Calcutta H.C : This writ petition is for quashing/setting aside an order of assessment dt. 20th Feb., 1986, made under s. 143(3) of the IT Act, 1961, and a notice of demand dt. 20th Feb., 1986, under s. 156 of the said Act (annexure “G” to the writ petition).

Counsel AppearedS. Pal & Prabu Samanta, for the Petitioner : A.C. Maitra & R.C. Prasad, for the Respondents

MOHITOSH MAJUMDAR, J.:

This writ petition is for quashing/setting aside an order of assessment dt. 20th Feb., 1986, made under s. 143(3) of the IT Act, 1961, and a notice of demand dt. 20th Feb., 1986, under s. 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, ITO, I Ward, District III(I), Calcutta, for the asst. yr. 1983-84, the corresponding financial year being 1st April, 1982, to 31st March, 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 12th March, 1980. Soon thereafter, he shifted his residence to Gangtok, Sikkim. When practising in Calcutta, he was an assessee within the jurisdiction of the ITO, I-Ward, Dist. III(I), Calcutta. Some time after shifting his residence to Gangtok, Sikkim, the petitioner wrote from Gangtok four letters to the aforesaid ITO, I-Ward. The letters are dt. 9th June, 1980, 12/14th Sept., 1980, 3rd Nov., 1980, and 16th Feb., 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 IT Act, 1961, has not been extended to Sikkim; (iii) that, in Sikkim, the Sikkim IT 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 IT law; (iv) that he was not liable to pay income-tax under the IT Act, 1961, on his income earned in Sikkim, so long as he continues to reside in Sikkim; (v) in his letter dt. 12/14th Sept., 1980, he made the following request to the CIT 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 IT Act under the circumstances aforesaid. l shall be grateful to hear from you at an early date so that I can discharge my legal obligations, if any.” No reply was given by the ITO to the aforesaid letters of the petitioner. The petitioner had a house property in Calcutta and also some income from bank interest from banks in Calcutta. He accordingly filed IT returns for the asst. yrs. 1981-82 and 1982- 83 in due time. In the aforesaid IT 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 IT returns for the asst. yrs. 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 IT returns for the asst. yrs. 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.

The notices of demand under s. 156 for the asst. yrs. 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 1st April, 1980, to 31st March, 1981.

The notice of demand for the asst. yr. 1981-82 shows that income-tax due from the petitioner for the asst. yr. 1981-82 was only Rs. 713 and Rs. 3,592 was refundable to him. It is apparent from the aforesaid notice of demand under s. 156 that his claim for exemption of income earned in Sikkim was accepted by the ITO. The petitioner had paid Rs. 1,400 as advance tax for the financial year 1st April, 1981, to 31st March, 1982, only on his income from bank interest and notional income from vacant house property in Calcutta. The notice of demand for the asst. yr.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 asst. yr. 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.

The petitioner resigned from the post of Advocate- General of Sikkim w.e.f. 1st April, 1983 and came back to Calcutta. His last financial year in Sikkim was 1st April, 1982 to 31st March, 1983 (asst. yr. 1983-84). He filed his income-tax return for the asst. yr. 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 1st April, 1982 to 31st March, 1983. He described his status as “resident of Sikkim” as he did in his earlier IT returns.

The order of assessment and notice of demand dt. 20th Feb., 1986, in respect of the asst. yr. 1983-84 are the subject- matter of challenge in this writ petition.

1. 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 27th March, 1987. On 7th April, 1987, I was informed by Mr. S. Pal, senior counsel for the petitioner, that the petitioner has withdrawn his appeal on 3rd April, 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 later, l 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 s. 9(1)(iii) of the IT 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.

2.Let me now turn to the impugned order dt. 20th Feb., 1986, in respect of the asst. yr. 1983-84 with which I am concerned in this petition. Respondent No. 1 has computed the income of the petitioner for the financial year 1st April, 1982, to 31st March, 1983, as follows (annexure ‘G’ to the petition): .. Rs.

1. Income from house property estimated 12,000

2. Professional income 1,00,000

o f t r h sourc o e es–

3. Income interestm r bank 20,000 . 1,32,000Less : deduction under s. 80L 6,0004 = Total income 1,26,000 .Assessed as above, give credit for tax paid under s. 210. Issue D. N. challan and a copy of A/O. C. D. S. payment made Rs. 1,000.” The notice of demand under s. 156 of the IT 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 s. 210 as advance tax, the actual demand for the asst. yr. 1983-84 was Rs. 81,376. Though the order of assessment does not mention anything about charging of interest under s. 217 of the IT 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 s. 217 22,408 . 81,376

.5. 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 IT 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. 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).

6. I shall first consider whether a resident of Sikkim is a non-resident for the purposes of the IT Act, 1961. In order to decide this question, it is necessary to state briefly a few facts about Sikkim. Prior to becoming the 22nd State of India on 26th April, 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 26th April, 1975, and still continues in force under Art. 371F(k) of the Constitution of India. Art. 371F contains special provisions with respect to the State of Sikkim. The clauses of Art. 371F which are directly relevant for our purpose are cls. (k) and (n). Read with the opening words of art. 371 F, the aforesaid clauses read as follows: “Art. 371F.—Special provisions with respect to the State of Sikhim.— 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.”

The IT Act, 1961, has not been extended to Sikkim by any Presidential Notification under Art.371F (n). The petitioner has annexed to his petition a circular dt. 7th Nov., 1978, by the Ministry of Finance (Annexure “F” at page 61 of the petition). Paragraph 3 of the circular clearly states that as the IT Act, 1961, has not been extended to Sikkim by any notification under Art. 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’ dt. 30th Jan., 1984, from the Ministry of Finance, Department of Revenue, Foreign Tax Division. This circular also shows that, for the purpose of the IT 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 ‘non- resident’ under the IT Act, 1961”. This statement is apparently based on the abovementioned letters/circulars of the Finance Ministry.

1. In the circumstances, I hold that a resident of Sikkim is a non-resident for the purposes of the IT Act, 1961. It also appears from the writ petition and the affidavit-in-reply that the petitioner in his IT returns for the asst. yrs. 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 IT returns. It is thus apparent that the IT Department was aware that residents of Sikkim have to be treated as non-residents for the purposes of the IT Act, in accordance with the above letters/circulars of the Ministry of Finance, Government of India. Annexure “C” to the affidavit-inreply also shows that residents and Government servants of Sikkim are not taxed under the IT Act, 1961, obviously because they are treated as non-residents.

2.In his IT return for the asst. yr. 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 IT 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.

3.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 s. 6 of the IT Act, 1961. The finding is not based on any fact but is based on some “reasons”.

4.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. l have already held that a resident of Sikkim is a non-resident for the purpose of the IT 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 12th March, 1980, to 31st March, 1983. Some of the annexures which support the petitioner’s assertion that he was a resident of Sikkim from 12th March, 1980, to 31st March, 1983, are mentioned below : (a) Letter dt. 9th June, 1980, from the petitioner to the ITO, I-Ward (Annexure ‘B’, at page 26 of the petition). (b) Letter dated 12/14th Sept., 1980, from the petitioner to the ITO, l-Ward (Annexure ‘B’, at page 28 of the petition). (c) Letter dt. 3rd Nov., 1980, from the petitioner to the ITO, I- Ward (Annexure ‘B’, at page 30 of the petition). (d) Letter dt. 16th Feb., 1981, from the petitioner to the ITO, I-Ward (Annexure ‘B’, at page 32 of the petition). (e) Letter dt. 5th Sept., 1984, from the petitioner to the ITO, I- Ward (Annexure ‘D’, to the petition, at page 35, see paragraph 8 of the letter). (f) Letter dt. 9th Feb., 1985, from the petitioner to the ITO, I- Ward (Annexure ‘E’, to the petition, at page 40. Paragraphs 2, 3(a) of the letter). (g) Notice of demand under s. 156 for the asst. yr. 1980-81 dt. 23rd Oct., 1981 (Annexure ‘K’, at page 29 of the affidavit in-reply), which shows that, in the records of the IT Department, the petitioner’s place of residence was Development Area, Gangtok, Sikkim. (h) Notices of demand under s. 156 for the asst. yrs. 1981-82 and 1982-83 dt. 23rd Oct., 1981, and 17th Sept., 1982 (Annexures ‘L’ and ‘M’, at pages 31, 33 of the affidavit-in- reply), which also show that, in the records of the IT 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.

11. 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 s. 6 of the IT 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 1st April, 1982, to 31st March, 1983.

12. 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.

13. 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 IT Manual, there could be no certificate of payment of income-tax in respect of income from profession from the Government of Sikkim. The Sikkim IT Manual (Annexure ‘A’ to the petition and annexure ‘O’, at page 36 of the affidavit-in-reply) makes the position crystal clear.

1.The petitioner stated in his IT 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.

2.In the course of arguments, Mr. Maitra submitted that the petitioner’s retainer of Rs. 30,000 per annum could be taxed under s. 9(1)(iii) of the IT Act, 1961. I am unable to accept this submission. The petitioner’s retainer cannot be taxed under s. 9(1)(iii) of the IT Act, 1961, for the following reasons: (a) The IT 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 s. 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 IT Manual which is a law in force in Sikkim under Art. 371F(k) of the Constitution and as such is an Indian law on taxation on income. To tax his retainer again under s. 9(1)(iii) of the IT 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 IT Manual and not under the IT Act, 1961. The letter of the Accountant-General of Sikkim dated 8th April, 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 s. 9(1)(iii) will be discriminatory and violative of Art. 14 of the Constitution. All Government servants of Sikkim are citizens of India and the position of the petitioner was in no way different.

16. 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 1st April, 1982, to 31st March, 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 s. 217 of the IT Act, 1961, was illegal in the facts of this case.

17. 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 1st April, 1982, to 31st March, 1983.

In the result, this application succeeds. The impugned order of assessment and notice of demand dt. 20th Feb., 1986, passed by Smt. K. Dhar, ITO, ‘I’ Ward, Dist. III(l), Calcutta (annexure ‘G’ to the petition), are quashed/set aside.

18. 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 29th July, 1983, for the asst. yr. 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 asst. yr. 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. 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.

There will be no order as to costs.

[Citation : 186 ITR 329]