Hauthang Kilong
The issue of exemption of Income
Tax for Tribals is a matter of interest and significance, among the members of
Scheduled Tribes in general, and particularly for those hailing from the
North-Eastern States of India. The subject has also found echo in both the
Houses of Parliament from time to time. In a question raised by Ms Mabel
Rachello in Rajya Sabha, the then Minister of State for Finance, Shri S. S.
Palanimanickam replied that the exemption under Section 10(26) of the Income
Tax Act, 1961 is provided both in the interest of the Scheduled Tribes and also
in the interest of the areas which the tribes inhabit. It was further
emphasized that the government was moving towards a moderate tax regime and
gradual phasing out of various exemptions and deductions existing in the Income
Tax Act and no proposal for extending such exemption to tribals of the rest of
the country was under consideration1. For some time, there was lack
of clarity regarding the applicability of the aforesaid exemption provided by
the Act. This seems to have changed, at least for the moment.
Ambit
of Section 10(26)
:
Section 10(26) of the Income Tax
Act, 1961 provides exemption from Income Tax to income accruing or arising to a
member of a Scheduled Tribe residing in the state of Arunachal Pradesh,
Manipur, Mizoram, Nagaland, Meghalaya & Tripura; North Cachar Hills
District, Karbi Anglong District and the Bodoland Territorial Area District of
Assam2; areas included in Balipora Frontier Tract, Sadiya Frontier
Tract (Abor hills and Mishmi Hills districts) and Tirap Frontier Tract of
Arunachal Pradesh & Assam as specified in relevant Notification 3 ;
and Ladakh region of the state of Jammu & Kashmir. For purpose of tax
exemption, such income has to accrue or arise from any source in the said areas
or States, or by way of dividend or interest on securities.
Chronology
of Landmark Judgments
:
The issue of tax exemption for tribals has thrown up
interesting instances of interpretation of law since inception.
·
In
the case of S. K. Dutta, Income Tax Officer & Ors vs Lawrence Singh
Ingty, the issue was whether in a Scheduled Area, a member of a Scheduled
Tribe who is a government servant, should be considered eligible for exemption
from Income Tax. The respondent was a member of a Scheduled Tribe residing in
Scheduled Area, but, as he was a government servant, he was assessed to Income
Tax. He challenged the validity of the assessments and the High Court quashed
the assessments holding that the extent the exemption provisions in the Income
Tax Act, excluded government servants from the benefit of the exemption given
there under, were discriminatory and void. The matter came before the Supreme
Court. The Supreme Court held that taking into consideration the reasons which
persuaded the legislature to grant the exemption in question, it had no doubt
that the legislature would have granted that exemption even if it was aware of
the fact that it was beyond its competence to exclude the government servants
from the exemption in question4.
· In
Dr Curzon G. Momin vs I.S. Phukan Additional ITO, Guwahati High Court
held that if the assessees, being a member of a Scheduled Tribe has any income
which accrues or arises in the area specified in section 10(26), that income
will not be chargeable to income tax. But, it also held that if any income
accrues or arises outside the area, he cannot take advantage of this provision5.
· The
Gauhati High Court in a writ petition under Art. 226 struck down section 10(26)
as violative of Art. 14 on the ground that the exemption claim which was
enacted for the benefit of Scheduled Tribes would be frustrated if the income
of such person was made subject to tax merely because the source of the income
was outside that area. The writ petition challenged the validity of section 10
(26) on the ground that the classification of members of a Scheduled Tribe into
those having income within the Scheduled Areas and those having income from
source outside the areas was arbitrary. In the case of Income Tax Officer vs
Takim Roy Rymbai, the Supreme Court reversed the earlier judgment of the
Gauhati High Court6.
· In
the case of Income Tax Officer vs Mahari & Sons, the Gauhati High
Court held that the income earned by a Khasi family as a unit would be entitled
to exemption under section 10(26) in the same manner as self earned income of
an individual Khasi7.
· In
the case of Utankamoni Chakma vs Income Tax Officer, the Gauhati High
Court again upheld the view that income of a member of a Scheduled Tribe is
exempt from Income Tax only if such income is earned from specified areas8.
·
In
the case of J. Lalhmingliana And Ors vs Union of India And Ors, Delhi
High Court held that members of a Scheduled Tribe are entitled to benefits of
exemption under section 10(26) of the Income Tax Act, 1961 if they are
permanent resident of the specified Scheduled Areas and are also physically
working in the said areas9.
· In
the case of Commissioner of Income Tax vs Smt. A.M. Marbaniang, the
issue relates to assessee working within cantonment area. The Gauhati High
Court has held that if the income accrues from a source in the areas specified
in Part II of the Table appended to paragraph 20 of the Sixth Schedule, such
assessee is entitled to exemption10.
· In the case of Sing Killing vs Income Tax Officer, the Gauhati High Court held that regardless of the place at which payments in respect of such transactions are received, such income must be deemed to have originated from a Sixth Schedule area, if so, and hence section 10(26) of the Act must be held to be applicable11.
·
In
the case of Neepco Tribal Employees’ Welfare vs Union of India, the
Gauhati High Court held that a person to be qualified for exemption
contemplated by the Income Tax Act has to be essentially a member of Scheduled
Tribe notified under Scheduled Tribes Order to be so for the area(s), must be a
permanent resident thereof, and his income has to accrue from any source
located there12.
· In
the case of Dipti Doley Basumatary vs Union of India (UoI) And Ors, the
Gauhati High Court held that a member of a Scheduled Tribe notified in any
tribal areas as mentioned in the Table to paragraph 20 of the Sixth Schedule
will be entitled to the benefit of exemption under section 10(26) of the Income
Tax Act, 1961 provided – (a) he is residing in any other tribal area as
described in the Table to paragraph 20; (b) the income which accrues to him
must arise from any source in such area; and (c) the tribe to which he belongs
is also recognized as a Scheduled Tribe in the other tribal area where he is
residing in connection with his avocation13.
·
In
the case of Pradip Kumar Taye vs Union of India, the Gauhati High Court
clearly held that nothing prevents the Union of India from granting exemption
under the Income Tax Act in favour of a Scheduled Castes or Scheduled Tribes
the moment they start residing at a place other than the place of their origin.
It further held that this exemption cannot be claimed as a matter of right but
if the language of the Section giving such benefit does not restrict the
benefit to only members of the Scheduled Tribes belonging to a particular state
or states then the benefit would be extended to all members of the Scheduled
Tribes residing in the State14.
·
The
latest of the judicial pronouncements comes from the Tripura High Court. In the
case of Chandra Mohan Sinku vs Union of India, the Tripura High Court
held that a member of a Scheduled Tribe would be entitled to benefit of section
10(26) only when he is posted in specified areas because once he is posted
outside specified areas then he ceases to reside in specified area and income
does not accrue to him in specified area. The Tripura High Court also held that
the scope and ambit of the word ‘residing’ has to be given its natural meaning
that a person has an abode and is living in a particular area for his work and
livelihood for reasonably long length of time, however, whether a person is
actually residing or not is a question of fact to be decided on facts of each
case. It also held that any member of a Scheduled Tribe declared to be so under
article 342 of Constitution, even though he does not belong to a specified
area, would be entitled to benefit of section 10(26) when posted at a station
in specified area and residing therewith in connection with his employment. The
High Court also held that a member of a Scheduled Tribe is bound to obtain a
certificate of exemption in terms of section 197 and validity of certificate
will be for one assessment year only15.
After the decision of the Gauhati
High Court in Pradip Kumar Taye vs Union of India and judgment of
Tripura High Court in Chandra Mohan Sinku vs Union of India, it has
become clear that the income of a member of Scheduled Tribe shall be exempt
from Income Tax if he resides in a specified area. It does not matter if he
resides in a specified area other than the specified area where he originally
belongs. What matters is that the source of the income which accrue or arises
should be from the specified areas.
Further, the Hon’ble Supreme
Court has dismissed the SLP filed by the department following full bench
decision of Gauhati High Court in the case of Pradip Kumar Taye and Others.
Until further development,
members of Scheduled Tribe (ST) who are not originally from an area covered
under section 10(26) but residing and earning income in any area covered under
section 10(26) is also entitled for exemption under section 10(26) of the
Income Tax Act16, apart from those residing in the specified area of
origin.
[The author is an Indian Revenue
Service officer. Views expressed are personal and not of the Department]
***
References :
- Reply of Shri S.S. Palanimanickam, MoS Finance in Rajya Sabha, BSC/BY/GN-267/06.
- Part I or Part II of the Table appended to paragraph 20 of the Sixth Schedule to the Constitution.
- Notification No. TAD/R/35/50/109, dated the 23rd February, 1951, issued by the Governor of Assam.
- S.K. Dutta, Income Tax Officer &..vs Lawrence Singh Ingty [7 November, 1967], 1968 AIR 658 SC.
- Dr. Curzon G. Momin vs I.S. Phukan, 2nd Additional [23 February, 1973], 1973 92 ITR 425 Gauhati.
- Income Tax Officer, Shillong And…vs N. Takim Roy Rymbai [17 February, 1976], 1976 AIR 670 SC.
- Income Tax Officer vs Mahari And Sons [9 June, 1982], 1982 2 ITD 408 Gauhati.
- Utankamoni Chakma vs Income Tax Officer And Ors [2 July, 1988], 1989 175 ITR 280 Gauhati.
- J. Lalhmingliana And Ors. Vs Union of India And Ors [5 December, 1988], ILR 1988 Delhi 522.
- Commissioner of Income Tax vs Smt. A.M. Marbaniang[3 February, 1993],1993 202 ITR 502 Gauhati.
- Sing Killing vs Income Tax Officer [21 March, 2002], LAWS(GAU)-2002-3-33.
- Neepco Tribal Employees’ Welfare…vs Union of India (UoI) And Ors [22 June, 2005], 2007 290 ITR 481 Gauhati.
- Smt. Dipti Doley Basumatary vs Union of India (UoI) And Ors [27 February, 2007], 2007 29 ITR 498 Gauhati.
- Pradip Kumar Taye vs Union of India, 2009 12 TMI 285, Gauhati.
- Chandra Mohan Sinku vs Union of India, 2015 4 TMI 270, Tripura High Court.
- Letter of Income Tax Officer, TDS (Tech), dated 11.02.2015.
