# INCOME TAX OFFICER, SHILLONG AND ANR. ETC v. N. TAKIM ROY RYMBAI ETC. ETC

- **Citation:** [1976] 3 S.C.R. 413
- **Court:** Supreme Court of India
- **Decided:** 1976-02-17
- **Case number:** Civil Appeals Nos. 579 to 594 E of 1975
- **Bench:** R. S. Sarkaria, S. Murtaza Fazal Ali
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/income-tax-officer-shillong-and-anr-etc-v-n-takim-roy-rymbai-etc-etc-6749
- **Pages:** 10

## Headnote

Income-tax Act, 1961-S. 10(26) (a)-Scope of-Assessee, a person belonging to Scheduled Tribe residing in the specified area-Income accruing or arising in a non-scheduled area-If entitled to exemption.
Section 10(26) (a), Income-tax Act, 1961 provides that a person is entitled
to exemption from income-tax if ( 1) he is a member of a Scheduled Tribe as
defined· in Art. 366(25) of the Constitution, (2) he is residing in any area
specified in Part A or Part B of the Table appended to paragraph 20 of the
Sixth Schedule to the Constitution, or the State or Union Territories mentioned
ins. 10(26)(a), and .(3) the income in respect of which.exemption is claimed
is income which accrues or arises to him from any source in the area, State
or Union Territories mentioned in the section.
The assessee belonged to the Jaintia Scheduled Tribe and was a permanent
resident of the United Khasi-Jaintia Hills Autonoinous . District referred to in
para 20 of the Sixth Schedule to the Constitution. He was employed in the
Secretariat of the Assam Government, and his place of work was within the
Shillong Municipality, and was not a part of the area described in para 20
of the Sixth Schedule to the Constitution. The Income-tax Officer held that
the income of the . assessee from his salary arose in the non-scheduled area
and was not covered by the tax exemption provided under s.
10(26)(a). In
a writ petition under Art. 226 the assessee challenged the validity of s. 10(26)(a)
on the 2round that the classification of meinbers of Scheduled Tribes into
those ha~ing income from a source within the s~cified areas and those having
income from tt source outside the areas was arbitrary. The High Court struck
it down as violative of Art. 14 on the ground that the exemption clause which
was enacted for the benefit of the Scheduled Tribes would be frustrated if the
income of such person/was made subject to tax merely because the source of
that income was outside that area.
Allowing the_ appeals of the Dep~rtment,
HEW :
The High Court was in error in holding that the classification
B
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contemplated by s. 10(26)(a), Income Tax Act, 1961, was artificial and wa•
F
not based on any intelligible differentia. [422D]
l(a). A taxation law, like any other law, has to pass the equality test
of Art. 14. but given the legislative competence, the legislature has ample
freedom to select and classify persons, incomes and objects which it ·would or
would not tax. The mere fact that a tax falls more heavily on sorrie _in the
same catel!:ory, is not by itself a ground to render the law invalid. It is
only when, within the rarui;e of its selection, the law operates unequally and
cannot be iustified on the basis of a valid classification, that there would be a
G
violation of Art. 14. [420B-D]
East India Tobacco Co. v. State of Andhra Pradesh, [1963) 1 S.C.R. 404·
Vivan loseph Ferriera
v.
Municipal Council of Greater Bombay, [1972] i
S.C.C. 70 and Jaipur Hosiery Mills v. State of Rajastlian, [1970) 2 S.C.C. 27,
followed.
(b) Classification for the purpose of taxation or for exempting from tax
with reference to the source of the income is integral to the fundamental scheme
of the Incpm~ Tax Act. Tbe classification made by sub-cl. (a) for the purpose
H
of ex:mpbon lS not l_lnrea~ ?r unk?own ~ut conforms. to a well recognised pattern
and ts ~ased on
tn!elhg1ble dt!J'erenlta. The obiect of this
differentiation
between income accnung or received from a source in the specified areas and
12-522SCl/76
I
414
SUPREME COURT REPORTS
[1976] 3 S.C.R.
A
the income accruin_g or received from a source outside such areas is to benefit
not only the members of the Scheduled Tribes residing in the specified areas
but also to benefit such areas economically.
[420F; 421E-F]
B
c
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(c) If it is held that a rnember of the Scheduled Tribe residing in a
specified area was entitled to the exemption irrespective of whether the source
of his income lay within or outside such area, it may lead to mischievous result

## Text

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'
413
INCOME TAX OFFICER, SHILLONG AND ANR. ETC.
A
v.
N. TAKIM ROY RYMBAI ETC. ETC.
February 17, 1976
[R. S. SARKARIA AND S. MURTAZA FAZAL ALI, JJ.]
Income-tax Act, 1961-S. 10(26) (a)-Scope of-Assessee, a person belonging to Scheduled Tribe residing in the specified area-Income accruing or arising in a non-scheduled area-If entitled to exemption.
Section 10(26) (a), Income-tax Act, 1961 provides that a person is entitled
to exemption from income-tax if ( 1) he is a member of a Scheduled Tribe as
defined· in Art. 366(25) of the Constitution, (2) he is residing in any area
specified in Part A or Part B of the Table appended to paragraph 20 of the
Sixth Schedule to the Constitution, or the State or Union Territories mentioned
ins. 10(26)(a), and .(3) the income in respect of which.exemption is claimed
is income which accrues or arises to him from any source in the area, State
or Union Territories mentioned in the section.
The assessee belonged to the Jaintia Scheduled Tribe and was a permanent
resident of the United Khasi-Jaintia Hills Autonoinous . District referred to in
para 20 of the Sixth Schedule to the Constitution. He was employed in the
Secretariat of the Assam Government, and his place of work was within the
Shillong Municipality, and was not a part of the area described in para 20
of the Sixth Schedule to the Constitution. The Income-tax Officer held that
the income of the . assessee from his salary arose in the non-scheduled area
and was not covered by the tax exemption provided under s.
10(26)(a). In
a writ petition under Art. 226 the assessee challenged the validity of s. 10(26)(a)
on the 2round that the classification of meinbers of Scheduled Tribes into
those ha~ing income from a source within the s~cified areas and those having
income from tt source outside the areas was arbitrary. The High Court struck
it down as violative of Art. 14 on the ground that the exemption clause which
was enacted for the benefit of the Scheduled Tribes would be frustrated if the
income of such person/was made subject to tax merely because the source of
that income was outside that area.
Allowing the_ appeals of the Dep~rtment,
HEW :
The High Court was in error in holding that the classification
B
c
D
E
contemplated by s. 10(26)(a), Income Tax Act, 1961, was artificial and wa•
F
not based on any intelligible differentia. [422D]
l(a). A taxation law, like any other law, has to pass the equality test
of Art. 14. but given the legislative competence, the legislature has ample
freedom to select and classify persons, incomes and objects which it ·would or
would not tax. The mere fact that a tax falls more heavily on sorrie _in the
same catel!:ory, is not by itself a ground to render the law invalid. It is
only when, within the rarui;e of its selection, the law operates unequally and
cannot be iustified on the basis of a valid classification, that there would be a
G
violation of Art. 14. [420B-D]
East India Tobacco Co. v. State of Andhra Pradesh, [1963) 1 S.C.R. 404·
Vivan loseph Ferriera
v.
Municipal Council of Greater Bombay, [1972] i
S.C.C. 70 and Jaipur Hosiery Mills v. State of Rajastlian, [1970) 2 S.C.C. 27,
followed.
(b) Classification for the purpose of taxation or for exempting from tax
with reference to the source of the income is integral to the fundamental scheme
of the Incpm~ Tax Act. Tbe classification made by sub-cl. (a) for the purpose
H
of ex:mpbon lS not l_lnrea~ ?r unk?own ~ut conforms. to a well recognised pattern
and ts ~ased on
tn!elhg1ble dt!J'erenlta. The obiect of this
differentiation
between income accnung or received from a source in the specified areas and
12-522SCl/76
I
414
SUPREME COURT REPORTS
[1976] 3 S.C.R.
A
the income accruin_g or received from a source outside such areas is to benefit
not only the members of the Scheduled Tribes residing in the specified areas
but also to benefit such areas economically.
[420F; 421E-F]
B
c
D
(c) If it is held that a rnember of the Scheduled Tribe residing in a
specified area was entitled to the exemption irrespective of whether the source
of his income lay within or outside such area, it may lead to mischievous results.
A non-Tribal assessee in India n1ay enter into a sham partnership with a member
of the Scheduled Tribe residing in the specified area and ostensibly give him
a substantial share of the profits of the business but really give him only
a nominal amou11t and thus evade tax. Also a tribal re_siOing in the scheduled
areas. earning: large profits from business loc3:ted outside the specified areas
would be totally exempt while a non.tribal whose source of income is a share
in the same business would be taxed and thus the exemption is likely to
operate unequally between individuals similarly situated. [421G·H]
(2) The decision in S. K. Datta, I11con1e Tax Officer and Or:r. v. Lawrence
SinRh lnRty, [19681 2 S.C.R. 165, on which the High Court had relied is no
authority for the proposition that the exemption granted under s. 10(26) to the
members of the Scheduled Tribes residing in the specified area, as a class,
could not be validly subjected to the condition contained in sub·cl. (a) of
that provision.
The sentence that "the exemption in question was not given
to individuals either on the basis of their social status or economic resources;
it was· given to a class" occurring in that case could not be torn out of the
context and used for spelling out a proposition different from what was actually
decided in that case. [419H; F]
(3) The State is the best jud~e to formulate its policies and to decide
bow far and for what period and in what situations, the members of a
particular Scheduled Tribe residing in a particular Tribal area should be afforded
the protection and benefit in the matter of promotion of their educational and
economic inter~sts embodied in Art. 46 of the Constitution. [ 422C]
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 579 to 594
E
of 1975.
Appeals by special leave from the judgment and order dated the
11 October 1974 of the High Court at Gauhati in Civil Rule Nos. 252,
293, 305, 640 and 730 of 1976, and 24, 405, 507 & 510/71, 515 to
517 of 1972 and 165-166 of 1975.
N. M. Lahiri with D. N. Mukherjee, for the appellants. (in all the
F
appeals)
G
N. M. Lahiri with D. N. Mukherjee, for respondents in CAs 57')
& 583-586/75.
S. Chaudhuri for respondents in CAs 588 to 590/75
D. N. Mukherjee & R. P. Agarwala, for respondents
in CAs
587-590
N. M. Lahiri with D. N. Mukherjee & R. P. Agarwala for the respondents in CAs 591-592/75
N. M. Lahiri with D. N. Mukherjee for respondents
in CAs
593-594 of 1975
Ex parte, for respondents in CAs 580-582, 593-594 of 1975.
H
The Judgment of the Court was delivered by
SARKARIA, J.
These appeals directed against a judgment of the
High Court of Judicature at Gauhati raise a common question in regard
'
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•
I.T.0, v. N.T.R. RYMBAI (Sarkaria, J.)
415
to the interpretation and constitutional validity of sub-clause (a) of
A
clause (26) of s. 10 of the Income-tax Act, 1961 (for short, called
the 1961 Act). The appeals will be disposed by a common judgment.
R. Takin Roy Rymbai (respondent in Civil Appeal 579 of 1975)
belongs to Jaintia Scheduled Tribe and is a permanent resident of
United Khasi-J aintia Hills Autonomous District under the Sixth Sch~-
dule of the Constituti•;m within the State of Meghalaya.
He joined
B
service under the Government of Assam in 1941. In the previous
year relevant to the assessment year 1970-71, he
was
posted
at
Shillong as Secretary to the Government of Assam.
The Assam Secretariat building and office, which .constitute his place of work was within
that quarter of the town which is included in Shillong Municipality
and is not a part of the area described in para 20 of the Sixth Sche'
dule.
·C
The Income-tax Officer took the view that the assessec's income
from salary in the relevant year arose in the non-scheduled area and as
such, is not covered by the exemption provided under s. 10(26) (a) of
the Act.
The assessee claimed that his income from salary had accrued or
arisen within the specified area and, as such, he was entitled to the
exemption. In the alternative, he contended that this was not a valid
condition for denying him the benefit of the exemption under s. 10
(26). The Income-tax Officer over-ruled these contentions and completed the assessment subjecting the assessee's salary to tax.
The assessee thereupon filed a petition under Article 226 of rhe
Constitution in the High Court for impugning the assessment orders
and the notices of demand for the assessment year 1970-1971, on the
ground that sub-clause (a) of s. 10(26) of the Act is invalid and
ultra vires Article 14 of the Constitution.
The writ petition was heard by a Bench of three learned Judges
of the High Court, which held that this exemption clause has been
enacted for the benefit of the Scheduled Tribes residing in specified
areas.
The object of this exemption clause, according to the High
Court, will be frustrated and made nugatory if the income Of a member
of the Scheduled Tribe residing in the specified areas, is made subject to tax merely because the source of such an income is outside
that area. In its view, the classification between members of the
Scheduled Tribes having income which accrues or arises to them from
any source from the Tribal area or the specified territories on the
one hand, and the members of Scheduled Tribe having income which
accrues or arises to them from any source outside the Tribal areas or
specified territories on the other, is not based on any intelligible differentia; the classification is artificial and is not based on any substantial distinction having a rational nexus to the purpose of the law. On
the contrary, the condition contained in sub-clause (a) would defeat
the .vi:ry object ~f the exemption clause ins. 10 (26). For this enunciat10n, the High Court has sought support from
this
Court's
o~servations in S. K. Dutta, Income-tax Officer and ors. v. Lawrence
Smgh lngty(l).
- (I) (1968] 2 S.C.R. 165.
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416
SUPREME COURT REPORTS
(1976] 3 S.C.R.
On the above reasoning, the High Court has struck down
the
aforesaid sub-clause (a) as violative of Article 14 of the Constitution,
allowed the writ petition and quashed the impugned notices and the
orders of assessment.
The Department has now come in appeal before us after obtaining
special leave under Article 136 of the Constitution.
The provisions of s. 10 of the 1961 Act are in the nature
of
exemptions.
The various clauses of this section indicate the incomes
l<hich are to be excluded from computation of the total income of
a person under this Act.
For a proper perspective, it will be useful
to have a look at the historical background of this provision.
The .Indian Income-tax Act, 1922 did not contain any provision
specifically exempting members of the Scheduled Tribes from the
levy of income-tax. It was the Finance Act 1955 that first incorporated in the Income-tax Act, 1922 provisions for exemption of lhe
Tribal people of the ea&ern region from payment Qf the tax. These
provisions relating to such exemptions were further
amended
and
recast by s. 3 of the Finance Act 1958 as follows:
"S. 4(3) XXL Any income of a member of a Scheduled
Tribe defined in clause (25) of Article 366 of the Constitution, residing in any area specified in Part A or Part B of
the Table appended to paragraph 20 of the Sixth Schedule
to the Constitution or in the Union Territories of Manipur
and Tripura, provided that such member is not in service of
Government."
The 1961 Act then re-enacted this clause as under:
"10 (26) In the case \Jf a member of a Scheduled Tribe
as defined in clause (25) of Article 366 of the Constitution,
residing in any area specified in · Part A or Part B of the
Table appended to paragraph 20 of the Sixth Schedule to
the Constitution or in the Union Territories of Manipur and
Tripura, who is not in the service of Government.
any income which accrues or arises to him.
(a) from any source in the area or Union Territories
aforesaid, or
(b) by way of dividend or interest on securities."
The State of Nagaland (Adaptation of Laws on Union Subjects)
Order 1965 added with effect from the 1st December
1963,
the
State of Nagaland also, to the areas, the Tribal people of which could
claim this exemption.
The validity of the exclusion of the Government servants from
the exemption given under s. 10(26), as it stood before the amendment of 1970, came up for consideration before this Court in S.
K.
Datta, Income-tax Officer and ors. v. Lawrence Singh lngty (supra).
It was held that the classification of Tribals into Government servanlS
.t
•
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{
I.T.O. v. N.T.R. RYMBA! (Stirkaria, 1.)
and others for purposes of this exemption ·was· violative of Article
A
14 of the Constitution and, as such, invalid. ,
·
Thereafter, Parliament passed the Taxation Laws (Amendment)
Act 42 of 1970 whereby the words "who is not in the service of the
Gove=ent" appearing in s. 10(26), were deleted.
The
North
Eastern Areas (Reorganization) . (Adaptation of Laws
on Union
Subjects), Order 1974 amended this provision further . with
effect
B
from January 25, 1972 so that it now reads as follows:
"(26) in the case of a .member of a Scheduled Tribe
· as defined in clause (25) of Article 366 of the Constitution,·
· residing in any area supecified in Part. A or Part B of . the
Table appended ·to paragraph 20 of: the· Sixth Schedule to
the Constitution (or in the State of Nagaland) Manipur and
c
Tripura or in the Union Territories of. Arunachal Pradesh
.and Mizoram or in the areas covered by Notification No.
TAD/R/35/50/109, .dated the 23rd February 1951, issued
by the Governor of Assam under the. · provisions to subparagraph (3) of the said paragraph 20 (as it stood immediately before. the co=encement of the North Eastern Areas
(Reorganization) Act 1971 (81 9f 1971). any income
D
which accrues or. arises to him,
(a)
from any source in the (area,. State or
Union
territories) aforesaid, or
. (b) by way of dividend or interest, on securities".
.
/
An analysis of this provision shows that in order to entitle a
t
person to the exemption, three conditions must co-exist :
E
•
•
(i) He should be a member of a Scheduled Tribe as defined
in Clause (25) of Article 366 of the Constitution;
(ii) He should be residing' in any area specified in Part A or
Part B of the Table appended to paragraph 20 of the
Sixth Schedule to the Constitution; or the State or Union
F
Territories mentioned in this provision;
(iii) The income in respect ··oCwhich ·exemption is claimed
. must be an income which accrues or. arises to him-
( a) from any source .in the area, State or Union territories mentioned in the provision or
(b) by way of dividend or interest, on securities" .. ·
Article 366(25) of the Cons!it_ution provides :
"Scheduled Tribes" means such tribes or tribal rommunities or parts of or groups within such tribes or tribal
co=unities as are deemed under article 342 to be Sche- .
G.
duled. Tribes for the purposes of this Constitution."
K
· Article 342 empowers the President with respect to any State or
Union Terrifory, and where it is a State, after consultation with the
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SUPREME COURT REPORTS
[1976) 3 S.C.ll.
Governor thereof, by public notification, to specify Tribes or Tribal
communities or parts of or groups within tribes of tribal communities
which shall for the purpose of this Constitution be
deemed to
be
Scheduled Tribes, as the case may be.
Clause (2) of this Article
empowers the Parliament to exercise the some power by enacting a
law.
The respondent belongs to J aintia Scheduled Tribe which is one
of the Scheduled Tribes notified under Art. 342(1). The first condition for applicability of s. 10(26) was thus indubitably satisfied.
Part II of the Table appended to paragraph 20 of
the
Sixth
Schedule of the Constitution lnter alia specifies the United
KhasiJaintia Hills District as one of the Tribal Areas.
According to the
averments in the writ petition, the respondent is a permanent resident
of the United Khasi-Jaintia Hills autonomous District.
This allegation has not been denied by the other side.
Indeed, in the petition
for special leave to appeal filed by the appellant the fact that he is
a resident of a Tribal area specified in Paragraph 20 of the
Sixth
Schednle to the Constitution, is admitted.
The first two conditions necessary for claiming exemption under
s. 10(26) existed in the present case.
Whether on the facts of the
case, the third condition embodied in sub-clause (a) was satisfied or
not, is a question which still remains to be determined.
The High
Court has advisedly left it open. The controversy has thus narrowed down into the legal issue : whether the classification made by
sub-clause (a) for the purpose of the exemption under s. 10(26)
between the income of a member of a Scheduled Tribe accruing or
arising from any source in. the area, State or Union Territories specitietl in the aforesaid Clause (26), and the income from a source outside such area., State or Union Territories is constitutionally valiti?
In answering this question in the negative, the High Court has
propounded the proposition that the object of clause (26) of s.
1~
i·s to grant a blanket exemption to members of Scehduled Tribes as a
class residing in the specified 11reas, and that the condition contained
ill sub-clauso (a) is destructive of that object. In propounding this
proposition, the learned Judges seem to have relied on certain observations of this Court in Lawrence Singh lngty's case (supra).
Mr. Lahiri appearing for the respondent,
also,
reiterates thee
reasoning of the High Court that the exemption was given to \he
Tribal people as a class, and not on the basis of their economic re:iourccs oc sources of income. In this connection Counsel has cited a few
sentences froo1 this Court's judgment in Lawrenct Singh lngty's cd,re
(snpra).
With due respect to the learned Judges pf the High Court, we areulallble to accept this reasoning. The matter now in controversy was
not even obliq_uely In lssiie before th!$ Court in Lawrence SinBh I/filly's
cac. Therein, the only question for decision 'I/as, whether the excl~n ·
cif the Gomnment servants from the exrmptions given In s. 4( 3) (:il:KI)
Q( t1lle Indian lncome-tt.x Act, 1922 and lJtcc !>11 ms. 10 (26). llf.~
l~Qlle-taJ Act 1961, ·~ vtolativo of Artlde 14 of t'be Colstituti<lit.
•
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•
I.T.O. v. N.T.R. RYMBAI (Sarkaria, J.)
419
Altho~gh. sub-clause .Ca) was very much there, its validity was not,
A
even mdtrectly questioned. The contention of the Revenue, therein,
was that the exemption from income-tax was given to members
of
certain S~heduled Tribes, due to their economic and social
backwardness; that it was not possible to consider Government servants
~s socially. and economically backward and hence the exemption was
justly demed to the assessee, who was a Government servant having
income from salary.
It was further urged by the Revenue that once
B
a Tribal becomes a Government servant, he is lifted out of his social
environment and assimmilated into forward sections of society
and
therefore he needs no more any crutch to lean on.
These arguments were found to be irrelevant and unsustainable.
In that context, the Court observed :
"The exemption in question was not given to individuals
C
either on the basis of their social status or economic resources.
lt was given to a class.
Hence individuals as individuals do not come into the picture.
We fail to see in what manner the social status
and
economic resources of a government servant can be diJ!erent
from that of another holding a similar position in a corporation or that of a successful medical practitioner, lawyer architect, etc. To over-paint the picture of a government servant as the embodiment of all power and prestige
would
sound ironical. Today his position in the society to put at
the highest is no higher than that of others who in other
walks of life have the same income. For the purpose of
valid classification what is required is not some imaginary
difference but a reasonable and substantial distinction having
regard to the purpose of the law."
The sentences which have been underlined are the sheet-anchor of
the argulllllnli advanced by Mr. Lahiri. In our opinion, they cannot
D
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be torn o~t of the context and used for spelling out a proposition
di«erent from what was actually decided in that case.
The ratio of
that decision is that within the members of the Scheduled Tribes residF
ing in spedfied areas selected by the State for the purpose of exemplion, the miniclassification between individuals who were government
1!etvants deriving income from salary and those who were not such
government servants, wa:s 11ot based on intelligible differentia.
Since
there was no rational basis whatever for this differentiation, it wiS
hold that within the range of the selection, the government servants
had been unfairly discriminated against lawyers, medical practitionen,
G
private servants, businessmen, etc.
whose income waa derived from
non-government sources, and that the exclusion of government serva.ts from the exemption under s. 10(26) was bad and unconstitutinllal.
This vice Qf diSlcrimination .!rom which &. 10(26) was then
sdering, was removed when the Antending Act 42 of 1970 exerd!Cd
the obnoxious limb of the provision.
·
'I1ae dC'f.ision in Lawrew:t Singll lnaty i& thus no authority for l]a¢
H
pt.,sitlon th!it tho exemption arankl! under s, ~() (26). to the mem·
beta ctf the Scheduled Tribe& resldinJ 10 th~ ~peciied arets, as a class.,
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420
SUPREME COURT REPORTS
[1976] 3 S.C.R.
could not be validly subjected to the condition contained in subclause (a) of the provision.
\Vbile it is true that a,taxation law, cannot claim immunity from
the equaiity clause in Article 14 of the Constitution, and has to pass
like any other law, the equality test of that Article, it must be remembered that the State has, in view of the intrinsic complexity of fiscal
adjustments of diverse elements, a considerably wide discretion in the
matter of classification for taxation purposes. Given legislative competence, the legislature has ample freedom to select and classify persons, districts, goods, properties, incomes and objects which it would
tax, and which it would not tax. So long as the classification made
within this wide and flexib!e range by a taxing statute does not transgress the fundamental principles underlying the doctrine of equality, it
is not vulnerable on the ground . of discrimination merely because it
taxes or exempts from tax some incomes or objects and not others.
Nor the mere fact that tax falls more heavily on some in the same
category, is by itself a ground to render the law invalid. It is only
when within the range of its selection,
the law operates unequally
and cannot be justified on the basis of a valid classification, that there
would be a violation of Article 14.
(See East India Tobacco Co. v.
State. of Andhra Pradesh(') Vivian Joseph Ferriera v. Municipal Council of Greater Bombay;(') Jaipur Hosiery Mills v. State
of Rajasthan. (>)
·
· ·
The validity or otherwise of the classification of income envisaged
by sub-clause (a), with reference to the source of income, for the
purpose of the exemption under s. 10(26) is to be judged in the light
of the a.hove principles .•.
Classification for purposes of taxation or for exempting . from tax
with reference to the source of the income is integral to the fundamental scheme of the Income-tax Act. Indeed, the entire warp and woof
of the 1961 Act has been woven on this pattern.
Section 2(4S) defines total income to mean "the total amount of
income referre\I .to in s. 5 computed i.n the manner laid down in this
.-Act" .
. · . Section ·5 makes the. chargeability of income dependent upon \he
),%ali~y of, afC~_uaJ or .recejp.t Of \he .iJ?come. It defines the . extent of
l.<!tal IIlCOII).e with reference to the· residence of the . assessee, and thus
. .!P,a1\es .,~qy Jni;i4e11c~ ?L ta~afio~ geP,Xndept, ppon. whetlier the .ass~sse.e
'1s a resident ln India, It 1s \he ~estdence m India which entails 11ab1liiy. to tax: ... A hon-resident is. nodiable in India to get his iricome
a~s.es~ed, !:mt if any part of his income ac.crues or arises 'whether' directlv or indirectly th,rough any bμsiness connection in India or froni 'any
property'fo India, the same would be assessable. Afi ordin~zy t~sident
a§ defil)ed,in s. 6,. ~oes,mit at.tract additional .chargeability b11t ~ing
"not ordinarily ·resident" .entitles a [ierson to parti,al .¢xelnptlo11. ftom
(I} [1963] I S.C.~. 404.
.. .. -
. , ;
(2) (1972! 1 S.C.C. 1o.
(3) {1970j 2 s.c.c: 27 ..
,~ .. '
: . .' . !
,_'
. ' _'·•-
·.
_, -.
t
I
•
I
I.T.O. v. N.T.R. RYMBAI (Sarkaria, !.)
421
chargeahility as a resident, to which exemption a person who is "ordiA
narily resident" is not entitled-(see Kanga and Palkhivala Vol. !-
Income-tax 6th Edn. p. 162).
The 1961 Act abounds in instances whereby certain sources of
income have been exempted from tax, while others are assessable.
Section 10 of the !961 Act, itself contains no less than.30 instances of such classification for the purpose of granting exemptions· from
B
tax. Thi" is so, in spite of the fact that another source of the same
person's income may be assessable. A person may have agricultural
inoome apart from salary or business income.
The income from the
former source is not to be included in the total income of the assessee
(vide s. 10(1) ); while income from the latter source is not so
exempted. Again, interest realised from Scheduled banks on deposits
upto a certain limit is exempt, while interest realised from nonc
banking concerns is assessable.
Sections SOA to SOU further provide exemptions_ from tax to
incomes derived from certain sources.
A business man's income is
assessable, hut if it is from a newly established industrial undertaking
or priorit:r industry, .to that extent, the same is exempted. Section
SOH pro1iil:les for deductions in cases of new industrial undertakings employing displaced persons etc.
It is not necessary to multiply such instances. Suffice it to say
that classrncation of sources of income is integral to the basic scheme
of the· 1961 Act. It is nobody's case that the entire scheme of the
Act is irrational and violative of Article 14 of the Constitution.
Such
an. extravagant contention has not been canvassed before ns.
Thus
the classifi.;ation made by the aforesaid sul>-clause (a) for .purposes of
exemption is not unreal or unknown. It conforms to a well recognised
pattern.
l t is based on intelligible differentia.
The object of this
· dillerentiation between income accruing or received from a source in
·the specified areas and the income accruing or received from a source
outside such areas is to benefit not only the "!embers of the Scheduled
Tribes residing in the specified areas but also to benefit economically
such areas: If the contention advanced by Mr. Lahid _is accepted, and
a ·nfomber of the Scheduled Tribe residing in a specified area is held
entitled to the exemption irrespective of whether the source of · his
income lies within or outside. such areas, it will lead to potentially mischlevious n'sults and evasion of tax by assessees who do not belong to
the Scheduled Tribes. All that a non-tribal assessee in India need do
would be tc· enter into a sham partnership with a member of the Scheduled Tribe ·residing in the specified area and ostensibly give him under
the partnership a substantial share of the profits of the business while,
in reality, pay the trjbal only a nominal amount. Moreover, but for
the cm1diti0'1 provided in sub-clause (a), the exemption granted under
s. 10(26) il• likely to operate unequally and cause inequality of tr~at
ment between individuals similarly situated. A Tribal residing in the
Scheduled areas earning large income from business located outside
the sNCified areas,
would be totally exempt while the non-tribal
whose source of income is a share in the same business would be taxed
although with reference to tlie source of the income, both were similarly situated.
D
E
F
G
H
A
B
c
422
SUPREME COURT REPORTS
(1976] 3 S.C.R.
We are not persuaded to accept Mr. Lahiri's argument that the
making of the exemption conditional upon the classification envisaged
by sub-clause (a) would deter the members of the Scheduled Tribes
from joining the mainstream of national life, or, would be inconsistent
with the Directive Principle embodied in Article 46. This Article contains a Directive Principle of State Policy for promotion of educational
and economic interests of the weaker sections of the people, particularly the Scheduled Castes and Scheduled Tribes. Its primary objective
is to provide protection to the "weaker sections" of society. Members
of the Scheduled Tribes who . are enterprising and resourceful enough
to move out of the seclusion of the tribal areas and successfully compete with their Indian brethern outside those areas and rise to remunerative positions in service or business, cease to be "weaker sections".
In any case, the State is the best judge to formulate its policies and to
decide how far and for what period and in what situations, the members of a particular Scheduled Tribe residing in a particular Tribal
area should be afforded the protection and benefit in the matter of
promotion of their educational and economic interests.
In view of what has been said above, we are of opinion that the
learned Judges of the High Court were in error in holding that the
D
classification contemplated by sub-clause (a) of cl. (26) of s. 10 ot
the 1961 Act is artificial and is not based on any intelligible differentia.
We would therefore, reverse the judgment of the High Court and
hold that the aforesaid sub-clause (a) is constitutionally valid.
E
F
Before we part with this judgment, we may note that Mr. Lahiri
made a detailed survey of the history of the Tribal areas of Assam and
Scheduled Tribes residing in those 'autonomous' areas. Counsel also
argued that virtually the source of the salary received by the as~ee
Jay in the Tribal areas forming the State of Meghalaya, notwithstanding the fact that on account of the exigencies of service, the -Office of
the assessee was located in those Wards ot Shillong which are not a
part of the tribal areas. In our opinion, it is not necessary to gQ into
this. question which, as already noticed, still remains open and undetermined.
In the result we allow these appeals, but in the circumstances of
the case, leave the parties to pay and bear their own costs.
P.B.R.
Appeals al/awed.
j