1. Extension
of direct tax laws to State of Sikkim - Clarification regarding
The Central Government has constituted a Committee to examine
difficulties and find out solutions to the problems, if any, arising on account
of the application of the direct tax laws to Sikkim.
According to Shri T.N. Pandey, Member, Central Board of Direct Taxes,
the Convener, the Committee will meet shortly in Gangtok where members of the
public, representatives of the trade organisations, etc., can bring their
problems to its notice. The Committee consists of representatives of both the
Central and State Governments.
With direct tax laws having been extended to Sikkim, the Income-tax Act,
1961, the Wealth-tax Act, 1957 and the Gift-tax Act, 1958, are applicable to
the resident of the State with effect from April 1, 1990.
It is clarified that the income accruing to a person during the
financial year 1989-90 will be subject to income-tax. The net wealth owned by a
resident of Sikkim on March 31, 1990, will be subject to wealth-tax, gifts made
by residents of Sikkim on or after April 1, 1989, will be taxable under the
Gift-tax Act, 1958. Under the provisions of the Income-tax Act, 1961, tax
will have to be deducted at source by an employer and other persons responsible
for making specified payments during the current financial year. Employers will
be liable to deduct tax at source at specified rates if they make payment of
salary to an employee in excess of taxable salary of Rs. 18,000 per annum.
Other persons responsible for making payment such as dividends (in excess of
Rs. 2,500), interest on securities, interest, insurance commission, crossword
puzzle prizes or payment to contractors or sub-contractors (rupees ten thousand
or more) or to non-residents are also liable to deduct tax at source in
accordance with the rates specified in the Income-tax Act.
Under the Income-tax Act, 1961, there is also a liability to pay advance
tax in three equal instalments, i.e., on the 15th September, 15th
December and 15th of March of a financial year. The advance tax is to be paid
by any person who on estimating his taxable income finds that the tax payable
by him for the entire year is Rs. 1,500 or more. It is necessary that these
obligations are discharged well in time.
Source : PIB Press Release, dated
5-7-1989.
2.
Notification under article 371F(n) - Extension of Income-tax
Act, 1961, Wealth-tax Act, 1957 and Gift-tax Act, 1958, to the State of Sikkim
In exercise of the powers conferred by clause (n) of article 371F
of the Constitution, the President hereby extends to the State of Sikkim the
enactments specified in the Schedule annexed hereto, subject to the
modifications, if any, specified in that Schedule and the following further
modifications, namely:—
(1) Any reference in the said enactments to a law not in force, or to a
functionary not in existence, in the State of Sikkim shall be construed as a
reference to the corresponding law in force, or to the corresponding
functionary in existence in that State:
Provided that if any question arises as to who such corresponding functionary, is
or if there is no such corresponding functionary, the Central Government shall
decide as to who such functionary will be and the decision of the Central Government
shall be final.
(2) Notwithstanding anything contained in the relevant provisions, if
any, of each such enactment for the commencement thereof, the provisions of
each such enactment shall come into force in the State of Sikkim on such date
as the Central Government may, by notification in the Official Gazette appoint:
Provided that different dates may be appointed for different provisions of the
enactment and for different areas in the State of Sikkim and any reference in
any such provision to the commencement of the Act shall be construed as a
reference to the coming into force of that provision in the area where it has
been brought into force :
Year
|
No. |
Short title |
|
(1) |
(2) |
(3) |
|
1961 |
43 |
Income-tax
Act, 1961 |
|
1957 |
27 |
Wealth-tax
Act, 1957 |
|
1958 |
18 |
Gift-tax
Act, 1958 |
(3) The provisions of Chapter XVII of the Income-tax Act shall be made
applicable with immediate effect.
(4) In the case of all assessees liable to advance tax of current income
of the previous year relevant to the assessment year 1989-90, the instalment of
advance tax payable on or before the 15th day of September, 1988, shall be
payable on or before the 15th day of December, 1988, along with the second
instalment of advance tax.
Notification :
No. SO
1028(E), dated 7-11-1988.
Judicial analysis
Referred in - The above notification was
referred to in Mansarovar Commercial (P.) Ltd. v. Asstt. CIT [1994]
215 ITR 715 (Sikkim), with the following observations :
“. . . . As
regards cause of action, relief in all the petitions is for quashing and
setting aside Notification No. S.O. 1028, dated November 7, 1988. This
notification having been superseded by section 26 of the Finance Act, 1989,
this relief is clearly not available . . . .” (p. 727)
Note : Section 26 of the Finance
Act, 1989, referred to above, reads as follows :
“26. Application
of the Income-tax Act to the State of Sikkim.—Notwithstanding anything
contained in the notification of the Government of India in the Ministry of Home
Affairs, No. S.O. 1028(E), dated the 7th November, 1988, and the notification
of the Government of India in the Ministry of Finance (Department of Revenue),
No. S.O. 148(E), dated the 23rd February, 1989, in so far as it relates to the
commencement of the Income-tax Act, 1961 (43 of 1961), in the State of Sikkim,
the provisions of the Income-tax Act, 1961, shall come into force in the State
of Sikkim with effect from the previous year relevant to the assessment year
commencing on the 1st day of April, 1990, and any law corresponding to the
Income-tax Act, 1961, which, immediately before such commencement, was in force
in the State of Sikkim shall be deemed never to have ceased to have effect in
relation to the previous year beginning with the 1st day of April, 1988, and
ending with the 31st day of March, 1989, and shall continue to be in force for
the purposes of the levy, assessment and collection of income-tax or for the
purpose of imposing any penalty or for any other purpose whatsoever connected
with, or incidental to, any of the purposes aforesaid, under such law.”
3. Effective
dates for the applicability of the Income-tax Act, Wealth-tax
Act and Gift-tax Act in the State of Sikkim
In pursuance of paragraph (2) of the notification of the Government of India
in the Ministry of Home Affairs No. SO 1028(E), dated the 7th November, 1988,
the Central Government hereby appoints,—
(a) the 1st day of April, 1989 as the date on
which the Income-tax Act, 1961 shall come into force in the State of Sikkim in
relation to the previous year relevant to the assessment year commencing on the
1 st day of April, 1989;
(b) the 1st day of April, 1990 as the date on
which the Wealth-tax Act, 1957 shall come into force in the State of Sikkim in
respect of the net wealth of an assessee, residing in the State of Sikkim, on
the valuation date being 31 st March, 1990;
(c) the 1 st day of April, 1990 as the date on
which the Gift-tax Act, 1958 shall come into force in the State of Sikkim in
respect of the gifts made by a person, residing in the State of Sikkim, on or
after the 1st day of April, 1989.
Notification :
No. SO
148(E), dated 23-2-1989.
4. Extension
of Income-tax Act to the Continental Shelf of India
In exercise of the powers conferred by sub-clause (a) of clause
(6) of section 6, and clause (a) of sub-section (7) of section 7 of
the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other
Maritime Zones Act, 1976 (80 of 1976), the Central Government hereby extends
the Income-tax Act, 1961 (43 of 1961), to the continental shelf of India and
the exclusive economic zone of India with effect from the 1st day of April,
1983, subject to the restriction and modification that the said Act shall apply
only in respect of income derived by every person from all or any of the
following activities namely:—
(a) the prospecting for or extraction or
production of mineral oils in the continental shelf of India or the exclusive
economic zone of India;
(b) the provision of any services or facilities or
supply of any ship, aircraft, machinery or plant (whether by way of sale or
hire) in connection with any activities referred to in clause (a);
(c) the rendering of services as an employee of
any person engaged in any of the activities referred to in clause (a) or
clause (b).
Explanation : For the purpose of this notification, “mineral oil” includes “petroleum
and natural gas”.
Notification :
No. GSR
304(E), dated 31-3-1983.
JUDICIAL ANALYSIS
Explained in - In McDermott International Inc. v. Deputy
CIT [1994] 49 ITD 590 (Delhi-Trib.) it was observed that the CBDT
Notification No. 5147 [SO 304(E), dated 31-3-1983] states that it is restricted
to the income derived by every person from all or any of the activities carried
on within the Continental Shelf and Exclusive Economic Zone of India. The
prospecting of or extraction of or production of mineral oil or natural gas in
high seas requires digging of deep sea wells and their construction, followed
by laying of pipelines for drawing of mineral oil or natural gas, and other
engineering construction like platform and many other ancillaries related
thereto. These structures are the basic infrastructure required without which
carrying out of any of three activities described by the notification is impossible.
These construction works form the foundation for enabling the carrying out the
three activities and are directly connected with those activities. There is no
denial that these construction works do not by themselves lead to the
prospecting or extraction or production, but it is also not denied that,
without the existence of these basic structures, none of the three activities
can be carried out. The Government of India, with a view to augmenting its oil
resources, had decided to proceed with the prospecting, extraction and
production of oil from the Bombay High. In this connection, it required the
services, equipment, etc., of persons who are familiar with these activities
and had invited them.
The Government realised that section 5(2) had defined the scope of the
total income of non-residents, but did not include in its fold the various
activities in the Bombay High and the income derived therefrom. This it could
do so by bringing out the notification, and by extending the Act to the
activities in the Bombay High.
Since the Government of India was aware of the processes involved, such
as construction of platforms, oil rigs, laying of pipelines, their
installation, testing, commissioning, followed by any of the three activities and
also of the processes and support that were necessary for carrying out the
three activities, and since the ownership of the activities was vested in the
Government of India, it had clearly spelt out that the notification would cover
the income derived from the three activities and from the service or facilities
provided therein in connection with those three activities. Therefore the
intention being so clear, to hold that the service and facility provided in
connection with the three activities is to cover post-construction works only,
would defeat the very intention. The intention was to engulf into the tax
net the income derived from prospecting, extraction or production of mineral
oils and natural gas and the income derived in the rendering of services or
provision of facilities that include supply of ship, aircraft, machinery or
plant in connection with any of the three activities. There is no warrant
for excluding of the operation of works before the commencement of any of the
three main activities, unless it has been so specifically provided that it
is intended only to include in its purview the works of services and facilities
related to actual prospecting, extraction and production. The notification, as
it stood at the relevant point of time, makes it abundantly clear that it is
not intended to cover the income derived by any person from all or any activity
carried on within the Continental Shelf and the Exclusive Economic Zone, which
does not involve prospecting or extraction or production of mineral oil and
natural gas or rendering of service or provision of any facility in connection
with the three activities. It is clear that the notification covers all or any
activities that involves rendering of any service or provision of any facility
that assisted or aided in the prospecting extraction or production of mineral
oil and natural gas. But for these engineering construction works, it would be
impossible to carry out any of the three activities and, in that case, there is
a direct and close connection between the service and facility provided and the
three main activities.
Explained in - The above notification was explained
in the case of ITO v. S.A. Hareford [1985] 11 ITD 569 (Delhi -
Trib.), in the following words :
“10. The above
notification is self-speaking since, according to this notification, the
Income-tax Act has been extended to the continental shelf of India and the
exclusive economic zone of India, with effect from 1-4-1983. In other words,
the Act did not apply to the continental shelf of India and the exclusive
economic zone of India prior to that date. This notification has been issued
under the enabling provisions of the Central Act, 1976 and vide section
2 of the said enactment, ‘limit’, in relation to the territorial waters, the
continental shelf, etc., has been defined as under :
‘2. In this Act,
‘limit’, in relation to the territorial waters, the continental shelf, the
exclusive economic zone or any other maritime zone of India, means the limit of
such waters, shelf or zone with reference to the mainland of India as well as
the individual or composite group or groups of islands constituting part of the
territory of India.’
According to
section 3 of the said Act, sovereignty of India stands extended as under :
‘(1) The
sovereignty of India extends and has always extended to the territorial waters
of India (hereinafter referred to as the territorial waters) and to the seabed
and subsoil underlying, and the air space over such waters.
(2) The limit of
the territorial waters, is the line every point of which is at a distance of 12
nautical miles from the nearest point of the appropriate base line.
(3)
Notwithstanding anything contained in sub-section (2), the Central Government
may, whenever it considers necessary so to do having regard to International
Law and State Practice, alter by notification in the Official Gazette, the
limit of the territorial waters.
(4) No
notification shall be issued under sub-section (3) unless resolutions approving
the issue of such notification are passed by both Houses of Parliament.’
11. The above
provision of law, read with section 1 makes it clear, that prior to 1-4-1983,
the provision of the Act were not applicable to the continental shelf of India
and the exclusive economic zone of India . . . .” (pp. 576-577)
referred to in - The above notification was referred
to in McDermott International Inc. (No.1) v. Union of India
[1988] 173 ITR 155 (Bom.), with the following observations:
“Under the
Taxation Laws (Extension to Union Territories) Regulation, 1963, which came
into effect from April 1, 1963, section 2(25A) was inserted in the
Income-tax Act, 1961. Under sub-clause (b) of section 2(25A), it
is provided as follows :
‘(25A) ‘India’ shall be deemed to include the
Union Territories of Dadra and Nagar Haveli, Goa, Daman and Diu and
Pondicherry,—
** ** **
(b) as respects any period included in the
previous year, for the purposes of making any assessment for the assessment
year, commencing on the 1st day of April, 1963, or for any subsequent year.’
Therefore, when
it is sought to tax income arising in the previous year relevant to the
assessment year from which the Income-tax Act is made applicable, an express
provision has to be made to cover income accruing in the previous year. In the
absence of such an express provision, income accruing in an accounting year for
which the Income-tax Act was not applicable, cannot be brought to tax simply
because from the relevant assessment year, the Income-tax Act is made
applicable.
There is no such
express provision in the notification of March 31, 1983. The income arising in
the accounting year April 1, 1982, to March 31, 1983, to the petitioner in the
territory beyond 12 nautical miles is not, therefore, subject to the Income-tax
Act, 1961.” (p. 161)
Explained in - The above notification was explained
in Dixylin Field International Drilling Co. v. ITO [1988] 27 ITD
118 (Delhi - Trib.), in the following words :
“In view of the
above notification, we accepted Mr. N.A. Palkhiwala’s argument that the purpose
was limited and the notification was effective from 1-4-1983 and it could not
and was not in the nature of Finance Act and the related provisions of section
4 of the Income-tax Act, 1961.
13. We have taken
the above view because if the said notification is considered as authorising a
view that the C.S. & EEZ could be regarded as a part of India even prior to
1-4-1983, thereby authorising levy of income-tax on income of that previous
year, we must also presume that the notification had retrospective effect, a
presumption which we are not prepared to make in the absence of any legislative
authorisation. This is because it is an accepted principle of jurisprudence
that every statute particularly the one imposing tax liability has prospective
effect unless it is expressly or by necessary implication, made to have
retrospective effect.” (pp. 124-125)
Explained in - The above notification was explained
in CIT v. Ronald William Trikard [1995] 215 ITR 638 (Mad.), in
the following words :
“. . . By virtue
of the notification issued by the Central Government in G.S.R. No. 304(E),
dated March 31, 1983, the Income-tax Act, 1961, is extended to the continental
shelf of India and the exclusive economic zone of India with effect from April
1, 1983, subject to the restriction and modification, that the said Act shall
apply only in respect of income derived by every person from all or any of the
activities mentioned therein. We have already found that by a legal fiction,
the continental shelf and exclusive economic zone became part of India and
taxable territory for the purpose of the Income-tax Act, 1961, only after the
issue of Notification G. S. R. No. 304(E), dated March 31, 1983, with effect
from April 1, 1983, by the Central Government in exercise of the powers
conferred under sections 6(6) and 7(7) of the Act. In other words, so far as
the Income-tax Act is concerned, up to March 31, 1983, the exclusive economic
zone did not form part of the territory of India. Therefore, up to and
including the assessment year 1983-84, any income accruing or arising to or
received by a non-resident in such exclusive economic zone during the
corresponding accounting year was not chargeable to income-tax in relation to
the assessment year 1983-84, because, the exclusive economic zone did not form
part of the territory of India, as no notification under section 7(7) of the
Act has been issued up to March 31, 1983.” (p. 653)
EXPLAINED IN - The
above notification was explained in Micopen S.P.A. Miland v. Dy. CIT [2002]
82 ITD 369 (Mum.) with the observation that the language used in the
Notification is quite plain and clear and it only speaks about the services or
facilities rendered for prospecting for or extraction or production of mineral
oil. The notification does not make a distinction between the contractor and
the sub-contractor.