No Exemption Without Proof | J&K HC Rejects Income Tax Relief Claim As Petitioner Fails To Prove Residence And Source Of Income In Ladakh Under Section 10(26)
Isabella Mariam
The High Court of Jammu & Kashmir and Ladakh Division Bench of Justice Sanjeev Kumar and Justice Sanjay Parihar dismissed a writ petition challenging the assessment and revision orders passed under the Income Tax Act, 1961. The petitioner sought exemption from income tax under Section 10(26) of the Act, citing his status as a Scheduled Tribe resident of the Union Territory of Ladakh. However, the court upheld the concurrent findings of the Income Tax Authorities that the petitioner did not fulfil the statutory conditions necessary for availing the exemption. The court concluded that the revision petition was rightly dismissed by the Principal Commissioner of Income Tax, Srinagar, and no interference under Article 226 of the Constitution of India was warranted. The writ petition was accordingly dismissed.
The petitioner approached the High Court under Article 226 of the Constitution, seeking to quash the order dated 11th March 2025 issued by the Principal Commissioner of Income Tax, Srinagar under Section 264 of the Income Tax Act, 1961. He also challenged the assessment order for the Assessment Year 2016–17 passed by the Income Tax Officer, Ward 25(2)(1), Mumbai.
The origin of the dispute lies in the detection of substantial cash deposits made by the petitioner. The Assessing Authority had noticed a cash deposit amounting to Rs. 60,15,542 in bank account No. 0096010100001368 with the J&K Bank during Financial Year 2015–16. This amount, according to the Authority, remained unexplained as the petitioner had not filed the return of income and failed to respond to the notice under Section 148 of the Act.
Pursuant to this, notices under Section 142(1) dated 1st May 2023 and 9th May 2023 were issued to the petitioner seeking relevant documents and explanations. The petitioner again failed to comply with these notices.
An investigation was carried out by the Investigation Wing of the Income Tax Department, which revealed that J&K Bank had not properly filed their Annual Information Return as mandated by Section 285BA of the Act. Consequently, the Department obtained the petitioner’s bank account statements under a notice issued to J&K Bank under Section 133(6) of the Act.
The collected statements indicated multiple deposits made by the petitioner in four different accounts. Based on this information, a show cause notice dated 16th May 2023 was issued under Section 144, requiring the petitioner to explain why Rs. 1,70,01,255 should not be added to his income.
The petitioner responded with a submission dated 20th May 2023, asserting that he was a Scheduled Tribe resident of Kargil and thereby exempted from income tax under Section 10(26A). He presented a resident certificate dated 28th February 2022 and claimed that the income originated from organizing religious tours to Iran, Iraq, and Syria for Kargil residents.
Despite the submission, the Assessing Authority passed an order dated 26th May 2023 treating the entire amount as taxable income and determined the total income at Rs. 1,70,01,255. The order also stated that a penalty notice under Section 271(1)(c) would follow.
Aggrieved by the assessment, the petitioner filed a revision petition under Section 264 before the Principal Commissioner of Income Tax, Srinagar. The revision petition was dismissed via the impugned order dated 11th March 2025.
The petitioner challenged both the assessment and revision orders before the High Court primarily on the basis that he was exempt under Section 10(26) due to his tribal status and residence in Ladakh. Supporting documents including a Scheduled Tribe certificate dated 17th May 2019 and the aforementioned residence certificate were presented.
The Court recorded: "With a view to claiming the benefit of exemption envisaged under Section 10(26) of the Act, an assessee must satisfy the following three conditions: (i) The person claiming exemption should be a member of a Scheduled Tribe as defined in clause (25) of Article 366 of the Constitution. (ii) The assessee should be residing only in the Ladakh region of the State of Jammu and Kashmir. (iii) The income in respect of which exemption is claimed must be an income which accrues or arises to him from any source in the specified area by way of dividend or interest on securities."
The Court noted that the petitioner failed to submit a return for the relevant year, although he held a PAN registered with an address in Mumbai: "At the time of applying for the PAN, the petitioner had given his address as Room No. 25, C Block, Bandukwala Bldg, Opp, Jail Road North, Mumbai."
It was further observed: "The petitioner could not furnish relevant material/documents to satisfy the conditions explicitly laid down in Section 10(26) of the Act."
Regarding his claims of income derived from Ladakh-based tour operations, the Court recorded: "He did submit a Schedule Tribe certificate dated 17th May, 2019, but could not prove that during the relevant year he was residing anywhere in Ladakh region."
On the sufficiency of the evidence, the Court stated: "Whether a person is or was residing in the specified area and whether the income in respect of which he is claiming exemption is derived from a source/sources in the said area is a question of fact to be determined by the Assessing Authority on the basis of evidence produced before it."
The Bench found the claims unsubstantiated: "He could not furnish any proof to the satisfaction of the Assessing Authority."
Referring to the concurrent factual determinations by both tax authorities, the Court stated: "All these facts, including the reasoning given by the Assessing Authority, persuaded the Principal Commissioner to dismiss the revision petition of the petitioner and uphold the order of assessment passed by the Assessing Authority."
The Court concluded its judgment with the following directive: "We see no reason or justification to take a view contrary to the concurrent view taken by the two Authorities under the Act."
It further recorded: "The petitioner having failed to satisfy the three conditions laid down in Section 10(26) of the Act, is not entitled to claim exemption of his entire income."
On the scope of its jurisdiction, the Court remarked: "This Court in the exercise of its jurisdiction under Article 226 of the Constitution of India, would be loath to interfere with such concurrent findings of fact arrived at by two quasi-Judicial Authorities performing adjudicatory functions under the Act."
Finally, the Court stated: "For the foregoing reasons, we find no merit in this petition and the same is, accordingly, dismissed."
Advocates Representing the Parties:
For the Petitioners: Mr. Huzaif Ashraf, Advocate
For the Respondents: Mr. T.M. Shamsi, DSGI with Mr. Faizan Ahmad, Advocate; Mr. Umar Rashid, Advocate
Case Title: Mehmood Askari v. Union of India & Ors.
Case Number: WP(C) No. 1147/2025
Bench: Justice Sanjeev Kumar, Justice Sanjay Parihar
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