Whether ITR filed or not tax can be levied on assessee being a Sikkimese u/s 10(26)(AAA)

Whether assessee filed or not filed return in view of section 10(26)(AAA) tax can not be levied on the assessee being a Sikkimese.

In a recent judgment, the ITAT Kolkata has held that irrespective of whether assessee filed or not filed return of income, in view of section 10(26)(AAA) tax can not be levied on the assessee being a Sikkimese. The moment taxability of the income is being decided in the hands of any tax payer, then it is naturally to be decided whether such taxes could be recovered from such person or not under the law.

ABCAUS Case Law Citation:
4289 (2024) (10) abcaus.in ITAT

In the instant case, the assessee had filed appeals for two Assessment Years challenging the order passed by the CIT(A) in rejecting his claim of exemption from income tax under section 10(26)(AAA) of of the Income Tax Act, 1961 (the Act).

The appellant assessee did not file return of income in both these assessment years. The Assessing Officer (AO) received information that during the relevant years the assessee had made deposit of large amount of cash in the Savings Bank Account. The Assessing Officer issued notice under section 148 of the Act.

Since, the assessee did not respond to notices u/s 148, the AO passed an ex-parte assessment order under section 144 of the Act treating the alleged cash deposits in the Bank account as unexplained cash deposits and made an addition under section 69A of the Act.

Before the CIT(A), assessee contended that his father was a Sikkim Subject and his name was recorded in Sikkim Subject Register therefore, assessee was a Sikkimese. He had been carrying on his Petrol Pump business in the State of Sikkim under his proprietorship concern. In order to buttress his contention, he relied upon the Certificate of Identification and CBDT Notification and contended that being a Sikkimese, his income was exempt under section 10(26)(AAA) of the Act which contemplates that income of a Sikkimese individually from any source in the State of Sikkim is exempt from payment of income tax.

The CIT(A) rejected this contention of the assessee on the ground that the assessee did not file return and he did not claim this benefit by way of return filed under section 139(1) of the Act. The CIT(Appeals) thereafter made reference to the judgment of the Hon’ble Supreme Court and held that in the absence of return filed by the assessee, he cannot claim the benefit.

The Tribunal observed that if a person is identified as a Subject of Sikkim on the appointed date, then, he and his family will be entitled for the benefit of section 10(26)(AAA) of the Income Tax Act. However, both the lower authorities had not recorded any specific finding of fact about the status of the assessee for the purpose of assessment of his income.

With respect to the finding of CIT(Appeals) that assessee had not filed the return under section 139(1) of the Act, the Tribunal opined that the moment taxability of the income is being decided in the hands of any tax payer, then it is naturally to be decided whether such taxes could be recovered from such person or not under the law. If a particular section of the Income Tax Act excludes an individual from a particular source of income from levy a tax, then without deciding that issue, the taxability cannot be determined.

The Tribunal held that CIT(Appeals) gave an incorrect interpretation of the Act. In other words, whether an assessee has filed the return or not filed, the moment some taxable income is being determined, then, it has to be examined whether within the meaning of section 10(26)(AAA), such taxes could be levied from the assessee being a Sikkimese or not.

Therefore, the Tribunal set aside the order of the CIT(Appeals) and remitted the issue to the file of Assessing Officer with direction to first determine whether assessee is a Sikkimese and he has earned the income from any source within the State of Sikkim or not. If answer to the above question is in positive, then exemption under section 10(26)(AAA) of the Act shall be allowed to the assessee.

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