Leila Seth, J.
(1) The question in issue in this case is whether the petitioners, who are members of Schedule Tribes are entitled to the benefits of exemption under section 10(26)(a) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act of 1961'), even when they are working outside the specified scheduled areas
(2) The petitioners are admittedly government servants and members of Scheduled Tribes of the North-Eastern States. They are persons who draw salaries etc. from the Government of India. State Governments or Union Territories of the scheduled area States, namely, Nagaland, Manipur. Tripura, Arunachal Pradesh arid Mizoram and are posted outside the specified scheduled areas. However, it is claimed that they are permanent residents of the said areas.
(3) Mr. Harish Salve, learned counsel for the petitioners has submitted that since the petitioners are permanent residents of the specified scheduled areas, they should be entitled to the exemption under section 10(26)(a) of the Act of 1961 even when they are physically working outside the said areas. He further contended that the words 'residing in' should be interpreted as 'belonging to'the said areas and 'income which accrues or arises' from any source in the areas, should be given the widest possible meaning.
(4) In order to appreciate the contentions, it is necessary ' to examine the provisions of the Act, certain decisions of the Courts and some correspondence of the Income-tax authorities.
(5) The relevant provision in the Income-tax Act dealing with 'incomes not included in total income' is contained in section 10 of the Act of 1961, and is as follows :
'SEC. 10.-In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-
(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 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 Nagaland, Manipur and 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 proviso to sub-paragraph (3) of the said paragraph 20 (as it stood immediately before the commencement of the North-Eastern Areas (Reorganisation) Act, 1971 (18 of 1971), any income which accrues or arises to him,-
(A)from any source in the areas, States or Union Territories aforesaid, or
(B)by way of dividend or interest on securities.'
(6) The limited point in issue is what is the meaning of the expression 'any income which accrues or arises' to a member of a Scheduled Tribe residing in any areas specified 'from any source' in the said areas. States or Union Territories.
(7) Since the Supreme Court and the Gauhati High Court have dealt with some aspects of this matter, we shall refer to them.
(8) In S. K. Dutta, Income-tax Officer. Salary-cum-S.I.B. Circle. Assam and others v. Lawarance Singh Ingty, : [1968]68ITR272(SC) , (1). The Supreme Court considered the question whether exclusion of Government servants from the exemption given under section 4(?)(xxi) of the Income-tax Act. 1922 and under section 10(26) of the Act of 1961 was vocative of Article 14 of the Constitution of India. The two provisions were similar and section 10(26) of the Act of 1961 as it stood at the relevant time was as follows :
'IN the case of a member of a Scheduled Tribe as defined in clause (25) of Article 360 of the Constitution, residing in any area specified in Part A or Part B of the Table appended io 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.'
(9) The Supreme Court observed that Government servants alone had been excluded from the benefit of the exemption given under the above quoted provision. It held that taxation laws had to pass the test of Article 14. It observed that the State did not have to tax everything in order to tax something and it is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably. But since the exemption had been given on the basis of persons being members of a particular tribe, some of the members of that Tribe could not be excluded unless they belonged to a well defined class for the purpose of income-tax. The court came to the conclusion that there could be no distinction between income earned by a Government servant and that earned by a person serving in a company or under a private individual' or professional income. Consequently, it struck down the severable clause 'who is not in the service of Government'. Subsequently, these words were retrospectively deleted from section 10(26) of the Act of 1961.
(10) This decision of the Supreme Court was given on 7th November, 1967. On 6th May. 1968 a let er was issued by the Under Secretary, Central Board of Direct Taxes to the Director of Accounts. Cabinet Secretariat to the following effect :
'THE Board consider that if a Government servant belonging to the schedule tribe as defined in clause- (25) of the Article 366 of the Constitution resides in any area specified in Part A or Part B of the Sixth Schedule to the Constitution during the accounting period relevant to the assessment year involved and satisfied all the conditions laid down in Section 10(26) of the I.T. Act, 1961, exemption from payment of tax should be allowed to him. This also disposes of your letter No. Dish. Ba/4446- 4447 dated 11th March, 1968.'
(11) Thereafter on 22nd June, 1968, the Secretary Central Board of Direct Taxes wrote a letter to the Commissioner of Income-tax, Assam, Shillong. This letter was as follows -
'SUB-