I am a member of a Scheduled Tribe from a specified area but I am posted outside it. Is my salary still exempt under s.10(26)?
No. The Delhi High Court, applying the Supreme Court in N. Takin Roy Rymbai, held that s.10(26) requires both that the individual is a member of a Scheduled Tribe residing in a specified area and that the income accrues or arises from a source in that area. Government servants of the North-Eastern States posted outside the specified areas and earning salary there are not exempt, and the object of the clause is to benefit the area as well as the tribe.
Decided by the High Court (Leila Seth J (as printed in the report)) on 1988-12-05, reported as ILR 1988 DELHI 522B; [1989] 177 ITR 24 (Delhi), as shown in the report header. It bears on section 10(26), section 10(26A) of the Income Tax Act 1961, in Capital Gains Exemptions, Salary & Perquisites and How Tax Law Is Read matters.
This is the everyday form of the s.10(26) dispute — a tribal officer or employee transferred out of the specified area who continues to claim exemption on salary, and the equally common variant of a tribal partner or contractor whose business is located outside. The Court's route matters more than the result: it rejected the reading of 'source' as the place the money comes from and adopted the Supreme Court's reasoning that a source-neutral exemption would let non-tribals route income through sham partnerships with tribal residents and would treat similarly placed people unequally. The second useful point is procedural: the petitioners tried to establish a factual nexus between their salaries and the specified areas through the Consolidated Fund, and the Court held it could not examine that in a writ petition without pleadings. That fact-specific argument has never been foreclosed — it was simply not open on the record. A member of a Scheduled Tribe with genuine income from a source inside the specified area retains the exemption for that income and should compute source by source.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
Read aloud by your device. Press again to stop.
The petitioners were members of Scheduled Tribes of the North-Eastern States and Union Territories — Nagaland, Manipur, Tripura, Arunachal Pradesh and Mizoram — serving as government servants but posted outside the specified areas. They claimed exemption under s.10(26)(a) on their salaries on the footing that they were permanent residents of the specified areas, that 'residing in' should be read as 'belonging to', and that the real source of a government servant's salary lies where the money comes from and not where the work is performed. They relied on a Board letter of 22 June 1968 said to give 'residing' the widest meaning and challenged a later circular of 11 April 1969 restricting the meaning of source as illegal and void. For the Union Territories it was argued that payments out of the Consolidated Fund of India, on the basis of funds allocated to Arunachal Pradesh and Mizoram, had their immediate source in those territories.
The rule was discharged with no order as to costs. Exemption under s.10(26) is not available to a member of a Scheduled Tribe on income whose source lies outside the specified area, and it is not open to contend that the object of the exemption is to benefit only the tribe and not the area (paras 26 and 29).
The Court applied the Supreme Court's decision in N. Takin Roy Rymbai. That decision had rejected the identical argument that a member of a Scheduled Tribe residing in a specified area is exempt irrespective of where the source of income lies, reasoning that such a reading would lead to mischievous results and evasion — a non-tribal need only enter into a sham partnership with a tribal resident and ostensibly give him a substantial share while paying him a nominal amount — and would operate unequally between a tribal earning large income from a business located outside the specified areas and a non-tribal sharing in the same business (para 24). It had also rejected the argument that conditioning the exemption on the classification in sub-clause (a) would deter tribal members from joining the mainstream or offend Article 46, observing that members who move out of the tribal areas and compete successfully cease to be a weaker section, and that the State is the best judge of its policy (para 25). Since the Supreme Court had held that the object of sub-clause (a) is to benefit both the members of the Scheduled Tribes residing in the specified areas and the areas economically, the contrary submission was not open (paras 22 and 26). The alternative factual case, that the source of the salary lay in the specified areas through the Consolidated Fund, could not be examined because no particulars had been pleaded and a factual controversy is outside the scope of a petition under Article 226 (paras 26 to 28).
Consequently, it is not open to Mr. Salve to contend that the object of the exemption is to benefit only the Tribe and not the area.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppNo. The Delhi High Court, applying the Supreme Court in N. Takin Roy Rymbai, held that s.10(26) requires both that the individual is a member of a Scheduled Tribe residing in a specified area and that the income accrues or arises from a source in that area. Government servants of the North-Eastern States posted outside the specified areas and earning salary there are not exempt, and the object of the clause is to benefit the area as well as the tribe. This was decided by the High Court (Leila Seth J (as printed in the report)) and bears on section 10(26), section 10(26A) of the Income Tax Act 1961. It is reported as ILR 1988 DELHI 522B; [1989] 177 ITR 24 (Delhi), as shown in the report header. This is the everyday form of the s.10(26) dispute — a tribal officer or employee transferred out of the specified area who continues to claim exemption on salary, and the equally common variant of a tribal partner or contractor whose business is located outside. The Court's route matters more than the result: it rejected the reading of 'source' as the place the money comes from and adopted the Supreme Court's reasoning that a source-neutral exemption would let non-tribals route income through sham partnerships with tribal residents and would treat similarly placed people unequally. The second useful point is procedural: the petitioners tried to establish a factual nexus between their salaries and the specified areas through the Consolidated Fund, and the Court held it could not examine that in a writ petition without pleadings. That fact-specific argument has never been foreclosed — it was simply not open on the record. A member of a Scheduled Tribe with genuine income from a source inside the specified area retains the exemption for that income and should compute source by source. If it applies to you, the first step is this: Test each stream of income twice — residence in a specified area, and a source of that income located in the specified area — and abandon the claim on any stream that fails the second test.
The petitioners were members of Scheduled Tribes of the North-Eastern States and Union Territories — Nagaland, Manipur, Tripura, Arunachal Pradesh and Mizoram — serving as government servants but posted outside the specified areas. They claimed exemption under s.10(26)(a) on their salaries on the footing that they were permanent residents of the specified areas, that 'residing in' should be read as 'belonging to', and that the real source of a government servant's salary lies where the money comes from and not where the work is performed. They relied on a Board letter of 22 June 1968 said to give 'residing' the widest meaning and challenged a later circular of 11 April 1969 restricting the meaning of source as illegal and void. For the Union Territories it was argued that payments out of the Consolidated Fund of India, on the basis of funds allocated to Arunachal Pradesh and Mizoram, had their immediate source in those territories. The matter was decided on 1988-12-05 by the High Court (Leila Seth J (as printed in the report)). On those facts the High Court held as follows. The rule was discharged with no order as to costs. Exemption under s.10(26) is not available to a member of a Scheduled Tribe on income whose source lies outside the specified area, and it is not open to contend that the object of the exemption is to benefit only the tribe and not the area (paras 26 and 29).
The Court applied the Supreme Court's decision in N. Takin Roy Rymbai. That decision had rejected the identical argument that a member of a Scheduled Tribe residing in a specified area is exempt irrespective of where the source of income lies, reasoning that such a reading would lead to mischievous results and evasion — a non-tribal need only enter into a sham partnership with a tribal resident and ostensibly give him a substantial share while paying him a nominal amount — and would operate unequally between a tribal earning large income from a business located outside the specified areas and a non-tribal sharing in the same business (para 24). It had also rejected the argument that conditioning the exemption on the classification in sub-clause (a) would deter tribal members from joining the mainstream or offend Article 46, observing that members who move out of the tribal areas and compete successfully cease to be a weaker section, and that the State is the best judge of its policy (para 25). Since the Supreme Court had held that the object of sub-clause (a) is to benefit both the members of the Scheduled Tribes residing in the specified areas and the areas economically, the contrary submission was not open (paras 22 and 26). The alternative factual case, that the source of the salary lay in the specified areas through the Consolidated Fund, could not be examined because no particulars had been pleaded and a factual controversy is outside the scope of a petition under Article 226 (paras 26 to 28). In the words reproduced by the source cited on this page: "Consequently, it is not open to Mr. Salve to contend that the object of the exemption is to benefit only the Tribe and not the area." The decision followed or applied ITO, Shillong v. N. Takin Roy Rymbai [1976] 103 ITR 82 (SC) — applied and extensively quoted (paras 22, 24 and 25).
It was decided by the High Court on 1988-12-05 and is reported as ILR 1988 DELHI 522B; [1989] 177 ITR 24 (Delhi), as shown in the report header. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 10(26), section 10(26A), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The rule was discharged with no order as to costs. Exemption under s.10(26) is not available to a member of a Scheduled Tribe on income whose source lies outside the specified area, and it is not open to contend that the object of the exemption is to benefit only the tribe and not the area (paras 26 and 29). It arises in Capital Gains Exemptions, Salary & Perquisites and How Tax Law Is Read matters, on section 10(26), section 10(26A) of the Income Tax Act 1961, and was decided by Leila Seth J (as printed in the report). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Do not argue that 'source' means the place from which payment is made; that argument was rejected, and the answers in Rhodesia Metals and Lady Kanchanbai were held not to carry it. If the nexus with the specified area is genuinely factual, raise it in the assessment with evidence and pleadings, not in a writ petition — that is where these petitioners failed. For income partly from inside and partly from outside the specified area, apportion by source rather than claiming the whole. Keep s.10(26) apart from s.10(26AAA), which is the Sikkim clause and now governed by Association of Old Settlers of Sikkim (SC, 13 January 2023).
Searched for later treatment; none was found. That is not the same as a source affirming it. Three probes were run and none returned any later decision citing this judgment. A citedby search on the indiankanoon docid returns nothing; a case-name search located a second copy of the same judgment at /doc/1402809/ (the judgment is a Delhi High Court decision of Leila Seth J, 5 December 1988, reported [1989] 177 ITR 24 (Delhi) and ILR 1988 Delhi 522, not a Gauhati decision as the subject matter might suggest); and a combined citedby and report-citation probe on that second copy also returned nothing. So there is no traceable judicial treatment of the holding either way, and in particular nothing applying it and nothing overruling or doubting it. No pending Supreme Court challenge was found. A practitioner relying on this decision on whether the s.10(26) exemption reaches salary earned outside the specified area should treat it as an uncited single-judge authority and check the current statutory text of s.10(26) and s.10(26AAA) independently, because the citator offers no support for it. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The report as printed opens 'JUDGMENT / Leila Seth, J.' and names no other judge, but the operative paragraphs use 'we' and 'it appears to us', so the Bench may have had more than one member and the report may be incomplete on that point — the bench field records only what is printed. The citations ILR 1988 DELHI 522B and [1989] 177 ITR 24 (Delhi) are taken from the report header on indiankanoon and were not independently checked. The report carries several evident transcription errors, including 'assesses' for assessees and a duplicated clause in the extract from N. Takin Roy Rymbai at para 24, which I have not reproduced. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The rule was discharged with no order as to costs. Exemption under s.10(26) is not available to a member of a Scheduled Tribe on income whose source lies outside the specified area, and it is not open to contend that the object of the exemption is to benefit only the tribe and not the area (paras 26 and 29).
TaxSphere, “J. Lalhmingliana v Union of India”, https://taxnotice.vittsphere.com/caselaw/case/j-lalhmingliana-10-26-scheduled-tribe-salary-earned-outside-specified-area/ (validity last checked 2026-09-08)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
