Association of Old Settlers of Sikkim and Ors v. Union of India & Anr. (2023)

Introduction 

This case challenged Section 10(26AAA) of the Income Tax Act, 1961, which gives income tax exemption to “Sikkimese” individuals. The petitioners, including the Association of Old Settlers of Sikkim, argued that the definition of “Sikkimese” unfairly excluded Indians who settled in Sikkim before its 1975 merger with India. It also excluded Sikkimese women who married non-Sikkimese men after 1st April 2008. They claimed these exclusions violated the right to equality under Article 14 of the Constitution of India, 1950 (COI).  

Facts 

• Sikkim was an independent kingdom until 26th April 1975, when it officially merged with India and became its 22nd state through the 36th Constitutional Amendment. Before this merger, several Indian nationals (Old Indian Settlers) had migrated to and permanently settled in Sikkim for trade, business, and government service.  
  • These settlers, despite being residents of Sikkim for decades, did not renounce their Indian citizenship and hence were not listed in the Sikkim Subjects Register of 1961, which was maintained by the monarchy (Chogyal) to define local Sikkimese identity. 
• After Sikkim’s merger, a 1975 citizenship order granted Indian citizenship to those listed as "Sikkim Subjects."  
• Many Indian-origin families were excluded, despite being permanent residents. Later, the Finance Act of 2008 introduced Section 10(26AAA) in the Income Tax Act, which exempted “Sikkimese” individuals from income tax if they (or their immediate male relatives) were listed in the Sikkim Subjects Register or were naturalized under the 1990 and 1991 Government of India orders. 
• This definition excluded about 500 families of Old Indian Settlers, who had been residents prior to 1975 but weren’t listed in the register due to retention of Indian citizenship. Additionally, the proviso to Section 10(26AAA) denied tax exemption to a Sikkimese woman who married a non-Sikkimese man after 1st April, 2008, whereas no such restriction existed for Sikkimese men marrying non-Sikkimese women.  
• The petitioners argued that both these provisions were discriminatory, arbitrary, and violated Articles 14 (equality), 15 (no gender discrimination), and 21 (dignity and liberty) of the Constitution. 

Court’s Observations  

• The Supreme Court carefully examined the historical, legal, and constitutional developments surrounding the status of residents of Sikkim before and after the 1975 merger.  
• It noted that Section 10(26AAA), as framed, gave tax exemption to 95% of Sikkim’s population but unfairly excluded a small minority (about 1%—the Old Indian Settlers) solely because their names weren’t in a register that required renunciation of Indian citizenship—something they had no obligation to do, as Indian citizens. 
• The Court stated that the object of Section 10(26AAA) was to provide tax exemption to genuine residents of Sikkim—not just those with paperwork in a specific register. It said the definition of “Sikkimese” was too narrow, lacked any intelligible differentia, and failed the twin test of classification under Article 14: 
  • It didn’t fairly distinguish between groups (as both were residents), and 
  • It had no rational connection to the law’s purpose (benefiting Sikkim residents). 
• Further, the proviso excluding Sikkimese women who married non-Sikkimese men after April 1, 2008, was declared blatantly discriminatory. The Court strongly condemned this gender-based exclusion, especially because a Sikkimese man marrying a non-Sikkimese woman did not face the same disqualification.  
  • This created an unjust double standard based purely on gender and marital status, violating the principles of gender equality, autonomy, and dignity, protected under Articles 14, 15, and 21. 
• The Court also cited its own precedents, including D.S. Nakara v. Union of India and Shayara Bano v. Union of India, to reinforce that arbitrary and irrational classifications must be struck down, even if made by the legislature. Ultimately, the Court held: 
• The definition of “Sikkimese” must include all Indian citizens who permanently settled in Sikkim before 26.04.1975, regardless of whether their names are in the 1961 register. 
• The proviso excluding Sikkimese women who marry outside the group was unconstitutional and must be struck down. 

Conclusion

The Supreme Court ruled that all Indians who permanently settled in Sikkim before its 1975 merger should be included in the tax exemption, even if their names weren’t in the old register. It also struck down the part of the law that denied benefits to Sikkimese women who married non-Sikkimese men after 2008, calling it unconstitutional. This judgment ensures equal treatment for all long-time residents of Sikkim and upholds gender equality.