SHRI BHAGIRATH PRASAD GARG,GANGTOK vs. ITO, WARD-3(1), GANGTOK, GANGTOK

The present appeal is directed at the instance of the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter the “ld. CIT(A)”) dated 24/03/2023, passed u/s 250 of the Income Tax Act, 1961 (“the Act’), for Assessment Year 2012-13.

The sole grievance of the assessee is that it is eligible for exemption u/s 10(26AAA) of the Act. At the outset, the ld. Counsel for the assessee submitted that assessee who is not a Sikkimese individual but is residing in Sikkim since prior to 1975 and, therefore, as per the recent judgment of the Hon’ble Supreme Court in the case of Association of Old Settlers of Sikkim and Ors. vs. UOI in W.P. (C) No. 59 of 2013, judgment dt. 13.01.2023, as well as the Miscellaneous Application, for the said order dt. 08/02/2023, wherein the Hon’ble Court has held that “Till such amendment is made by the Parliament to the Explanation to Section Assessment Year: 2012-13 Shri Bhagirath Prasad Garg 2 10(26AAA) of I.T. Act, 1961, any individual whose name does not appear in the Register of Sikkim Subjects but it is established that such individual was domiciled in Sikkim on or before 26th April, 1975, shall be entitled to the benefit of exemption.”

The ld. D/R on the other hand, though supported the orders of the lower authorities, stated that the matter may be remitted back to the file of the lower authorities for necessary verification.

We have heard rival contentions and perused the material placed before us. We notice that the assessee is engaged in trading business. During the FY 2011-12, it deposited total sum of Rs.26,60,661/- in the savings bank account held with Central Bank of India, Gangtok Branch. Based on this information, notice u/s 148 of the Act was issued. During the course of assessment proceedings, the assessee claimed exemption u/s 10(26AAA) of the Act. However, at that point of time, since the matter was sub judice before the Hon’ble Supreme Court, the ld. Assessing Officer added the total amount of deposit in the bank, as income of the assessee. Appeal before the ld. CIT(A) did not bring any relief.

Before us, the ld. Counsel for the assessee has referred to the residential certificate issued by the office of District Collector, East District Gangtok, bearing SI No. RC/E/LRDMD/18/001318, dt. 07/09/2018, which certifies that the assessee, namely, Shri Bhagirath Prasad Garg son of Shri Tara Chand Garg, has been found to be Assessment Year: 2012-13 Shri Bhagirath Prasad Garg 3 residing within the state of Sikkim on or before 26th April, 1975 and has been continuously residing in the State of Sikkim since then. Further our attention was drawn to the judgment of the Hon’ble Supreme Court in the case of Association of Old Settlers of Sikkim and Ors. vs. UOI (supra), wherein Hon’ble Court disposed off the writ petition, holding as follows:- “79. In the result, the writ petitions are disposed of in the following terms: i) That the benefit of income-tax exemption presently is restricted only to those Sikkimese who fall within the three clauses of the Explanation to Section 10(26AAA) of the I.T. Act, 1961, or those persons domiciled in Sikkim, or are Sikkimese as covered under the 1961 Regulation. ii) In terms of the Sikkim (Citizenship) Order, 1975 as amended by the Sikkim (Citizenship) Amendment Order, 1989, issued by the Government of India any person who was a Sikkim Subject under the 1961 Regulation was to be deemed to be a citizen of India w.e.f. 26th April, 1975. Conversely, it is held that all citizens of India, having a domicile in Sikkim on the day it merged with India i.e. 26th April, 1975 must be covered under the Explanation in order to avail the benefit of the exemption under Section 10(26AAA) of the I.T. Act, 1961. iii) The Union of India shall make an amendment to Explanation to Section 10 (26AAA) of I.T. Act, 1961, so as to suitably include a clause to extend the exemption from payment of income tax to all Indian citizens domiciled in Sikkim on or before 26th April, 1975. The reason for such a direction is to save the explanation from unconstitutionality and to ensure parity in the facts and circumstances of the case. iv) Till such amendment is made by the Parliament to the Explanation to Section 10 (26AAA) of I.T. Act, 1961, any individual whose name does not appear in the Register of Sikkim Subjects but it is established that such individual was domiciled in Sikkim on or before 26th April, 1975, shall be entitled to the benefit of exemption. This direction is being issued in exercise of powers under Article 142 of the Constitution so as to eliminate discrimination and disparity in respect of the aforesaid category of Sikkimese, who subsequently have Assessment Year: 2012-13 Shri Bhagirath Prasad Garg 4 become citizens of India w.e.f. 26th April, 1975 and to save the Explanation from being rendered unconstitutional vis-à-vis such individuals who form a small percentage of Sikkimese. v) Proviso to Section 10 (26AAA), insofar as it excludes from the exempted category, "a Sikkimese woman who marries a non-Sikkimese man after 1st April, 2008" is hereby struck down as being ultra vires Articles 14, 15 and 21 of the Constitution of India."