 1983-84 was Rs. 81,376.
14. Though the order of assessment does not mention anything about charging of interest under Section 217 of the Income-tax Act, 1961, it appears from the records that the demand for Rs. 81,376 was arrived at as follows :
__________________________________________________________________
Rs.
Income-tax ... 58,968
Interest under section 217 ... 22,408
__________________________________________________________________
81,376
__________________________________________________________________ __________________________________________________________________
15. Mr. S. Pal, appearing on behalf of the petitioner, submits that (a) during the financial year 1982-83, the petitioner was a resident of Sikkim and as such a non-resident for the purposes of the Income-tax Act, 1961, (b) that Rs. 1,00,000 (rupees one lakh) taxed by respondent No. 1 as professional income consisted of two parts :
(i) his retainer fee of Rs. 2,500 per month, i.e., Rs. 30,000 per annum received from the Government of Sikkim in Sikkim, and
(ii) professional fees of Rs. 70,000 received by him from the Government of Sikkim in Sikkim.
16. On the basis of the abovementioned assertions, Mr. S. Pal submits that respondent No. 1 had no jurisdiction to demand tax on the aforesaid amount of Rs. 1 lakh (rupees one lakh).
17. I shall first consider whether a resident of Sikkim is a non-resident for the purposes of the Income-tax Act, 1961. In order to decide this question, it is necessary to state briefly a few facts about Sikkim.
18. Prior to becoming the 22nd State of India on April 26, 1975, by the Constitution (Thirty-sixth Amendment) Act, 1975, Sikkim was ruled by a Ruler described as the Chogyal of Sikkim. The Chogyal, in his capacity as a Ruler, made various laws one of which was the Sikkim Income-tax Manual which was in force prior to April 26, 1975, and still continues in force under Article 371F(k) of the Constitution of India.
19. Article 37IF contains special provisions with respect to the State of Sikkim. The clauses of Article 371F which are directly relevant for our purpose are Clauses (k) and (n). Read with the opening words of Article 371F, the aforesaid clauses read as follows :
"Article 371F.--Special provisions with respect to the State of Sikkim.--Notwithstanding anything in this Constitution,--...
(k) all laws in force immediately before the appointed day in the territories comprised in the State of Sikkim or any part thereof shall continue to be in force therein until amended or repealed by a competent Legislature or other competent authority ;
(n) the' President may, by public notification, extend with such restrictions or modifications as he thinks fit to the State of Sikkim any enactment which is in force in a State in India at the date of the notification."
20. The Income-tax Act, 1961, has not been extended to Sikkim by any Presidential Notification under Article 371F(n).
21. The petitioner has annexed to his petition a circular dated November 7, 1978, by the Ministry of Finance (annexure "F" at page 61 of the petition). Paragraph 3 of the circular clearly states that as the Income-tax Act, 1961, has not been extended to Sikkim by any notification under Article 371F(n), Sikkim will have to be treated as outside India. The petitioner has also annexed another circular (annexure 'F', at page 65 of the petition) dated January 30, 1984, from the Ministry of Finance, Department of Revenue, Foreign Tax Division. This circular also shows that, for the purpose of the Income-tax Act, 1961, Sikkim is outside India. Respondent No. 1 has filed an affidavit-in-opposition on behalf of all the respondents including the Union of India. In paragraph 11 of the said affidavit, she has stated "I state further that a resident of Sikkim is automatically a 'nonresident' under the Income-tax Act, 1961". This statement is apparently based on the abovementioned letters/circulars of the Finance Ministry.
22. In the circumstances, I hold that a resident of Sikkim is a non-resident for the purposes of the Income-tax Act, 1961. It also appears from the writ petition and the affidavit-in-reply that the petitioner in his income-tax returns for the assessment years 1981-82 and 1982-83 had described his status as a "resident of Sikkim" and his retainer and professional income in Sikkim were not taxed though shown in the income-tax returns. It is thus apparent that the Income-tax Department was aware that residents of Sikkim have to be treated as non-residents for the purposes of the Income-tax Act, in accordance with the above letters/circulars of the Ministry of Finance, Government of India. Annexure "C" to the affidavit-in-reply also shows that residents and Government servants of Sikkim are not taxed under the Income-tax Act, 1961, obviously because they are treated as non-residents.
23. In his income-tax return for the assessment year 1983-84, the petitioner described his status as "resident of Sikkim". He showed his income in Calcutta from bank interest and notional income from vacant house property in Calcutta. He also showed his income in Sikkim (retainer and fees received from the Government of Sikkim) as Rs. 1,00,000 (rupees one lakh) and claimed exemption in respect of the aforesaid amount of Rs. 1,00,000 on the ground that the Income-tax Act, 1961, has not been extended to Sikkim. The petitioner paid advance tax of Rs. 2,000 on his income from bank interest in Calcutta and notional income from vacant house property in Calcutta (annual municipal valuation--Rs. 2,160) i.e., his income in taxable territories.
24. Respondent No. 1 has rejected the claim of the petitioner for exemption of Rs. 1,00,000. One of the grounds for disallowing the exemption claimed is that the petitioner was a resident during the relevant period within the meaning of Section 6 of the Income-tax Act, 1961. The finding is not based on any fact but is based on some "reasons".
25. According to respondent No. 1, in this case, the assessee has mentioned his status as a "resident of Sikkim". Undoubtedly, that by itself does not establish that the assessee was a non-resident. I have already held that a resident of Sikkim is a non-resident for the purpose of the Income-tax Act, 1961. Respondent No. 1 has also now admitted it in her affidavit. The reasons need not be repeated here again. Another "reason" given by respondent No. 1 is : "Throughout the proceedings, he was bearing (sic.) upon by saying that he was a resident of Sikkim for the reason that he was appointed as Advocate-General by the Government of Sikkim. His non-committal replies lead me to the only conclusion that he was neither non-resident. . . and I hold the status of the assessee as resident". Respondent No. 1, in her affidavit-in-opposition, has restated the above statements in paragraph 5(d). The said paragraph has been affirmed by respondent No. 1 as true to her information derived from the records. There is nothing in the records of the case to show that the petitioner gave any non-committal replies. The records, the statements made by the petitioner in his writ petition, affidavit-in-reply, and the annexures clearly show that the petitioner had all along been stating that he was a resident of Sikkim from March 12, 1980, to March 31, 1983. Some of the annexures which support the petitioner's assertion that he was a resident of Sikkim from March 12, 1980, to March 31, 1983, are mentioned below :
(a) Letter dated June 9, 1980, from the petitioner to the Income-tax Officer, I-Ward (annexure 'B', at page 26 of the petition).
(b) Letter dated September 12/14, 1980, from the petitioner to the Income-tax Officer, I-Ward (annexure 'B', at page 28 of the petition).
(c) Letter dated November 3, 1980, from the petitioner to the Income-tax Officer, I-Ward (annexure 'B', at page 30 of the petition).
(d) Letter dated February 16, 1981, from the petitioner to the Income-tax Officer, I-Ward (annexure 'B', at page 32 of the petition).
(e) Letter dated September 5, 1984, from the petitioner to the Income-tax Officer, I-Ward (annexure 'D', to the petition, at page 35, see paragraph 8 of the letter).
(f) Letter dated February 9, 1985, from the petitioner to the Income-tax Officer, I-Ward (annexure 'E', to the petition, at page
40. Paragraphs 2, 3(a) of the letter).
(g) Notice of demand under Section 156 for the assessment year 1980-81 dated October 23, 1981 (annexure 'K', at page 29 of the affidavit-in-reply), which shews that, in the records of the Income-tax Department, the petitioner's place of residence was Development Area, Gangtok, Sikkim.
(h) Notices of demand under Section 156 for the assessment years 1981-82 and 1982-83 dated October 23, 1981, and September 17, 1982 (annexures 'L' and 'M', at pages 31, 33 of the affidavit-in-reply), which also show that, in the records of the Income-tax Department, the place of residence of the petitioner was Development Area, Gangtok, Sikkim.
(i) Annexure 'N', at page 35 of the affidavit-in-reply. (j) Annexure 'O', at pp 43 to 46 of the affidavit-in-reply.
26. In the facts and circumstances aforesaid, the finding of respondent No. 1 that the petitioner was a resident is based on no material and is as such perverse. I further hold that the petitioner has sufficiently established that he was a non-resident, i.e., not a resident, within the meaning of Section 6 of the Income-tax Act, 1961, during the relevant period. I hold on the basis of materials on record that the petitioner has discharged the burden of proof on him that he was a non-resident during the financial year April 1, 1982, to March 31, 1983.
27. The finding of respondent No. 1 that the entire professional income did not arise in Sikkim is also patently perverse. Her finding is based on the following "reasons" :
(a) That the billed amount in the statement of accounts does not show the expenditure part and as such she is unable to verify whether those cases were entirely conducted in Sikkim or out of Sikkim.
(b) That the certificate granted by the Government of Sikkim regarding payment of Sikkim income-tax covers only the petitioner's retainer and not fees.
28. Regarding reason (a), it will be enough to say that "expenditure part" can have no relevance in determining where a case has been conducted. Regarding reason (b) given by respondent No. 1, it has only to be stated that an advocate's fees being not taxable under the Sikkim Income-tax Manual, there could be no certificate of payment of income-tax in respect of income from profession from the Government of Sikkim. The Sikkim Income-tax Manual (annexure 'A' to the petition and annexure 'O', at page 36 of the affidavit-in-reply) makes the position crystal clear.
29. The petitioner stated in his income-tax return that Rs. 1 lakh was received by him from the Government of Sikkim as retainer and fees. He has made similar statements on oath in his petition and affidavit-in-reply. The statement of account of receipts of retainer and fees (annexure 'P' to the affidavit-in-reply) contains at the bottom of each page a certificate "certified as paid by the Government of Sikkim in Sikkim, for work done for the Government of Sikkim as Advocate-General of Sikkim" signed by the Chief Accounts Officer, Home Department, Government of Sikkim, Gangtok. I, accordingly, hold that Rs. 1,00,000 was earned by the petitioner in Sikkim and as such could not be taxed by respondent No. 1.
30. In the course of arguments, Mr. Maitra submitted that the petitioner's retainer of Rs. 30,000 per annum could be taxed under Section 9(1)(iii) of the Income-tax Act, 1961. I am unable to accept this submission. The petitioner's retainer cannot be taxed under Section 9(1)(iii) of the Income-tax Act, 1961, for the following reasons.:
(a) The Income-tax Act, 1961, having not been extended to Sikkim, the Government of Sikkim is not governed by the provisions of the said Act and the word "Government" in Section 9(1)(iii) cannot include the Government of Sikkim.
(b) Tax was deducted by the Sikkim Government at source from the retainer of the petitioner under the provisions of the Sikkim Income-tax Manual which is a law in force in Sikkim under Article 371F(k) of the Constitution and as such is an Indian law on taxation on income. To tax his retainer again under Section 9(1)(iii) of the Income-tax Act, 1961, by another Indian law will result in double taxation of the same income by two Indian laws on taxation on income.
(c) It appears from annexure 'O' at page 36 of the affidavit-in-reply that all residents of Sikkim including Government servants pay income-tax under the Sikkim Income-tax Manual and not under the Income-tax Act, 1961. The letter of the Accountant-General of Sikkim dated April 8, 1985, (annexure 'F', at page 63 of the petition), shows that the Sikkim Government servants suffer deduction from their salaries at source at Sikkim Government income-tax rates and they do not pay further tax in addition at Central rates on the same income. That being the position, to tax the petitioner again under Section 9(1)(iii) will be discriminatory and violative of Article 14 of the Constitution. All Government servants of Sikkim are citizens of India and the position of the petitioner was in no way different.
31. The result of the above discussion is : (a) I hold that the finding of respondent No. 1, that the petitioner was a resident during the financial year April 1, 1982, to March 31, 1983, is perverse, (b) I hold that the petitioner was a non-resident during the said financial year, (c) I hold that Rs. 1,00,000 (retainer and fees) arose and was earned in Sikkim and the finding that part of the same arose outside Sikkim is perverse, (d) I hold that the petitioner is entitled to exemption of Rs. 1,00,000 as claimed by him and (e) charging of interest under Section 217 of the Income-tax Act, 1961, was illegal in the facts of this case.
32. I, therefore, accept the submission of Mr. Pal that respondent No. 1 had no jurisdiction to assess or demand tax on Rs. 1,00,000 earned by the petitioner in Sikkim as he was a resident of Sikkim, i.e., a non-resident, during the relevant period April 1, 1982, to March 31, 1983.
33. In the result, this application succeeds. The impugned order of assessment and notice of demand dated February 20, 1986, passed by Smt. K. Dhar, Income-tax Officer, 'I'T Ward, Dist. III(I), Calcutta (annexure 'G' to the petition), are quashed/set aside.
34. Respondent No. 1 or if she has been transferred, her successor-in-office is directed to assess the income of the petitioner in accordance with law on the basis of the return filed by him on July 29, 1983, for the assessment year 1983-84 after excluding Rs. 1,00,000 from the computation of income as the said sum is exempt from taxation. The petitioner has complained that the sum of Rs. 1,268 refundable to him for the assessment year 1982-83 (annexure 'M' to the affidavit-in-reply) has been illegally withheld by respondent No. 1. The said amount, should be refunded to the petitioner forthwith. The estimated income from vacant house property whose annual value is Rs. 2,160 has been computed at Rs. 12,000. This seems to be unreasonably high. The Assessing Officer will compute the same on the basis of previous assessments.
35. Respondent No. 1 or her successor-in-office shall complete the assessment and inform the petitioner about the assessment order within 3 weeks from the date of this order.
36. There will be no order as to costs.
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