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PETITIONER: INCOME TAX OFFICER, SHILLONG AND ANR. ETC.

       Vs.

RESPONDENT: N. TAKIM ROY RYMBAI ETC. ETC.

DATE OF JUDGMENT17/02/1976

BENCH: SARKARIA, RANJIT SINGH BENCH: SARKARIA, RANJIT SINGH FAZALALI, SYED MURTAZA

CITATION:  1976 AIR  670            1976 SCR  (3) 413  1976 SCC  (1) 916  CITATOR INFO :  R          1988 SC2062  (14)  RF         1989 SC 100  (31)  RF         1990 SC 913  (27)  R          1990 SC1637  (21)

ACT:      Income-tax Act,  1961 S. 10(26)(a) Scope of-Assessee, a person  belonging   to  Scheduled   Tribe  residing  in  the specified area-lncome accruing or arising in a non-scheduled area-If entitled to exemption.

HEADNOTE:      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 of the Table appended to paragraph 20 of the Sixth  Schedule to  the Constitution,  or the  State  or Union- Territories  mentioned in  s. 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 Autonomous  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 8.  10(26) (a)  on the ground that  the  classification  of  members  of  Scheduled Tribes into  those having  income from  a source  within the specified areas  and those  having income  from  the  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

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that income was outside that area.      Allowing the appeals of the Department, ^      HELD: The  High Court  was in error in holding that the classification contemplated by s. 10(26)(a), Income Tax Act, 1961, was  artificial and  was not based on any intelligible differentia. [422D]      1 (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 some  in the  same category, is not 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 Art. 14. [420B-D] "      East India  Tobacco Co.  v. State  of  Andhra  Pradesh, [1963] I  S.C.R. 404;  Vivan Joseph  Ferriera  v.  Municipal Council of  Greater Bombay,  [1972] 1  S.C.C. 70  and Jaipur Hosiery Mills  v. State  of Rajasthan,  [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 Income Tax Act.  The classification  made by  sub-cl. (a)  for  the purpose of  exemption is  not unreal or unknown but conforms to a  well recognised  pattern and  is based on intelligible differentia. The  object  of  this  differentiation  between income accruing  or received  from a source in the specified areas and 12-522SCI/76 414 the income  accruing 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]      (c) If  it is held that a member 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   may  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 amount  and thus  evade tax.  Also a  tribal residing in  the scheduled areas. earning large profits from business  located  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. Income Tax officer and or$. v.  Lawrence Singh Ingty, [1968] 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 contest and used for spelling out  a proposition different from what was actually decided in that case. [419H; F]

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    (3) 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 embodied in Art. 46 of the Constitution. [422C]

JUDGMENT:      CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 579 to 594 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 appeals)      N. M.  Lahiri with  D. N. Mukherjee, for respondents in CAs 579 & 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      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 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-Jaintia  Hills Autonomous District under the  Sixth Schedule  of the  Constitution  within  the State of  Meghalaya. He  joined 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 Schedule. C      The  Income-tax   officer  took   the  view   that  the assessee’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  The Constitution in the High Court for impugning the

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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 very object  of the exemption clause in s. 10 (26). For this enunciation, the  High Court  has sought  support from  this Court’s observations  in S. K. Dutta, Income-tax officer and ors. v. Lawrence Singh Ingty ( 1 ) .      (1) [1968] 2 S.C.R.165. 416      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  which   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 the Tribal people of the eastern region from payment of 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)  XXI.  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 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." J      The 1961 Act then re-enacted this clause as under:           "10 (26)  In the  case of  a member of a Scheduled      Tribe as  deemed in  clause (25)  of Article 366 of the      Constitution, residing  in any area specified in Part A      or Part  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.

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    any income which accrues or arises to him.           (a)  from  any   source  in   the  area  or  Union                Territories aforesaid, or           (b)  by   wag   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  Ingty (supra).  It was held that  the classification  of  Tribals  into  Government servants 417 and others  for purposes  of this exemption was violative of Article 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 Government" 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 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  of the  Table appended  to paragraph 20 of the      Sixth Schedule  to the Constitution (or in the State 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 provisions to sub paragraph (3) of the      said paragraph  20 (as  it stood immediately before the      commencement    of     the    North    Eastern    Areas      (Reorganization) Act  1971 (81  of  1971)  any’  income      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  person to  the exemption,  three  conditions      must  co-exist:  (i)  He  should  be  as  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  of  the  Table      appended to  paragraph 20  of the Sixth Schedule to the      Constitution;  or   the  State   or  Union  Territories      mentioned  in  this  provision;  (iii)  The  income  in      respect of which exemption is claimed must be an income      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 person to the exemption, there conditions must co- exist:           (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

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              paragraph 20  of the  Sixth Schedule  to  the                Constitution;   or   the   State   or   Union                Territories mentioned in this provision;           (iii)The income  in respect  of which 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 Constitution provides:           "Scheduled Tribes"  means such  tribes  or  tribal      communities or parts of or groups within such tribes or      tribal communities  as are  deemed under article 342 to      be  Scheduled   Tribes  for   the  purposes   of   this      Constitution." H      Article 342  empowers the President with respect to any State or  Union Territory,  and where  it is  a State, after consultation with the 418 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 Jaintia 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 inter alia specifies the United Khasi  Jaintia 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 Schedule 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 specified in the aforesaid Clause (26), and the income from a source outside such area, State or Union Territories is constitutionally valid?      In answering  this question  in the  negative, the High Court has  propounded the  proposition that  the  object  of clause (26)  of s.  10 r  is to grant a blanket exemption to members of  Scheduled Tribes  as a  class  residing  in  the specified areas,  and that  the condition  contained in sub- clause (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 Ingty’s case (supra)      Mr.  Lahiri   appearing  for   the  respondent,   also,

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reiterates  the   reasoning  of  the  High  Court  that  the exemption was given to the Tribal people as a class, and not on the  basis of  their economic  resources  or  sources  of income. In this connection Counsel has cited a few sentences from this Court’s judgment in Lawrence Singh Ingty’s case ,, (supra) .      With due  respect to  the learned  Judges of  the  High Court, we  are unable  to accept  this reasoning. The matter now in  controversy was,  not even obliquely in issue before this Court in Lawrence Singh Ingty’s case. Therein, the only question for  decision was,  whether the  exclusion  of  the Government servants  from the  exemptions given  in s.  4(3) (XXI) of  the Indian Income-tax Act, 1922 and later on in s. 10 (26) of the Income-tax Act 1961. was violative of Article 14 of the Constitution 419 Although sub-clause  (a) was  very much  there, its validity was not,  even indirectly  questioned. The contention of the Revenue, therein, was that the exemption from income-tax was given to  members of  certain Scheduled Tribes, due to their economic and  social backwardness;  that it was not possible to consider Government servants as socially and economically backward and  hence the  exemption was  justly denied to the assessee, who  was a  Government servant  having income from salary. It  was further  urged by  the Revenue  that once  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 either  on the basis of their social status      or economic  resources. It  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      different  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 arguments  advanced by  Mr.  Lahiri.  In  our opinion, they cannot be torn out of the context and used for spelling out  a proposition different from what was actually decided in  that case.  The ratio  of that  decision is that within the  members of  the  Scheduled  Tribes  residing  in specified areas  selected by  the State  for the  purpose of exemption, the  mini classification  between individuals who were government  servants deriving  income from  salary  and those who  were not  such government servants, was not based on intelligible  differentia. Since  there was  no  rational whatever for  this differentiation,  it was held that within the range of the selection, the government servants had been unfairly    discriminated     against    lawyers,    medical practitioners, private  servants,  businessmen,  etc.  whose

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income was derived from non-government sources, and that the exclusion of government servants from the exemption under s. 10(26)  was   bad  and   unconstitutional.  This   vice   of discrimination from  which s. 10(26) was then suffering, was removed when  the Amending  Act 42  of  1970  exercised  the obnoxious limb of the provision.      The  decision  in  Lawrence  Singh  Ingty  is  thus  no authority for  the proposition  that the  exemption  granted under s.  10 (26)  to the  members of  the Scheduled  Tribes residing in the specified areas, as a class, 420 could not be validly subjected to the condition contained in subclause (a) of the provision.      While it  is true  that a  taxation law,  cannot  claim immunity from  the equality  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 flexible 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(l) Vivian joseph  Ferriera  v.  Municipal  Council  of  Greater Bombay;(2) Jaipur Hosiery Mills v. State of Rajasthan.(3)      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 above 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(45)  defines total  income to mean "the total amount of  income referred to in s. 5 computed in the manner laid down in this Act".      Section 5  makes the  chargeability of income dependent upon the  locality of  accrual or  receipt of the income. It defines the  extent  total  income  with  reference  to  the residence of  the assessee,  and thus makes the incidence of taxation dependent  upon whether  the assessee is a resident in India.  It  is  the  residence  in  India  which  entails liability to  tax. A  non-resident is not liable in India to get his  income assessed,  but if  any part  of  his  income accrues or arises whether directly or indirectly through any business connection  in India or from any property in India, the same  would  be  assessable.  An  ordinary  resident  as defined in  s. 6,  does not attract additional chargeability but being  "not ordinarily  resident" entitles  a person  to partial exemption from      (1)[1963] I  S.C.R. 404.  (2) [1972]  I S.C.C.  70. (3) [1970] 2 S.C.C. 27.

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421 chargeability as a resident, to which exemption a person who is "ordinarily  resident" is  not  entitled-(see  Kanga  and Palkhivala Vol. I-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  1961 Act,  itself contains  no less than 30  instances of such classification for the purpose of granting exemptions  from tax.  This is  so, in spite of the fact that  another source of the same person’s income may be assessable. A person may have agricultural income 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 non- banking concerns is assessable.      Sections 80A to 80U further provide exemptions from tax to incomes  derived from  certain sources.  A business man’s income is  assessable, but if it is from a newly established industrial undertaking or priority industry, to that extent, the same is exempted. Section 80H provides 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  classification  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  us. Thus the classification made by the aforesaid sub-clause (a) for purposes  of exemption  is not  unreal  or  unknown.  It conforms to  a well  recognised  pattern.  It  is  based  on intelligible differentia. The object of this differentiation 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 members of the  Scheduled Tribes residing in the specified areas but also to  benefit economically  such areas. If the contention advanced by  Mr. Lahiri  is accepted  and a  member  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 mischievous  results 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  to 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  tribal  only  a nominal amount.  Moreover, but for the condition provided in sub-clause (a),  the exemption  granted under  s. 10(26)  is likely  to   operate  unequally   and  cause  inequality  of treatment between  individuals similarly  situated. A Tribal residing in  the Scheduled  areas earning  large income from business located  outside  the  specified  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  the source  of the income, both were similarly situated. 422      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

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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 classification  contemplated by sub-clause (a) of  cl. (26)  of s. 10 of 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-cause (a) is constitutionally valid      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 assessee  lay 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  of Shillong which  are not  a part  of the tribal areas. In our opinion, it is not necessary to go into this question which, as already noticed, still remains open and undetermined.      In the  result we  allow  these  appeals,  but  in  the circumstances ofthe  case, leave the parties to pay and bear their own costs. P.B.R.                                      Appeals allowed. 423