The assessee, a Sikkim based non-Sikkimese filed his first return of income for the assessment year 1997-98. Upon assessment, it was discovered that the he had a net profit of Rs. 5,73,832/- during the assessment year 1996-97 relevant to the previous year 1995-96. Since no return was filed for the assessment year 1996-97 despite capitalising the aforesaid profit, proceedings u/s. 147 of the Act were initiated against him for the said assessment year. Accordingly, on 26th May, 1998, the notice was issued u/s. 148 of the Act. Further, the Revenue found out that as on 31st March, 1996, the assessee had brought forward closing capital of Rs. 1,73,90,397/- including that aforesaid net profit during the assessment year 1996-97. The same remained unexplained as the return of income for the assessment year 1995-96 was also not furnished by the assessee. Hence, another notice u/s. 148 was issued to the assessee for the assessment for the assessment year 1995-96, dated 30th March, 2000. The assessee did not comply with the aforesaid notices u/s. 148 of the Act and thus, a letter dated 19th January, 2001, came to be issued to the assessee as a reminder to file his returns to income for the assessment years clearly mentioning that failure to do so would lead to an ex parte assessment u/s. 144 of the Act. Thereafter, upon filing of written submissions by the assessee, notice u/s. 142(1) of the Act dated 25th June, 2001, was issued for the assessment year 1995-96 along with final show cause fixing compliance for hearing dated 9th July, 2001. The assessee sought an adjournment which was not granted and the assessments were completed ex parte u/s. 144 of the Act raising a tax demand of Rs. 2,45,87,625/- and Rs. 6,32,972/- for the assessment year 1995-96 and 1996-97, respectively by order dated 9th July, 2001 and 28th March, 2001, respectively. Further, penalty proceedings u/s. 271(1)(c) of the Act were also initiated for both assessment years.
The assessee approached the writ court challenging the aforesaid notices issued u/s. 148, dated 26th May, 1998 and 30th March, 2000 and the subsequent assessment orders dated 9th July, 2001 and 28th March, 2001. The issue raised before the writ court was whether the income of the non-Sikkimese residing in Sikkim was taxable u/s. of the Act. The said question was referred to a Committee for its consideration and the writ petition was disposed of as withdrawn with the direction to maintain status quo in the matter till the declaration of final decision by the Committee, by order dated July 21, 2005. In the meanwhile, section 10(26AAA) of the Act was inserted by section 4 of the Finance Act, 2008, whereby certain income accruing or arising to a Sikkimese individual was exempted from tax. Thereafter the Central Board of Direct Taxes (for short “the Board”) issued Instruction No.8, dated 26th July, 2008 in respect of tax liability of the income accruing or arising to a non- Sikkimese individual residing in Sikkim. In the light of the aforesaid amendment and instruction, the writ court by order dated 15th July, 2009, reiterated.
