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Issues:
Interpretation of exemption certificate under section 10(26) of the Income Tax Act, 1961 for a petitioner granted a lease in a Sixth Schedule area and the applicability of section 206C of the Act. Analysis: The petitioner, a Scheduled Tribe member, was granted a lease in a Sixth Schedule area by the Karbi Anglong Autonomous District Council. The authority demanded income-tax and royalty, despite the petitioner's eligibility for exemption under section 10(26) of the Act. The exemption certificate issued by the Income-tax Officer excluded income from trading in forest produce under section 206C. The petitioner challenged this in court under article 226 of the Constitution. Legal Arguments: The petitioner's counsel argued that the exemption certificate's restrictions contradicted section 10(26) of the Act, which exempts income from Sixth Schedule areas. They cited court decisions supporting the view that if no income-tax is payable, collection at source is unnecessary. The Revenue's counsel contended that uncertainty regarding the income's origin justified collection at source, refunding if found exempt later. Court's Interpretation: The High Court referred to previous judgments clarifying that income from a Sixth Schedule area qualifies for exemption under section 10(26). It affirmed that income from the petitioner's lease, regardless of payment location, originated from a Sixth Schedule area. Therefore, the petitioner was entitled to exemption under section 10(26), rendering section 206C inapplicable. Conclusion: Relying on legal precedents, the High Court allowed the writ petition, setting aside the authority's action demanding income-tax and royalty. The exemption certificate was upheld, granting the petitioner exemption from income-tax on profits from forest produce trading in the leased area. The judgment emphasized that if income is exempt, collection at source is invalid, in line with established legal principles. Final Decision: The High Court allowed the petition, overturning the authority's demand for income-tax and royalty. The exemption certificate was upheld, granting the petitioner exemption from income-tax on profits from forest produce trading in the leased Sixth Schedule area. The judgment reiterated the inapplicability of collection at source when income is exempt under section 10(26) of the Income Tax Act, 1961.
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