Territorial nexus for section 10(26) salary exemption controls where salary income is sourced and requires fresh verification.

Section 10(26) exemption for a Scheduled Tribe assessee depends on three conditions: membership of a Scheduled Tribe, residence in the specified area, and income accruing or arising from a source situated in that area. The territorial nexus between the salary income and the notified area is essential, and the employer's head office location is not by itself decisive; salary ordinarily accrues where services are rendered. Here, Scheduled Tribe status and residence in Meghalaya were shown, but the employer certificate did not clearly establish year-round work-from-home arrangements or the employment terms needed to determine the source and situs of salary income with certainty. The claim was remanded for fresh examination.

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Issues: Whether exemption under section 10(26) of the Income-tax Act, 1961 was available on salary income claimed by a Scheduled Tribe assessee residing in a specified area while working from home, and whether the claim could be finally adjudicated on the material placed on record.

Analysis: Exemption under section 10(26) is available only when the assessee is a member of a Scheduled Tribe, resides in the specified area, and the income accrues or arises from a source situated in that area. The territorial nexus between the income and the notified area is essential. Salary income ordinarily accrues where the services are rendered, but the place of the employer's head office is not by itself decisive. In the present case, the assessee established Scheduled Tribe status and residence in Meghalaya, but the employer's certificate did not clearly show that work from home continued for the entire year or set out the employment terms needed to determine the source and situs of accrual of salary income with certainty.

Conclusion: The exemption claim was not finally determined on merits and the matter was remanded to the Assessing Officer for fresh examination of the claim under section 10(26) of the Income-tax Act, 1961.

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