ASSOCIATION OF OLD SETTLERS OF SIKKIM AND ORS. v. UNION OF INDIA AND ANR.

M. R. SHAH, J.

1Copy pinpoint1. By way of this writ petition under Article 32 of the Constitution D of India, the respective writ petitioners – Association of Old Settlers of Sikkim and Others have prayed for an appropriate writ, direction or order striking down Section 10(26AAA) of the Income Tax Act, 1961 (hereinafter referred to as the “Act, 1961”), more particularly, the definition of “Sikkimese” in Section 10 (26AAA) to the extent it excludes E Indians who have settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975. The petitioners have also prayed for an appropriate writ, order or direction striking down the Proviso to Section 10(26AAA) of the Act, 1961, insofar as it excludes from the exempted category, “Sikkimese women” who marries a non-Sikkimese after 01.04.2008.

2Copy pinpoint2. Section 10(26AAA), the vires of which is under challenge reads as under:- “[(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 G (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. *Ed. Note : These were two judgments in the matter-one by Hon’ble Mr. Justice M.R. H Shah and the other by Hon’ble Mrs. Justice B.V. Nagarathna.

ASSOCIATION OF OLD SETTLERS OF SIKKIM AND ORS. v. 301 UNION OF INDIA AND ANR. [M. R. SHAH, J.]

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 C (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;” D

3Copy pinpoint3. It is the case on behalf of the respective writ petitioners that by excluding the Indians from the definition of Sikkimese, the exemption granted under Section 10(26AAA) of the Act 1961, is not available to the Indian Settlers resulting in discrimination. There is no valid ground for discriminating against this section of the residents of Sikkim alone. E Therefore, it is the case on behalf of the writ petitioners that exclusion of Indians who have settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975 and consequently not granting the exemption granted under Section 10(26AAA) of the Act, 1961 to the class of Indians, who have settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975 is arbitrary, discriminatory and the differentia do not have a F rational nexus to the object sought to be achieved by the Statute in question. It is also the case on behalf of the writ petitioners in Writ Petition No. 59 of 2013 that Proviso to Section 10(26AAA), insofar as it excludes from the exempted category, “Sikkimese women” who marries a non- Sikkimese after 01.04.2008, is discriminatory and violative of Articles G 14, 15 and 21 of the Constitution of India as the exclusion is based on gender.

4Copy pinpoint4. Before dealing with and/or considering the rival submissions, history of Kingdom of Sikkim and the chronology of dates and events, H

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A which led to enactment of Section 10(26AAA) of the Act, 1961, is required to be referred to and considered, which are as under:- 4.1 The Kingdom of Sikkim came into existence in 1642. It was ruled as an independent Kingdom for 333 years till its merger with the Union of India in 1975. Originally the Kingdom of Sikkim held a large B territory ranging from parts of present-day Bhutan, Bihar, West Bengal, Nepal and Bangladesh. In the 18th and 19th Century, a lot of territory was ceded to the British Empire in various conflicts. The Imperial British Government took over the control of the erstwhile Kingdom of Sikkim in the year 1888. However, there were conflicts with China. C 4.2 In 1890, a Convention was signed between Great Britain and China to settle the boundaries of Sikkim and Tibet. The British control over Sikkim was recognized by China in the year 1890. Following British taking control of Sikkim, British Indian Subjects were allowed to hold Government employment in Sikkim.

D 4.3 In supersession of all earlier treaties, a fresh treaty was entered into between the British Government and the King of Sikkim in the year

1861. Under this treaty, the territory of Sikkim was restored to the King of Sikkim under certain conditions. These conditions included Article 8 under which the Government of Sikkim was to abolish all restrictions on travelers and monopolies in trade between the British territories and E Sikkim. Under the said treaty, British subjects were permitted to trade, reside and travel through Sikkim. Many Indians came to reside in Sikkim over the years. Except for the fact that they could not hold lands in rural areas, the Indians and other foreigners who settled in Sikkim were treated equally with the original inhabitants of Sikkim. F 4.4 The Sikkim Income Tax Manual, 1948 was promulgated by the Ruler of Sikkim (the Chogyal) in the year 1948. Under the said Manual, all persons engaged in business were subjected to tax irrespective of their origin. The India-Sikkim Peace Treaty was entered into on 05.12.1950 and under this Treaty Sikkim was to be the protectorate of India as per Article VII of the said treaty. It appears that in order to check the influx of foreigners into Sikkim, the Ruler of Sikkim (the Chogyal) promulgated the Sikkim Subject Regulations, 1961 on 03.07.1961. Under the said Regulations: (a) the persons falling under Clause 3 of the Regulations were to be entered as a “Sikkim Subject” in the Register; and (b) Persons who were citizens of another country were not to be registered as a “Sikkim Subject” unless he relinquishes

ASSOCIATION OF OLD SETTLERS OF SIKKIM AND ORS. v. 303 UNION OF INDIA AND ANR. [M. R. SHAH, J.]

the citizenship of the other country. The term ‘Sikkim Subject’ was defined as a person who was born in the territory of Sikkim and was resident therein and similarly situated persons, but however with a caveat that “a person shall not be a “Sikkim Subject” under this section, unless he makes a declaration that he is not a citizen of any other country at the time of inclusion of his name in the register of “Sikkim Subjects”. Because of this caveat, an Indian citizen whose ancestors had settled down in Sikkim for generations, had to give up his citizenship of India, for the purpose of converting himself into a “Sikkim Subject”. 4.5 It appears that some of the families/persons like the members of the petitioners’ Association, even though their forefather and they were residents of Sikkim for years together, did not surrender their citizenship of India and, therefore, their names were not registered as “Sikkim Subject” in the register maintained under the Sikkim Subjects Regulations, 1961. 4.6 By way of the Constitution 36th Amendment Act 1975, Sikkim was made a full-fledged State of India and was included in Entry 22 of D Schedule I to the Constitution of India. Article 371-F was also inserted in the Constitution under which it was, inter alia, open to the President or the Parliament to extend any law to the State of Sikkim, or repeal any existing law of Sikkim. 4.7 On 21.06.1975, the Home Department issued a notification E stating that “all Sikkim Subjects (under the Sikkim Subjects Regulations, 1961) before 26.04.1975 were to be deemed Indian citizens”. Therefore, this effaced the distinction between the persons of Indian origin residing in Sikkim (without giving up Indian Citizenship) and others who had taken up Sikkimese Citizenship. F 4.8 Since a large number of eligible persons had been left out of the Sikkim Subject Register and were consequently denied Indian citizenship, Government of Sikkim issued a Memorandum that for the purposes of seeking employment, those claiming to be “Locals” should be able to show whether their parents’ names are maintained on or G before 15.05.1975 in the relevant Government Register. In the year 1980, notification was issued that domicile/ residential certificate issued by sources, other than District Collector, shall not be accepted as valid. 4.9 In the year 1988, a petition was moved in the Lok Sabha by a few MLAs of Sikkim stating that at the time of merger of Sikkim with H

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A India, only those people whose names were registered in the Sikkim Subject Register in 1961 were made Indian Citizens, but there were many other stateless persons who were present in Sikkim between the period 1946 and 1975 who were otherwise by the reason of their residence, domicile and allegiance, “Sikkimese”, and they should also be made Indians. The Government of India conceded to this demand and an exercise was carried out to grant Indian Citizenship to those so-called stateless people who were deemed to have been genuinely omitted. 4.10 In the year 1989, the Sikkim Citizenship (Amendment) Order 1989 was notified wherein a proviso was created to deem such cases of genuine omission as citizens of India. It appears that the principal beneficiaries of the said Amendment were those who had migrated to Sikkim post 1946 and were therefore not even eligible for being on the Sikkim Subject Register. 4.11 That thereafter the Government of India formed a Committee consisting of its officers and officers of the Sikkim Government and certain guidelines were made to decide who the persons were, who were omitted by mistake from being entered into the “Sikkim Subjects Register”. However, these guidelines, did not apply to persons of Indian origin as they were already Indian citizens, but only to those “non- Sikkimese Subjects” who were to be made Indian citizens. E 4.12 Subsequently, vide Government of India’s Order dated 07.08.1990 and 08.04.1991, a total of 73,431 were granted Indian Citizenship on the basis that it was found that these persons were eligible to have been included in the “Sikkim Subjects Register”. 4.13 That in the year 1989 and w.e.f. 26.07.1989, the Indian F Income Tax Act, 1961 was extended to Sikkim by the Finance Act,

1989. Under the said amendment, any law corresponding to the Income Tax Act, 1961, which was in force in the State of Sikkim stood repealed. 4.14 That the State of Sikkim filed a Suit before this Court challenging the extension of the Income Tax Act, 1961 to the State of G Sikkim, however, the same came to be withdrawn subsequently. 4.15 In the year 1985, the Government of India, vide an amendment to the Income Tax Act, 1961 in the Finance Act, 1994, proposed an exemption from Income Tax to the Schedule Tribes in Sikkim as was being done in regard to other states. The same was opposed by H the lone M.P. of Sikkim.

ASSOCIATION OF OLD SETTLERS OF SIKKIM AND ORS. v. 305 UNION OF INDIA AND ANR. [M. R. SHAH, J.]

4.16 Thereafter, the Government of India and the Government of A Sikkim formed a joint committee consisting of the members from the Central Government and Government of Sikkim to resolve the differences for implementation of the Income Tax Act, 1961 in Sikkim. It appears that while discussing the matters relating to implementation of the Income Tax Act, 1961 to the State of Sikkim, the committee representing the B State Government of Sikkim insisted on exemption for persons holding the Sikkim Subjects Certificate and their descendants and were made Indian Citizens vide the Sikkim Citizenship Amendment Order, 1989. It appears that these two categories essentially consisted of the Bhutia Lepchas, Sherpas and the Nepalis who constituted together about 94.6% of the total population. Discussions were held for four long years to C secure exemptions to Sikkim Subjects Certificate holders and the people made citizens of India vide the Government of India orders dated 07.08.1990 and 08.04.1991 and their descendants. 4.17 That in the year 2008, the Government of India, gave in to the demands of the State of Sikkim, and passed an amendment to the D Income Tax Act, by the Finance Act, 2008, wherein Clause 26AAA was introduced in Section 10 of the Income Tax Act, and the persons of Indian origin in Sikkim were treated differently from the Sikkim subjects and persons who had become citizens of India by the Sikkim Citizenship Amendment Order 1989. Clause 26AAA to Section 10 of the Income Tax Act, 1961 granted an exemption to “Sikkimese” people. However, E the Explanation to Clause 26AAA defined the term “Sikkimese” as follows: “For the purposes of this Clause, “Sikkimese” shall mean:- (i) an individual, whose name is recorded in the register maintained under the Sikkim Subjects Regulations, 1961 read F 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 G 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 H

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A or paternal grandfather or brother from the same father has been recorded in that register;” 4.18 It appears that in view of Section 10(26AAA) of the Income Tax Act, 1961, effectively 94% of the residents of Sikkim are exempted from payment of Income Tax under the Income Tax Act, 1961. However, B 5% of the residents of Sikkim of which about 1% are the people like the petitioners, who, as such are also the bona fide settlers of Sikkim, are being singled out from exemption from payment of income tax on the sole ground that they are not recorded in the register under the Sikkim Subjects Regulation 1961. It appears that approximately 500 such families are affected by the definition of the “Sikkimese”. C 4.19 It appears that various representations were made against such a discriminatory treatment by the Petitioners to the Government of Sikkim as well as the Union Finance Minister time and again. In the year 2009, the Government of Sikkim appointed a Committee to look into the grievances of the petitioners’ Association. The Committee made certain D recommendations, which shall be dealt with hereinbelow. 4.20 As observed hereinabove, as per Proviso to Section 10(26AAA) “a Sikkimese women who marries a non-Sikkimese after 01.04.2008” is excluded for getting the benefit of exemption under Section 10(26AAA). E

5Copy pinpoint5. Feeling aggrieved and dissatisfied with the definition of “Sikkimese” in Section 10(26AAA) to the extent it excludes Indians (having Indian citizenship), who have settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975 and thereby not granting the benefit of exemption under Section 10(26AAA) of the Income Tax Act to such F Indians and being aggrieved by the Proviso to Section 10(26AAA), insofar as, it excludes from the exempted category “a Sikkimese woman, who marries a non-Sikkimese after 01.04.2008”, the present writ petitioners have prayed to strike down Section 10(26AAA) to the extent it excludes Indians, who have settled in Sikkim prior to the merger of G Sikkim with India on 26.04.1975 and insofar as it excludes from the exempted category “a Sikkimese woman, who marries a non-Sikkimese after 01.4.2008, being arbitrary, discriminatory and violative of Article 14 of the Constitution of India.

6Copy pinpoint6. Shri K.V. Viswanathan, learned Senior Advocate has appeared on behalf of the writ petitioners in Writ Petition (C) No. 59 of 2013. Ms. H

ASSOCIATION OF OLD SETTLERS OF SIKKIM AND ORS. v. 307 UNION OF INDIA AND ANR. [M. R. SHAH, J.]

Pooja Dhar, learned counsel has appeared on behalf of the writ petitioners A in Writ Petition (C) No.1283 of 2021. We have heard the learned counsel appearing on behalf of the intervenors in I.A. No. 153446 of 2018 filed in Writ Petition (C) No. 59 of 2013. Shri N. Venkataraman, learned ASG has appeared on behalf of the Revenue – Union of India and Shri Vivek Kohli, learned Advocate General has appeared on behalf of the State of B Sikkim.

7Copy pinpoint7. Learned counsel appearing for the respective writ petitioners/ intervenors have challenged the vires of Section 10(26AAA) of the Income Tax Act to the extent it excludes Indians, who have settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975 and more particularly, the definition of “Sikkimese” in Section 10(26AAA) of the C Income Tax Act and Proviso to Section 10(26AAA) of the Income Tax Act, insofar as, it excludes from the exempted category “a Sikkimese woman, who marries a non-Sikkimese after 01.04.2008”, mainly on the following grounds and making the following submissions:- (i) That the definition of “Sikkimese” in Section 10(26AAA) D of the Income Tax Act to the extent it excludes Indians, who have settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975 is discriminatory, arbitrary and unfair and it violates the fundamental rights of those Indians, who have settled in Sikkim prior to 26.04.1975 under Articles E 14 and 15 of the Constitution of India; (ii) In the definition of “Sikkimese”, the old Indian settlers of Sikkim have been excluded from the purview of the definition of “Sikkimese” and therefore are not entitled to exemption from Income Tax. It is submitted that the exemption which has been granted to ‘Sikkimese” people F residing in Sikkim essentially exempts 95% of the residents of Sikkim while taxing only a handful of persons including the 1% / 2% old Indian settlers; (iii) The exclusion of the old Indian settlers from the definition of ‘Sikkimese’ in Clause 10(26AAA) of the Income Tax G Act is clearly violative of Article 14 of the Constitution of India and does not satisfy any of the tests laid down by this Hon’ble Court under Article 14; (iv) It is submitted that as consistently held by this Hon’ble Court that in order to be held valid any legislation under Article H

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A 14, the classification should be reasonable and must have a nexus with the object sought to be achieved; (v) It is contended that by way of the amendment, one single class of persons, namely, the citizens of India, are sought to be treated differently for the purpose of taxation; B (vi) It is urged that to exclude the old Indian settlers from the exemption under Section 10(26AAA) has no nexus with the object sought to be achieved to grant the exemption to the residents of Sikkim; (vii) It is submitted that there is no reasonable classification C between the residents/origins of Sikkim whose names were registered as “Sikkim Subjects” under the Sikkim Subjects Regulations, 1961 and those Indian old Sikkim settlers, whose names could not be registered as “Sikkim Subjects” as their forefathers did not surrender the Indian citizenship; D (viii) It is further submitted that after the Sikkim became part of the Union of India, all the residents of Sikkim have become the citizens of India. Therefore, being citizen of India, settled in Sikkim, all are to be treated at par. It is contended that therefore, there is no reasonable justification and/or E classification to exclude those Indians, who have settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975 solely on the ground that their names were not registered as “Sikkim Subjects” due to non-surrender of Indian citizenship at the relevant time;

F (ix) It is submitted that as such, the object and purpose of Section 10(26AAA) is to grant exemption from payment of tax under the Income Tax Act to the locals/residents of Sikkim and that is the object sought to be achieved by providing exemption under Section 10(26AAA) of the Income Tax Act. It is submitted that therefore, there shall not be any G further classification between the locals/residents of Sikkim, whose names have been registered as “Sikkim Subjects” in the Register maintained under the Sikkim Subjects Regulations, 1961 and those whose names could not be and/ or were not registered as “Sikkim Subjects” due to non- surrender of their Indian citizenship; H

ASSOCIATION OF OLD SETTLERS OF SIKKIM AND ORS. v. 309 UNION OF INDIA AND ANR. [M. R. SHAH, J.]

(x) It is submitted that as such all the residents of Sikkim, who have settled in Sikkim prior to the merger of Sikkim with India are all to be treated at par as they are all similarly situated and therefore the classification into different groups though similarly situated is discriminatory and violative of Article 14 of the Constitution of India. It is submitted that the classification into groups should be based on identifiable criteria, which sets apart one group from the other. It is submitted that the second condition which has to be satisfied is that such a classification of a separate and identifiable group should bear a reasonable nexus with the object and purpose sought to be achieved by that law. That in the present case, none of the above two conditions are satisfied and therefore, the classification between the two groups similarly situated would be arbitrary and hit by Article 14 of the Constitution. In support of above submission that classification between the two groups similarly situated would be arbitrary and hit by Article 14 of the Constitution, Shri Vishwanathan, learned Senior Advocate, has heavily relied upon the decisions of this Court in the case of D.S. Nakara Vs. Union of India, (1983) 1 SCC 305 (paras 9 to 15). He has also relied upon the observations made by this Court in paragraph 4 of the decision of this Court in the case of State of Rajasthan Vs. Manohar Singhji, 1954 SCR 996 : AIR 1954 SC 297. 7.1 Shri Vishwanathan, learned Senior Advocate appearing on behalf of the petitioner has further submitted that Court can remove discrimination and put the petitioners in the same class so as to do away with discrimination. It is submitted that in the present case, in order to remove the arbitrary discrimination against Indian settlers in Sikkim, the definition of “Sikkimese” in Section 10(26AAA) ought to be read to include Indians, who had settled there as on 26.04.1975. Therefore, it is prayed to treat the word “means” in the definition of “Sikkimese” as an inclusive one and include Indian settlers within this fold. Reliance is placed on the decision of this Court in the case of Vishundas Hundumal Vs. State of M.P., (1981) 2 SCC 410. 7.2 Learned counsel appearing on behalf of the intervenors has, in addition, also relied upon the Parliamentary Report of the Parliament H

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A of India (Rajya Sabha Committee) in the 145th Report dated 06.08.2013 recommending that the ambit of Section 10 (26AAA) of the Income Tax Act, 1961, which exempted “Sikkimese Subjects” from payment of Income Tax should also be extended to all the Indian citizens and their descendants, who have been residing in Sikkim prior to 26.04.1975.

8Copy pinpoint8. Now, so far as challenge to the Proviso to Section 10(26AAA), insofar as it excludes from the exempted category “a Sikkimese woman, who marries a non-Sikkimese after 01.04.2008” is concerned, it is vehemently submitted by Shri K.V. Vishwanathan, learned Senior Advocate that the same is discriminatory and based on gender inequality, which is wholly violative of Articles 14, 15 and 21 of the Constitution of C India. It is submitted that there is no exclusion of a male Sikkim, who marries a non-Sikkimese person from the exemption granted under clause (26AAA) of Section 10 of the Income Tax Act. 8.1 It is submitted that a woman is not a chattel and has an identity of her own, and the mere factum of being married ought not to take D away that identity. Reliance is placed upon the decisions of this Court in the case of Anuj Garg & Ors. Vs. Hotel Association of India & Ors. (2008) 3 SCC 1 (paras 21, 22, 25, 26) and G. Sekar Vs. Geetha & Ors. (2009) 6 SCC 99 (paras 52, 54), in support to the prayer to strike down and/or hold the Proviso to Section 10(26AAA) of the Income E Tax Act is discriminatory and violative of Articles 14 and 21 of the Constitution of India.

9Copy pinpoint9. Shri N. Venkataraman, learned ASG has tried to justify the classification by submitting that a conscious decision has been taken by the legislature/Parliament to grant the benefit of exemption to only those F “Sikkim Subjects”, whose names have been registered in the Register maintained under the Sikkim Subjects Regulations, 1961. It is submitted that therefore the same may not be interfered with. However, he is not in a position to justify the classification and satisfy the Court how such a classification will achieve the object and purpose of granting exemption under Section 10(26AAA) of the Income Tax Act. He is not in a position G to explain and/or satisfy the Court any reasonable differentia and/or justification to exclude the Indians, who have settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975 from the purview of Section 10(26AAA) of the Income Tax Act. He is also not in a position to satisfy the distinguishing features and/or the intelligible differentia, which distinguishes the persons, who are left out of the group namely, H

ASSOCIATION OF OLD SETTLERS OF SIKKIM AND ORS. v. 311 UNION OF INDIA AND ANR. [M. R. SHAH, J.]

the Old Indian Settlers, who have settled in Sikkim prior to the merger of A Sikkim with India and with that of the “Sikkim Subjects” registered under the Sikkim Subjects Regulations, 1961. 9.1 Shri Venkataraman, learned ASG is also not in a position to justify the Proviso to Section 10(26AAA) insofar as it excludes from the exempted category, “a Sikkimese woman, who marries a non-Sikkimese B after 01.04.2008”.

10Copy pinpoint10. Shri Vivek Kohli, learned Advocate General appearing on behalf of the State of Sikkim has as such supported the objections. 10.1 It is submitted on behalf of the State that the State has no objection if the Proviso to Section 10(26AAA) depriving the right of a C “Sikkimese woman” to exemption from payment of Income Tax under Section 10(26AAA) upon her marriage to a non-Sikkimese after 01.04.2008 is struck down and/or is done away with so as to treat them equally in the matter of income tax exemption. 10.2 Now, so far as, the right of the old Indian settlers to pray for the exemption under Section 10(26AAA) of the Income Tax Act is D concerned, it is submitted on behalf of the State that the benefit of Section 10(26AAA) has to be extended to all Indian citizens domiciled in the State of Sikkim irrespective of the fact whether their names have been registered as “Sikkim Subjects” in the “Sikkim Subjects Register” maintained under the Sikkim Subjects Regulations, 1961 or not. E

11Copy pinpoint11. Heard the learned counsel for the respective parties at length.

12Copy pinpoint12. The challenge in the present petitions under Article 32 of the Constitution of India is :- (i) The definition of “Sikkimese” in Section 10(26AAA) to the extent it excludes the Indians, who have settled in Sikkim F prior to the merger of Sikkim with India on 26.04.1975; and (ii) Proviso to Section 10(26AAA) insofar as it excludes from the exempted category “a Sikkimese woman, who marries a non-Sikkimese after 01.04.2008”

13Copy pinpoint13. Now, so far as the first issue is concerned, as per the definition G of “Sikkimese” only those individuals, whose names are recorded in the register maintained under the Sikkim Subjects Regulation, 1961 immediately before 26.04.1975 or whose names are recorded in the Register of “Sikkim Subjects” by virtue of Government of India’s Orders dated 07.08.1990 and 08.04.1991 or any other individual whose name H

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A 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 grandfather or brother from the same father has been recorded in that register, are considered to be eligible as “Sikkimese” for the purpose of exemption under Section 10(26AAA) of the Income Tax Act. Meaning thereby, all those Sikkimese/Old Indian Settlers in Sikkim, B who might have settled in Sikkim prior to 26.04.1975 but whose names are not registered as “Sikkim Subjects” in the register maintained under the Sikkim Subjects Regulations, 1961 are not entitled to the exemption available under Section 10(26AAA) of the Income Tax Act. At this stage, it is required to be noted that total 95% of the population of Sikkim C are getting the benefit of Section 10(26AAA) of the Income Tax Act and only 5% are left out and out of which only 1% are the persons like the Old Indian Settlers, who have settled in Sikkim prior to the merger with India on 26.04.1975, but their names could not be registered as “Sikkim Subjects” like the petitioners. D 13.1 It is to be noted that as such the purpose of Section 10(26AAA) is to grant exemption to the residents of Sikkim from payment of income tax under the Income Tax Act. Therefore, all such Indians/ citizens, who have settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975 are to be treated at par and they form the same group/class and are entitled to the exemption under Section 10(26AAA) E of the Income Tax Act. As such, there is no difference and/or distinction between those “Sikkim Subjects”, whose names are recorded in the register maintained under the Sikkim Subjects Regulations, 1961 and those Indians, who have settled in Sikkim prior to the merger of Sikkim, but whose names were not recorded as “Sikkim Subjects” in the register maintained under the Sikkim Subjects Regulations, 1961. All are “Sikkimese”. Merely because at the relevant time and when the Sikkim Subjects Regulations, 1961 was enacted, the Indians settled in Sikkim did not surrender their Indian citizenship or their fathers/forefathers’ names were not entered into the register maintained under the Sikkim Subjects Regulations, 1961, by itself, it cannot be said that they cease to be the “Sikkimese”. All of them are similarly situated with those “Sikkimese” / “Sikkim Subjects”, who all have settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975. As observed above, the object and purpose of Section 10(26AAA) is to grant benefit of exemption from payment of income tax under the Income Tax Act to the residents of Sikkim. Therefore, there is no nexus sought to be achieved in excluding H

ASSOCIATION OF OLD SETTLERS OF SIKKIM AND ORS. v. 313 UNION OF INDIA AND ANR. [M. R. SHAH, J.]

the Indians, who have settled in Sikkim prior to the merger of Sikkim A with India on 26.04.1975 but their names are not recorded as “Sikkim Subjects”. The Union of India has failed to satisfy any reasonable classification and/or nexus to exclude such class of Indians, who, in fact, have settled in Sikkim prior to 26.04.1975. Therefore, exclusion of old Indian settlers, who have settled in Sikkim prior to the merger of Sikkim B with India on 26.04.1975 from the definition of “Sikkimese” in Section 10(26AAA) is arbitrary, discriminatory and violative of Article 14 of the Constitution of India. 13.2 As observed and held by this Court in the case of D.S. Nakara (supra) Article 14 forbids class legislation but permits reasonable classification for the purpose of legislation, which classification must satisfy the twin tests of classification being founded on an intelligible differentia which distinguishes persons or things that are grouped together from those that are left out of the group and that differentia must have a rational nexus to the object sought to be achieved by the statute in question. In the present case, the exclusion of old Indian settlers, who have settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975 from the definition of “Sikkimese” in Section 10(26AAA) does not fulfill the aforesaid two conditions. 13.3 As observed and held by this Court in the case of Manohar Singhji (supra), Article 14 declares that “the State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India”. It is observed that such an obvious discrimination can be supported only on the ground that it was based upon a reasonable classification. A proper classification must always bear a reasonable and just relation to the things in respect of which it is proposed. Judged by those criteria, it seems to us that the discrimination is based on no classification at all and is manifestly baseless, unreasonable and arbitrary. 13.4 In the present case, as observed hereinabove, the exclusion has no nexus with the object and purpose of enacting Section 10(26AAA) of the Income Tax Act to be achieved. No reasonable intelligible differentia has been shown and therefore, the same can be termed as arbitrary. As observed and held by this Court in the case of Shayara Bano Vs. Union of India, (2017) 9 SCC 1, in India, arbitrariness is not a separate ground since it will come within the embargo of Article 14 of the Constitution. Therefore, any provision, which is arbitrary, H

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A discriminatory and violative of Article 14 of the Constitution of India and any classification which is violative of Article 14 of the Constitution of India can be struck down.

14Copy pinpoint14. In view of the above and for the reasons stated above, we are of the firm opinion that Section 10(26AAA) to the extent it excludes the B Old Indian settlers, who have settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975, but whose names are not recorded as “Sikkim Subjects”, from the definition of “Sikkimese” is ultra vires, being arbitrary, discriminatory and violative of Article 14 of the Constitution of India. The definition of “Sikkimese” in Section 10(26AAA) of the Income Tax Act shall also include all Indians, who have permanently settled in C Sikkim prior to the merger of Sikkim with India on 26.04.1975 irrespective of the fact that whether their names have been recorded in the register maintained under the Sikkim Subjects Regulations, 1961 or not. Therefore, it is held that the “Sikkimese” like the petitioners, who are old Indian settlers and who have settled in Sikkim prior to the merger of Sikkim D with India on 26.04.1975 shall also be entitled to the exemption under Section 10(26AAA) of the Income Tax Act, 1961.

15Copy pinpoint15. Now, so far as the challenge to the Proviso to Section 10(26AAA) insofar as it excludes from the exempted category, “a Sikkimese woman, who marries a non-Sikkimese after 01.04.2008” is concerned, there is no justification shown and/or demonstrated to exclude E “a Sikkimese woman, who marries a non-Sikkimese after 01.04.2008” from the exempted category. Apart from the above, the same is clearly hit by Articles 14, 15 and 21 of the Constitution of India. The discrimination is based on gender, which is wholly violative of Articles 14, 15 and 21 of the Constitution of India. It is to be noted that there is no disqualification for a Sikkim man, who marries a non-Sikkimese after 01.04.2008. As rightly submitted, a woman is not a chattel and has an identity of her own, and the mere factum of being married ought not to take away that identity. In the case of G. Sekar (supra), it is observed and held that the exclusion of women from inheritance on the ground of gender was a clear violation of the constitutional prohibition against unfair discrimination. It is observed and held that in terms of Articles 14 and 15 of the Constitution of India, the female heirs, subject to the statutory rule operating in that field, are required to be treated equally to the male heirs. Gender equality is recognised by the world community in general in the human rights regime. H

ASSOCIATION OF OLD SETTLERS OF SIKKIM AND ORS. v. 315 UNION OF INDIA AND ANR. [M. R. SHAH, J.]

15.1 Even otherwise, there is no justification shown to exclude “a A Sikkimese woman, who marries a non-Sikkimese after 01.04.2008”. A Sikkimese woman, who has married a non-Sikkimese prior to 01.04.2008 is entitled to the benefit of exemption provided under Section 10(26AAA). There is no justification shown to fix the cut off date of 01.04.2008. There is no rational nexus to the object sought to be achieved by excluding B “a Sikkimese woman, who marries a non-Sikkimese after 01.04.2008” and to include “a Sikkimese woman, who has married a non-Sikkimese before 01.04.2008”. Therefore, to deny the benefit of exemption under Section 10(26AAA) of the Income Tax Act to “a Sikkimese woman, who marries a non-Sikkimese after 01.04.2008” is arbitrary, discriminatory and violative of Article 14 of the Constitution of India. Therefore, also, the Proviso to Section 10(26AAA) insofar as it excludes from the exempted category “a Sikkimese woman, who marries a non-Sikkimese after 01.04.2008” has to be struck down.

16Copy pinpoint16. Therefore, Proviso to Section 10(26AAA) inasmuch as it excludes from the provision of exemption a Sikkimese woman merely because she marries a non-Sikkimese after 01.04.2008 is totally discriminatory and violative of Articles 14, 15 and 21 of the Constitution of India, which requires to be struck down.

17Copy pinpoint17. In view of the above and for the reasons stated above, both these petitions succeed. The exclusion of Old Indian settlers, who have permanently settled in Sikkim prior to merger of Sikkim with India on E 26.04.1975 from the definition of “Sikkimese” in Section 10(26AAA) is hereby held to be ultra vires to Article 14 of the Constitution of India and is hereby struck down. It is held that all Indians/old Indian settlers, who have permanently settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975, irrespective of whether his/her name is recorded in F the register maintained under the Sikkim Subjects Regulations, 1961 read with Sikkim Subject Rules, 1961 or not, are entitled to the exemption under Section 10(26AAA) of the Income Tax Act. 17.1 Proviso to Section 10(26AAA) insofar as it excludes from the exempted category, “a Sikkimese woman, who marries a non- G Sikkimese after 01.04.2008” is hereby struck down being ultra vires to Articles 14, 15 and 21 of the Constitution of India. Both these writ petitions are accordingly allowed. However, in the facts and circumstances of the case, there shall be no order as to costs. H

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A NAGARATHNA, J. I have perused the judgment and order proposed by His Lordship M.R. Shah J. as well as the conclusions reached by him. However, I would like to render my separate opinion on the issues raised in these writ petitions revolving around the definition of “Sikkimese” appended B as an Explanation to Section 10 (26AAA) of the Income Tax Act, 1961 (hereinafter referred to as ‘I.T. Act, 1961’) as well as on the vires of the proviso concerning Sikkimese women assailed in these writ petitions.

2. His Lordship M.R. Shah, J. has opined as follows: (i) That Section 10 (26AAA) to the extent that it excludes old C Indian settlers from the benefit of exemption from payment of income tax i.e. those who have settled in Sikkim prior to merger of Sikkim with India on 26th April, 1975 but whose names are not recorded as “Sikkim Subjects” from the definition of Sikkimese is ultra vires as, being arbitrary, discriminatory and violative of Article 14 of the Constitution of India. Hence, D petitioners herein and similarly situated persons who are old Indian settlers who have settled in Sikkim prior to the merger of Sikkim with India on 26th April, 1975 shall also be entitled to the exemption under Section 10 (26AAA) of the I.T. Act, 1961. In my view, persons such as the petitioners and similarly situated persons are not entitled to the exemption under the Explanation as it now stands. In the circumstances, in order to remove the discrimination, certain observations have been made and directions have been issued by me to the Union of India on the basis of reasons assigned during the course of my judgment. If those directions are complied with, the discrimination would be removed. (ii) I agree with the conclusion reached by M.R. Shah, J. to the effect that the proviso in Section 10 (26AAA) of the I.T. Act, 1961 is arbitrary, discriminatory and violative of Articles 14 and 15 of the Constitution of India. I have assigned additional reasons and dealt with the said aspect of the matter in greater detail through the course of my judgment and order. Background facts:

3. Writ Petition (C) No.1283 of 2021 has been filed by the petitioners under Article 32 of the Constitution of India, assailing the validity of the proviso to Section 10 (26AAA) and Explanation thereto

ASSOCIATION OF OLD SETTLERS OF SIKKIM AND ORS. v. 317 UNION OF INDIA AND ANR. [B. V. NAGARATHNA, J.]

introduced to the I.T. Act, 1961 through the Finance Act, 2008 by which A Sikkimese (people from Sikkim State) are purportedly exempted from payment of income tax. They have further sought a direction to the respondents to extend the exemption granted under Section 10 (26AAA) of I.T. Act, 1961 to persons such as the petitioners herein. The petitioners have sought a declaration that they are also entitled to exemption from B payment of income tax under Section 10 (26AAA) of the I.T. Act, 1961. In other words, they have sought a direction to extend the benefit of the said provision to the petitioners herein. Another direction that is sought against respondent No. 2 is to furnish a list of applicants who have submitted applications seeking income tax exemption pursuant to the Public Notice dated 22nd September, 2018. C Similar prayers have been sought by the petitioners in W.P. (C) No. 59 of 2013 which is the earlier of the two writ petitions.

4. It is the case of the petitioners that they were ordinarily resident in the former Kingdom of Sikkim prior to its merger with India and they have an ethnic identity in Sikkim. Now, they are citizens of India. The D persons ordinarily resident in the former Kingdom of Sikkim comprised of: (a) a major population of ‘Sikkimese Nationals’/’Sikkim Subjects’ recognized as ‘Persons of Sikkimese origin’; and (b) a minor population of ‘British Indian Subjects’ of Undivided E India/’Indian Nationals’ of Independent India recognized as ‘Persons of Indian origin’ ordinarily residing in the former Kingdom of Sikkim for the purpose of trade, commerce and Government employment/s under the ‘Sikkim Darbar ‘. F

5. The ordinarily resident ‘Sikkimese Nationals/Subjects’ or ‘Persons of Sikkimese origin’ of the former Kingdom of Sikkim comprised of persons recognized as having the following ethnicity: (i) ‘Sikkimese Bhutia’ - meaning persons who could be from among the native ‘Bhutia’ and the ‘Chumbipa’, ‘Dopthapa’, G ‘Dukpa’, ‘Kagatey’, ‘Sherpa’, ‘Tibetan’, ‘Tromopa’, ‘Yolmo’ Communities which got recognised and notified as the Scheduled Tribes by ‘The Constitution (Sikkim) Scheduled Tribes Order 1978’ (ii) ‘Sikkimese Lepcha’ - meaning persons who could be from the aboriginal Lepcha Community which got recognised and H

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A notified as the Scheduled Tribes by ‘The Constitution (Sikkim) Scheduled Tribes Order, 1978’. (iii) ‘Sikkimese Nepali’ - meaning persons who could be from among the Castes or Classes that included the following: (a) the ‘Damai’, ‘Kami’/’Lahar’, ‘Majhi’, and ‘Sarki’ Communities B which got recognised as the Scheduled Castes by the Constitution (Sikkim) Scheduled Castes Order, 1978; (b) the ‘Limbu’ and ‘Tamang’ Communities (earlier notified under ‘Central List of Other Backward Classes ‘ in the year 1995) which got recognised and notified as the Scheduled Tribes in the year C 2003 by the Scheduled Castes and Scheduled Tribes Orders (Amendment) Act 2002; (c) the Communities which got recognised and notified for inclusion in the ‘Central List of Other Backwards Classes’ in the year 1995, namely, ‘Bhujel’, ‘Gurung’, ‘Manger’, ‘Kirat Rai’, ‘Sunuwar’, D and in the year 1999 namely ‘Sanyasi’, and in the year 2000 namely ‘Jogi’; and (d) the ‘Bahun’, ‘Chettri’ and ‘Newar’ Communities which got recognized and notified in the ‘State List of Other Backward Classes of Sikkim in the year 2014. E

6. According to the petitioners, the history regarding ordinarily resident ‘British Indian Subjects’ and the ‘Indian Nationals’ engaged in trade, commerce and Government employment in the former Kingdom of Sikkim is pluralistic. They comprised of diverse ethnic, religious and socio-cultural backgrounds from across the territories of Undivided British F India and later Independent India. The residents of Sikkim are the inhabitants of Sikkim who were permanent residents prior to the year 1975.

7. In the year 1975, the former Kingdom of Sikkim became a part of India and became known as the State of Sikkim. Till then i.e., 26th G April, 1975 (which is the ‘appointed day’ of its merger and incorporation with India), the Kingdom of Sikkim was ruled through a lineage of hereditary rulers of Namgyal Dynasty known as the ‘Chogyal’.

8. The history of the period prior to the merger of Sikkim with India as averred in the writ petitions could be encapsulated as under: H

ASSOCIATION OF OLD SETTLERS OF SIKKIM AND ORS. v. 319 UNION OF INDIA AND ANR. [B. V. NAGARATHNA, J.]

(a) During the period from 1890 till 1950, the Government of A the erstwhile Kingdom of Sikkim and its posts and services were subjected to various situations and conditions which have been described by the petitioners and is referred to hereunder: “(i) During the period from 1890 to 1918, the Imperial B British Government exercised direct and exclusive control over the external affairs as well as the internal affairs of the Kingdom of Sikkim. At that time the British Indian Subjects were allowed to hold Office and Employment to the posts and services of the Government Establishment of the erstwhile Kingdom C of Sikkim. (ii) In 1918, the then King of Sikkim Chogyal Tashi Namgyal was given back his authority over the internal affairs of Kingdom of Sikkim; where-after he got empowered with absolute powers over all legislative, judicial and executive functions of his Kingdom; while the external affairs continued to remain under the Government of Imperial British India. From 1918 onwards, the Kingdom of Sikkim had continued to allow the British Indian Subjects to hold Office and Employment in the posts and services of the Government Establishment of the Kingdom of Sikkim i.e. ‘Sikkim Darbar’. Such government employees were referred to as ‘Darbar’ Employees of British Indian origin. F (iii) At the time immediately before India’s Independence from British Paramountcy, there was a popular demand from the people of Kingdom of Sikkim for a democratic setup and its accession to the Indian Union. During that time, a popular vote for Sikkim to join India had failed; hence the Kingdom of Sikkim G did not accede to the Indian Union then. (iv) When India became independent in 1947, on the cessation of British Paramountcy from India, the Dominion of India inherited the rights and liabilities H

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A of the British Crown vis-à-vis the Indian States as on that date. The Kingdom of Sikkim not being exactly like other Indian States did not accede to the Union of India but had signed a standstill agreement for continuation of its previous relationship pending a fresh agreement with India. In the years preceding the proclamation of Republic of India (i.e. before 26th January 1950), it was agreed that the Kingdom of Sikkim was a Special Protectorate State of Indian Union, having its own separate territory. (v) From 1947 onwards, the Kingdom of Sikkim had continued to allow the British Indian Subjects as well as Indian Nationals to hold Office and employment in the posts and services of the Government Establishment of the Kingdom of Sikkim, i.e. ‘Sikkim Darbar’. Such persons of Indian origin serving/ D appointed in the posts and services of Government Establishment of the Kingdom of Sikkim were referred to as ‘Darbar’ Employees of British Indian origins and ‘Darbar’ Employees of Indian Nationality.” In view of the above historical developments, persons of E Indian origin belonging to diverse ethnic, religious and socio- cultural backgrounds from across the territories of Undivided British India and later Independent India, resided in Sikkim for the purpose of their employment in various posts and services or for trade and business.

F (b) On 5th December, 1950, the Indo-Sikkim Peace Treaty was entered into and under this Treaty, Sikkim was to be a protectorate of India. However, Sikkim still enjoyed autonomy in its internal administration. It is pertinent to note that Article VII of this Treaty allowed the subjects of Sikkim as well as Indian citizens, free movement in each other’s G territories. Under the said Treaty, Indians in Sikkim were subject to Sikkimese law and the Sikkimese in India were subject to Indian Laws. Indian citizens in Sikkim had reciprocal rights to hold government employment and buy immovable properties once settled in Sikkim and were to H be treated equally with Sikkimese in all matters.

ASSOCIATION OF OLD SETTLERS OF SIKKIM AND ORS. v. 321 UNION OF INDIA AND ANR. [B. V. NAGARATHNA, J.]

(c) The Chogyal promulgated the Sikkim Subjects Regulation A in 1961 (hereinafter called “1961 Regulation” for the sake of convenience). This Regulation had extraordinary provisions by which a ‘National of another State’ ordinarily residing in the erstwhile Kingdom of Sikkim then, could acquire a Naturalised Sikkim Subject/Citizenship status. B Regulations 8(3), 8(4) of the 1961 Regulation provide for the power of the government of the erstwhile Chogyal of the Kingdom of Sikkim to naturalise a person upon an application being made in this regard. However, in order to be qualified for naturalization, the applicant/person must be employed in the Posts or Services of the Government C Establishment of the Kingdom of Sikkim and must fulfil the following parameters: (i) must have been in the service of the Government of the erstwhile Kingdom of Sikkim for a period not less than ten years immediately preceding the date D of his application, or (ii) must have rendered meritorious service to the erstwhile Kingdom of Sikkim. The Government of the Chogyal may as provided for under Regulation 8(4) also naturalise the wife and minor children of a E person who is granted a Certificate of Naturalisation, if an application is made in this regard. It is however, to be noted that, in order for a Certificate of Naturalisation to be granted under the aforesaid clauses, the following conditions must be fulfilled: (i) renouncing their Nationality and (ii) changing their F allegiance to the erstwhile Kingdom of Sikkim. The result of this pre-condition was that an eligible male British Indian Subject or male Indian National and his wife and minor children had to give up their Indian Nationality (of which country Sikkim was a G protectorate since 1950), for the purpose of converting themselves into Naturalized Sikkim Subjects. Although, these Regulations were promulgated, according to the petitioners no differential treatment was meted out to the Indians as their rights were protected under the Indo-Sikkim Treaty of 1950. H

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A (d) In 1965, the Chogyal of Sikkim notified the Sikkim Work Permit Rules, 1965, by which all foreigners required a Work Permit to enter, work and stay in Sikkim. Significantly, the term “Foreigner” under the Sikkim Work Permit Rules, 1965, was defined as meaning a “foreigner not being Indian national”. Persons of Indian origin were therefore not B considered as foreigners in Sikkim and were not required to obtain a work permit irrespective of the fact that they were not Sikkim Subjects. Many of the Indians were also on the voters list of Sikkim. (e) In 1973, an agreement was entered into between India, the C Chogyal and the political parties of Sikkim for the establishment of a democratic Government in Sikkim. In pursuance of the same, India was to assist in the conduct of free and fair elections in Sikkim. (f) Thereafter, on 26th April, 1975, by way of the Constitution D Thirty-sixth Amendment Act, 1975, Sikkim became a State in India and was included in Entry 22 of Schedule I to the Constitution of India. (g) Article 371-F was also inserted into the Constitution of India under which it was, inter alia, open to the President of E India (within two years from the date of the Amendment) or the Parliament to extend any law to the State of Sikkim, or repeal any existing law of Sikkim.

9. Subsequent to the merger of Sikkim as a State of the India, the following developments relevant to these cases could be traced as under: F (a) By way of a statutory order, the Citizenship Act, 1955 was extended to the State of Sikkim. On 21st June, 1975, the Home Department of Government of India issued a notification titled “Sikkim (Citizenship) Order 1975” stating that ‘all Sikkim Subjects under the 1961 Regulation before 26th April, 1975 were G to be deemed Indian citizens’. Therefore, this effaced the distinction between persons of Indian origin residing in Sikkim (without giving up Indian Citizenship) and others who had earlier taken up Sikkimese Citizenship by entry of their names in the Sikkim Subjects Register. According to the petitioners, as on 26th April, 1975, there was no distinction between Sikkim H

ASSOCIATION OF OLD SETTLERS OF SIKKIM AND ORS. v. 323 UNION OF INDIA AND ANR. [B. V. NAGARATHNA, J.]

subjects and persons of Indian origin and other settlers in Sikkim, A all of them being treated as citizens of India. However, those whose names did not figure in the Sikkim Subjects Register were left out of consideration. (b) In view of the fact that a large number of eligible persons had been left out of the Sikkim Subjects Register and were B consequently denied Indian citizenship, on 25th September, 1976 the Government of Sikkim issued a Memorandum that for the purposes of seeking employment, those claiming to be locals should be able to show whether their parents’ names were maintained on or before 15 th May, 1975 in the relevant Government Register. C

(c) Further, under Article 371-F, an Adaptation of Sikkim Laws Order was promulgated wherein, the 1961 Regulation, was repealed w.e.f. 26th April, 1975 by the Order issued on 13th September, 1975. D (d) On 9th April, 1981, the Government of Sikkim issued a Memorandum to the effect that: “ ... the Governor has been pleased to authorize District Collectors within respective district to issue Certificate to person identifying them in the following groups to enable them to apply for employment in the State-

1. A person whose name is found in the Old Sikkim Subject Register prior to 1975.

2. A person whose name is not found registered in the Old Sikkim Subject Register but he/she has established beyond doubt that the name of his/her father/husband/paternal grandfather / brother from the same father has been recorded in the Old Sikkim Subject Register, or 3, A person who has or had agricultural land in rural areas and has been ordinarily residing in the State of Sikkim or G

4. A person whose father/husband has/had been in Sikkim Government service on or before 31.12.1969.” (e) In the year 1988, a petition was moved in the Lok Sabha by a few Members of Legislative Assembly of Sikkim stating that H

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A at the time of merger of Sikkim with India, only those people whose names were registered in the Sikkim Subjects Register were made Indian Citizens in terms of Sikkim (Citizenship) Order 1975, but there were many other persons who were present in Sikkim between the period 1946 and 1975 who were otherwise by reason of their residence, domiciled in Sikkim B and by allegiance “Sikkimese” and they should also be made Indian citizens. The Government of India conceded to this demand and an exercise was carried out to grant Indian Citizenship to the so-called ‘stateless’ people whose names were deemed to have been genuinely omitted. For this purpose, the Sikkim Citizenship (Amendment) Order, 1989, was notified on 3rd April, 1989, wherein a proviso was inserted to deem such cases of genuine omission as citizens of India. The relevant clause in the amendment order reads as follows: “Provided that any person whose name was eligible to be entered in the register maintained under the said regulation but was not entered because of any genuine omission shall also be deemed to have become a citizen of India on that day if so determined by the Central Government.” (f) On the same date i.e., 3rd April, 1989, the Ministry of Home E Affairs, Government of India, constituted a committee comprising of officials of the Government of India and Government of Sikkim, to look into cases of genuine omission in terms of the Sikkim Citizenship (Amendment) Order, 1989. Certain Guidelines were prescribed to decide the persons who were left out due to genuine omission from being entered into F the Sikkim Subjects Register. It is averred that in terms of “clauses d, f, g and h’’ of the prescribed Guidelines, persons such as the petitioners were entitled to acquire Indian Citizenship in terms of Sikkim Citizenship (Amendment) Order, 1989, by virtue of their fathers’ Government employment in ‘Sikkim G Darbar’ prior to the commencement of the ‘exception’ clause introduced w.e.f., 1st April, 1974, by the Sikkim Government Establishment Rules, 1974. (g) Subsequently, vide Government of India orders dated 7th August, 1990 and 08th April, 1991, a total of 73,431 persons were granted Indian Citizenship on the basis that it was found H

ASSOCIATION OF OLD SETTLERS OF SIKKIM AND ORS. v. 325 UNION OF INDIA AND ANR. [B. V. NAGARATHNA, J.]

that these persons were eligible to have been included in the A Sikkim Subjects Register. Most of these 73,431 persons included citizens of India and were persons who had permanently settled in Sikkim between 1946 and 1975. It is averred that applications in the prescribed format for inclusion in the Citizenship list in terms of the Sikkim Citizenship (Amendment) B Order, 1989, were submitted by the family members of petitioners in W.P. (C) No.1283 of 2021, which was duly acknowledged by the concerned District Collector. However, their names neither appeared in the approved list forwarded by the Ministry of Home Affairs, Government of India nor in the rejected list. C

10. The legal and factual developments prior to the introduction of the I.T. Act, 1961, in Sikkim could be encapsulated as under as the controversy in these cases arises under the said Act: (a) In 1948, the Sikkim Income Tax Manual, 1948 (SITM) was promulgated by the Ruler of Sikkim (the Chogyal). Under the D SITM, all persons engaged in business were subjected to tax irrespective of their origin. Therefore, there was no difference made out between the original inhabitants of Sikkim, namely, the Bhutia-Lepchas and the persons of foreign origin settled in Sikkim like the Nepalis or persons of Indian origin who had settled down in Sikkim generations back. It is averred that under the SITM, E Income Tax was paid by all without any discrimination on the ground of place of birth, race or ethnicity. (b) In the year 1989, the I.T. Act, 1961 was extended to Sikkim by the Finance Act, 1989. Under the said Amendment, any law corresponding to the I.T. Act, 1961 which was in force in the F State of Sikkim stood repealed. Of course, since Parliament had no competence to levy a tax on agricultural income, the repeal of the SITM, 1948, would affect only the law insofar as it applied to taxes on income and would not affect its operation with respect to agricultural income. G (c) However, in spite of the fact that the I.T. Act, 1961, stood extended to Sikkim and the corresponding law stood repealed, pro tanto, all residents, including the petitioners, continued to pay income tax under the SITM, along with the other Indian citizens in Sikkim irrespective of whether their names had been registered in the Sikkim State Subjects Register or not. H

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A (d) It is noted that the extension of the I.T. Act, 1961, to Sikkim was not implemented in reality due to severe opposition from the State of Sikkim. Thereafter, the Government of India, vide an amendment to I.T. Act, 1961 by the Finance Act, 1994, proposed an exemption from income tax to the Scheduled Tribes in Sikkim as was being done in regard to other states. However, this was B also opposed by the lone member of Sikkim in the Lok Sabha, since granting exemption only to the tribals would mean antagonizing a large extent of non-tribal population who form the bulk of the voters, due to which the said amendment was withdrawn. C (e) On 19th July, 2004, the Government of India and Government of State of Sikkim, in an attempt to resolve the differences vis-à- vis implementation of I.T. Act, 1961 in Sikkim, formed a Joint Committee consisting of the members from the Central Government and Government of Sikkim. The State of Sikkim D representing to the Committee repeatedly insisted on an exemption for persons holding the Sikkim Subjects Certificate (SSC) and their descendants who were made Indian Citizens vide the 1989 Sikkim Citizenship (Amendment) Order, from payment of income tax. This category essentially consisted of about 94.6% of the total population. Discussions were held for four years to secure E exemptions to SSC holders and the people who were made citizens of India and their descendants vide the Government of India orders dated 07th August, 1990 and 08th April, 1991. The contention of the Government of Sikkim was that SSC holders and those who became Indian citizens in 1990-1991 vide the Sikkim Citizenship (Amendment) Order, 1989, should be exempted. The Voters’ List F of 2004 for the State of Sikkim had the following demographic composition: Bhutia-Lepcha (STs) : 20.64% Nepalis : 69.71% G (Including the original Sikkim Subjects) Sherpa : 4.31% Others : 5.34% (Old Settlers of Indian Origin: 1.50% and New Settlers including those of Indian Origin 3.84% = 5.34%)

ASSOCIATION OF OLD SETTLERS OF SIKKIM AND ORS. v. 327 UNION OF INDIA AND ANR. [B. V. NAGARATHNA, J.]

(f) In the year 2008, Government of India passed an amendment to the I.T. Act, 1961 by virtue of the Finance Act, 2008, wherein clause (26AAA) was introduced under Section 10 of the I.T. Act,

1961. Clause (26AAA) to Section 10 of the I.T. Act 1961 granted an exemption to Sikkimese people. Thereafter, on 16th June, 2008, the Government of Sikkim issued a Circular stating that the SITM B should not be acted upon. Grievance of the petitioners:

11. According to the petitioners in W.P.(C) No. 1283 of 2021, they have settled in Sikkim and their fathers were in Government service on and prior to 31st December, 1969. Therefore, they have come under C the fourth category of the Memorandum issued by Government of Sikkim on 09th April, 1981. The petitioners have been issued the Certificate of Identification (akin to domicile or residential certificate) by the Sikkim Government. On account of Certificate of Identification being issued to them, the petitioners are part of the local population of Sikkim and are at par with those persons whose names are found in the old Sikkim Subjects D Register. Thus, they have all along been treated as part of the local population of Sikkim but the petitioners, who are also settled in Sikkim and who have been issued Certificates of Identification are excluded from the benefit of Section 10 (26AAA) of the I.T. Act, 1961, and are being assessed to income tax whereas the object of the aforesaid provision is to exempt the category of persons mentioned therein from the payment of income tax. According to these petitioners, the said provision in effect exempts 94% of the residents of Sikkim while taxing the remaining 5% of which about 1% are the people such as petitioners who are bona fide settlers in Sikkim and are entitled to be treated at par with other categories. It is the grievance of the petitioners that they have been singled out for the purpose of imposition of income tax on the sole ground that their names are not recorded in the Register under the 1961 Regulation. According to these petitioners, they have Certificates of Identification and they are as much Sikkimese as those categories of persons mentioned in Section 10 (26AAA) of I.T. Act, 1961 who have been given the benefit of non-payment of income tax under the said Act.

12. It is also averred that the persons who were granted Indian citizenship by way of the Sikkim Citizenship (Amendment) Order of 1989, were those persons whose names in point of fact were never H

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A included in the Sikkim Subjects Register but were given the benefit of Indian citizenship.

13. In the context of the above grievance, various representations were made by various persons for being granted exemption from payment of income tax. Taking note of these representations, the Union B Government appointed a committee. On 16 th October, 2009, the Committee communicated a decision that it had come to the conclusion that there was no provision in the I.T. Act, 1961, for grant of exemptions to the individuals not included in the Register of Sikkim Subjects. The Committee therefore recommended that the said individuals should approach legal experts/Chartered Accountants to look into the lacunae in the I.T. Act, 1961, for the possible inclusion of their names so that the Government of Sikkim could take up the issue with the Government of India.

14. According to the petitioners, on 21 st September, 2010, Government of Sikkim issued a Cabinet Memorandum wherein it was admitted that Certificate of Identification (COI) was issued in view of the still valid pre-merger laws on the subject, as it enjoyed constitutional protection under Article 371-F. The persons such as the petitioners herein by virtue of being COI holders are covered under Rule 4(4) of Sikkim Government Establishment Rules, 1974, for employment under the State E Government and its Public Sector Units (PSUs) which has provisions of employment for locals only.

15. According to the petitioners, due to the injustice being meted out to the persons excluded from exemption from payment of income tax, even though they were clearly permanent residents of Sikkim, the F matter was debated in the Sikkim State Assembly. On 24th March, 2011, a Cabinet Memorandum was issued stating that the Government of Sikkim felt that it was appropriate to pass a Resolution in the ensuing session of the Assembly in favour of the left-out categories of persons (including persons such as the petitioners in W.P. (C) No. 1283 of 2021, whose fathers were in Sikkim Government Service before 31st December, 1969 G and who are continuously residing in the State of Sikkim) for income tax exemption by Government of India. The Resolution was accordingly passed on 26th March, 2011.

16. Thereafter, Writ Petition (Civil) No 59 of 2013 was filed before this Court and this Court was pleased to issue notice on 11 th February, H

ASSOCIATION OF OLD SETTLERS OF SIKKIM AND ORS. v. 329 UNION OF INDIA AND ANR. [B. V. NAGARATHNA, J.]

2013, and granted interim relief to persons such as the petitioners herein in respect of recovery proceedings at the instance of the Income Tax Department as also qua deposit of TDS.

17. In August 2013, the Rajya Sabha published its 145th Report of the Committee on the Petition, praying for protection of interest of bona fide Indian nationals living in Sikkim prior to its merger with India in the year 1975. In its deliberations, the Committee clearly found that old Indian settlers of Sikkim are to be treated at par with Sikkimese and should have been included in the said definition. It was recommended that exemption be granted to such persons as well.

18Copy pinpoint18. On 4th April, 2018, an order was passed by this Court directing the petitioners in Writ Petition No. 59 of 2013 to place on record a list of persons who were claiming benefit of Section 10 (26AAA) of I.T. Act, 1961, and the State of Sikkim was further directed to verify the claims and cooperate with the Central Government so that such claims could be considered by the Central Government in accordance with law. D

19Copy pinpoint19. Following this order, the State Government approved two other categories of persons to be included for exemption from payment of income tax, including the petitioners’ category i.e., those having COI on the basis of their fathers’ being in Government of Sikkim service on or before 31st December, 1969 and who are permanently settled and residing in Sikkim along with persons who had been issued COI on the basis of E landed property in rural areas of Sikkim. A Public Notice bearing No. Home/Confdl/111/2013/09part/5992 dated 22nd September, 2018 was issued by the State Government with a directive to the above two categories to furnish details in the prescribed format to the competent authority. It is averred that the persons such as the petitioners in W.P.(C) F No. 1283 of 2021 in accordance to the Public Notice dated 22 nd September, 2018, have submitted all relevant documents before the competent authority.

20Copy pinpoint20. It is contended that the petitioners are being subjected to continued discrimination and are being assessed to income tax, even G though they are also eligible for the exemption under Section 10 (26AAA) of the I.T. Act, 1961. That, in spite of various representations which have been made, the completely discriminatory and arbitrary amendments made to the I.T. Act, 1961 have still not been done away with. In fact, further recovery notices for recovery of tax have been sent to some of H

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A the persons who are members of petitioner No.1 Association in W.P. (C) No. 59 of 2013. Therefore, in the above circumstances, being aggrieved by the amendment by which clause (26AAA) to Section 10 of the I.T. Act, 1961 was introduced, the petitioner has invoked Article 32 of the Constitution of India by averring that the provision is violative of their fundamental rights. B Section 10 (26AAA) of Income Tax Act, 1961:

21Copy pinpoint21. Section 10 of the I.T. Act, 1961, speaks about incomes not included in total income i.e., the incomes mentioned under the clauses of Section 10 of the said Act shall not be included in computing the total C income of any person. Clause (26AAA) of Section 10 states that 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, shall not be income falling within total income of any person. The proviso, however, states that nothing contained in this clause shall apply to a Sikkimese woman who, on or after 1st D April, 2008, marries an individual who is not a Sikkimese. The Explanation defines a Sikkimese as under:

1. An individual, whose name is recorded in the register maintained under the Sikkim Subjects Regulation, 1961 read with Sikkim Subject Rules, 1961 (hereinafter referred to as E the “Register of Sikkim Subjects”), immediately before the 26th April, 1975; or

2. 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 F Order of even number dated the 8th April, 1991; or

3. 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 grandfather or brother from the same father G has been recorded in that register; The relevant provision of Section 10 (26AAA) of I.T. Act, 1961, is extracted as under: “(26AAA) in case of an individual, being a Sikkimese, any income which accrues or arises to him— H

ASSOCIATION OF OLD SETTLERS OF SIKKIM AND ORS. v. 331 UNION OF INDIA AND ANR. [B. V. NAGARATHNA, J.]

(a) from any source in the State of Sikkim; or A (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. B 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 C 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 D 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 grandfather or brother from the same father has been recorded in that register;” Submissions:

22Copy pinpoint22. We have heard Sri K.V. Viswanathan, learned senior counsel appearing on behalf of the writ petitioners in Writ Petition (C) No. 59 of 2013, Ms. Pooja Dhar, learned counsel appearing for the writ petitioners in Writ Petition (C) 1283 of 2021, Sri N. Venkataraman, learned Additional Solicitor General appearing for the Department of Revenue, Union of India, Sri Vivek Kohli, learned Advocate General for the State of Sikkim, and perused the material on record. Submissions of the Writ Petitioners: G

23Copy pinpoint23. Learned senior counsel and learned counsel appearing on behalf of the writ petitioners at the outset submitted that Section 10(26AAA) of the I.T. Act, 1961 is ultra vires the Constitution of India, insofar as it excludes from the definition of ‘Sikkimese,’ migrants/settlers of Indian origin who had settled in Sikkim much prior to the coming into effect the H