Section 10(26) exemption denied where Scheduled Tribe status and territorial accrual requirements were not established.

Section 10(26) exemption for income of a Scheduled Tribe member applies only where the claimant satisfies the statutory conditions of Scheduled Tribe status, residence in the specified tribal area, and accrual of income from that area. The court examined the place of accrual and territorial requirements and noted that the income was treated as arising at North Lakhimpur, which was not shown to fall within the specified area. Orders granting exemption without verifying these jurisdictional and statutory conditions were found erroneous, and the exemption was held unavailable on the facts.

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Issues: Whether the exemption under Section 10(26) of the Income-tax Act, 1961 was available in respect of income accruing from compensation interest where the claimant was not shown to be a member of a Scheduled Tribe entitled to the benefit for income accruing in the specified tribal areas.

Analysis: Section 10(26) grants exemption only to a member of a Scheduled Tribe as defined in Article 366(25) of the Constitution who resides in the specified areas and whose income accrues or arises from those areas or from dividend or interest on securities. The entitlement had to be tested with reference to the place of accrual of income and the statutory territorial conditions. On the facts, the consignment was booked from Jharkhand to North Lakhimpur and the income in question was treated as accruing at North Lakhimpur, which was not shown to fall within the specified areas for the purpose of the exemption. The orders granting exemption without examining these jurisdictional and statutory requirements were found to suffer from error.

Conclusion: The exemption under Section 10(26) was held not to be available on the facts, and the impugned orders were interfered with.

Final Conclusion: The challenge succeeded and the orders granting tax exemption were set aside in exercise of supervisory jurisdiction.

Ratio Decidendi: Exemption under Section 10(26) of the Income-tax Act, 1961 is available only when the statutory conditions as to Scheduled Tribe status, residence in the specified area, and accrual of income from that area are satisfied.

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