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2015 (4) TMI 270 - HC - Income TaxEntitlement to grant of exemption under section 10(26) - scope and ambit of the words residing in the opening portion of section 10(26) - Whether a member of a Scheduled Tribe as defined in Clause 25 of Article 366 of the Constitution of India is entitled to grant of exemption under section 10(26) only when he is working in any area specified in Part I or Part II of the Table appended to paragraph 20 of the Sixth Schedule to the Constitution or in the States of Arunachal Pradesh, Manipur, Mizoram, Nagaland and Tripura or when he is posted anywhere in the country? - Obtain a certificate of exemption from the Income Tax Authorities in terms of section 197 of the Act and validity of certifaicate Held that - A member of a Scheduled Tribe would be entitled to the benefit of Section 10(26) only when he is posted in the specified areas. Once he is posted outside the specified areas then he ceases to reside in the specified area and the income does not accrue to him in the specified area. 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 a reasonably long length of time. However, whether a person is actually residing or not is a question of fact to be decided on the facts of each case. Any member of a Scheduled Tribe declared to be so under Article 342 of the Constitution, even though he does not belong to the specified area, would be entitled to benefit of Section 10(26) when posted to at a station in the specified area and residing therewith in connection with his employment. A member of Scheduled Tribe originally hailing from the specified area would not be entitled to the benefit of exemption under Section 10(26) when he is residing outside the specified areas. A member of Scheduled Tribe is bound to obtain a certificate of exemption in terms of Section 197. - Validity of the certificate will be for one assessment year only. - Decided in favour of assessee.
Issues Involved:
1. Entitlement to exemption under Section 10(26) for Scheduled Tribe members posted outside specified areas. 2. Scope and ambit of the term "residing" in Section 10(26). 3. Eligibility for Section 10(26) benefits for Scheduled Tribe members not originally from specified areas but posted there. 4. Entitlement to Section 10(26) benefits for Scheduled Tribe members originally from specified areas but posted outside. 5. Requirement for obtaining a certificate of exemption from Income Tax Authorities under Section 197. 6. Validity period of the exemption certificate. Detailed Analysis: 1. Entitlement to Exemption under Section 10(26) for Scheduled Tribe Members Posted Outside Specified Areas: The court held that a member of a Scheduled Tribe is entitled to the benefit of Section 10(26) only when residing in the specified areas. If a member is posted outside these areas, they cease to reside in the specified area, and the income does not accrue to them in the specified area. The essential conditions for exemption are: being a member of a Scheduled Tribe as defined in Article 366(25), residing in the specified areas, and the income must accrue from a source within the specified area or by way of dividend or interest. 2. Scope and Ambit of the Term "Residing" in Section 10(26): The term "residing" should be given its natural meaning, implying that a person has an abode and is living in a particular area for work and livelihood for a reasonably long length of time. The court emphasized that whether a person is actually residing or not is a question of fact to be decided on the facts of each case. Fleeting or temporary residence does not qualify for the exemption. 3. Eligibility for Section 10(26) Benefits for Scheduled Tribe Members Not Originally from Specified Areas but Posted There: The court ruled in favor of the assessees, stating that any member of a Scheduled Tribe declared under Article 342, even if not originally from the specified areas, would be entitled to the benefits of Section 10(26) when posted and residing in the specified areas in connection with their employment. The intention of the Parliament was not to limit the benefit to members of the Scheduled Tribe belonging to these areas but to those residing and working in these areas. 4. Entitlement to Section 10(26) Benefits for Scheduled Tribe Members Originally from Specified Areas but Posted Outside: A member of a Scheduled Tribe originally from the specified areas is not entitled to the benefit of exemption under Section 10(26) when residing outside these areas. The benefit is limited to those residing and earning income within the specified areas. 5. Requirement for Obtaining a Certificate of Exemption from Income Tax Authorities under Section 197: The court concluded that members of Scheduled Tribes must obtain a certificate of exemption under Section 197 of the Income Tax Act. This certificate is necessary to determine whether the person is entitled to the exemption, verifying their status as a Scheduled Tribe member and the nature of their income. The assessing officer must decide on these issues based on the facts of each case. 6. Validity Period of the Exemption Certificate: The validity of the exemption certificate is for one assessment year only. The court explained that various factual issues might arise each year, and the assessing officer must examine the circumstances annually to determine if the income qualifies for exemption under Section 10(26). Conclusion: The court provided a detailed interpretation of Section 10(26) and related provisions, clarifying the conditions under which members of Scheduled Tribes can claim income tax exemptions. The judgment emphasized the importance of residing in specified areas and obtaining the necessary exemption certificates annually.
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