2016 (11) TMI 541 - HC - Income Tax

Tax exemption under Sub-section (26) of Section 10 - whether by virtue of being residents of Jonai and salary being earned as faculty members of the Murkong Selek College, Jonai, the income of the petitioners is traceable to the defined area, under the notification of 23.2.1951? - Held that - From the communication of 27.4.2004 (Annexure-2) of the ITO, North Lakhimpur, it can be seen that the officer was influenced by the fact that Tribal Belt areas of Assam is not mentioned in Section 10(26) of the I.T. Act and on that basis, direction was issued to the college Principal to deduct tax at source from the salary of the petitioners. But the relevant question is whether the concerned area of the petitioners is covered under the notification of 23.2.1951. According to us, this factual aspect needs to be verified by the Tax Officer, without being influenced in any manner by the declaration of the Tribal Belt area by the Assam Governor, through the subsequent notification of 13.3.1951. Having concluded thus, we direct the jurisdictional Income Tax Officer (ITO) to re-visit the petitioners claim for tax exemption, under Section 10(26) of the I.T. Act, by identifying the area where they reside and wherefrom they earn their salary income, in the context of the areas specified 12.in the notification dated 23.2.1951.

Summary

Issues:
Exemption of salary earnings from tax under Section 10(26) of the Income Tax Act, 1961 for faculty members belonging to Scheduled Tribe residing in specified areas.

Analysis:
1. The petitioners, faculty members of a college in Assam, sought tax exemption under Section 10(26) of the Income Tax Act as Scheduled Tribe members residing in a specified area. The Income Tax Officer (ITO) denied the plea, stating the petitioners did not meet the residency and income source criteria outlined in the Act.

2. The Full Bench previously interpreted Section 10(26) to exclude income accruing to Scheduled Tribe members in specific areas. The Act specifies areas eligible for exemption, including those covered by a 1951 notification issued by the Governor of Assam, which ceased to be tribal areas under the Sixth Schedule due to the notification.

3. The petitioners argued that their area falls within the 1951 notification, while the respondents emphasized the need for both residency in the specified area and income deriving from it for tax exemption eligibility. The respondents contended that a later Tribal Belt declaration was irrelevant for tax exemption purposes.

4. The Court highlighted the importance of verifying if the petitioners' area aligns with the 1951 notification for tax exemption consideration. The ITO's decision, influenced by the Tribal Belt declaration, was deemed premature. The Court directed the ITO to reassess the petitioners' tax exemption claim based on the specified area in the 1951 notification.

5. Consequently, the Court allowed the writ petition, instructing the ITO to reevaluate the petitioners' tax exemption eligibility by examining their residency and income source in relation to the areas specified in the 1951 notification. The petitioners were granted the opportunity to file individual representations for the reassessment, maintaining the interim protection until the ITO's final decision.