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Supreme Court income tax order on Sikkim, and the protests it has triggered

GS Paper 1

Syllabus: Post-independence Consolidation and Reorganisation within the country


Source: IE


Direction: The article highlights Section 10(26AAA) of the IT Act 1961 and how it discriminates against women and outside Indians in Sikkim.



  • According to the CM of Sikkim, a review petition has been filed in the Supreme Court for rectification of the court’s observation on Sikkimese Nepalis.
  • Political parties in Sikkim have voiced opposition to the court’s finding that Sikkimese Nepalis are immigrants while granting income tax exemption (under Section 10(26AAA) of the IT Act 1961) to all long-term settlers regardless of ethnicity.


Section 10 (26AAA)

  • The objective behind the section is to reduce the taxpayer’s burden by providing exemptions.
  • This section describes the income that does not form a part of the total income while calculating the tax for an individual/ exempted income.
  • It was inserted into the IT Act 1961 by the Finance Act 2008 with retrospective effect from April 1, 1990, the date on which the IT Act was made applicable in Sikkim.
  • Before 1990, the Sikkim Income Tax Manual (SITM), promulgated by the Ruler of Sikkim or Chogya in 1948, was applicable.


Why was it challenged?

  • The petitioners challenged the –
    • Proviso (a condition) excluding Sikkimese women married to non-Sikkimese men from the benefit of tax exemption.
    • Explanation, which elaborated on the type of income falling under the category, along with a definition of ‘Sikkimese’
  • Under the Explanation to Section 10 (26AAA), the definition of ‘Sikkimese’ is confined to
    • Individuals whose name is recorded in the register maintained under the Sikkim Subjects Regulation 1961, immediately before the 26th day of April 1975;
    • Individuals whose names were included in the Register of Sikkim Subjects by virtue of Government of India Orders 1990 and 1991; and
    • Any individual whose name does not appear in the Register, but the name of such individual’s father/husband, etc., has been in the register.
  • The Association of the Old Settlers of Sikkim challenged the constitutional validity of the definition, as it excluded Indians (from tax exemption benefits) who settled in Sikkim before April 26, 1975 – the day Parliament approved the merger of Sikkim with India.


What is the SC’s ruling?

  • The benefit of tax exemption provided in Section 10 (26AAA) shall be extended to all Indian citizens domiciled in Sikkim on or before April 26, 1975.
  • The court struck down the provision excluding Sikkimese women as violative of Articles 14, 15, and 21 of the Constitution.
  • A woman is not a commodity and has an identity of her own that cannot be taken away by marriage.
    • This is in line with what the SC had earlier ruled in Sekar vs. Geetha & Ors (2009).


The court’s observations:

  • Under the Sikkim Income Tax Manual 1948, 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 (the Bhutia-Lepchas) and the persons of foreign origin who settled in Sikkim (Nepalis) or persons of Indian origin who had settled down in Sikkim generations back.
  • The judgement also recorded that the “Nepalese migrants”, were benefiting from Section 10(26AAA) of the IT Act 1961, while arbitrarily excluding settlers of Indian origin.


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How did Sikkim become a part of India?