Stipends, awards, fellowships & grants for education have been held as scholarships exempt from tax!
Under
Section 10(16) of the Income-tax Act, any scholarship granted to a
person to meet the cost of education is exempt from tax. The term
‘scholarship’ has been interpreted liberally to also include within its
scope and ambit, amounts of fellowships, stipends, grants for travel and
incidental expenses, etc. awarded for acquiring education.
STIPEND IS NOT SALARY
In
the case of ‘A. Ratnakar Rao vs. Addl. CIT’ 128 ITR 527, the Karnataka
High Court had occasion to consider whether the trainee’s stipend
granted to a physician to further his education and training was exempt
under Section 10(16). The Income-tax Department took the view that the
amount received by the taxpayer was not in the nature of scholarship,
but it was salary for the services rendered.
The
High Court held that the amount paid to the taxpayer was for the
benefit of securing training and pursuing study and research in medicine
and the entire amount received from the hospital was in the nature of
scholarship and not for services rendered and services, if any, rendered
by the taxpayer were only incidental to the course of practical
training.
The
Income-tax Appellate Tribunal, Chandigarh Bench, in the case of Dr.
Rahul Tugnait vs. Income-tax Officer 124 ITD 480, has held that the
stipend received, by a student pursuing his post graduation at a medical
college, cannot be termed as salary and the same would qualify for
exemption under Section 10(16).
Similarly,
the Income-tax Appellate Tribunal, Jaipur Bench has in the case of
‘Sudhirkumar Sharma vs. ITO’ 17 TTJ 226, also held that the stipend
received by an Article Clerk from a Chartered Accountant is exempt,
since it is not paid for rendering services by the Article Clerk, but is
paid to him to meet the cost of books, coaching fee, examination fee,
etc.
SCHOLARSHIP IF NOT FULLY SPENT?
An
interesting question that could arise for consideration is in regard to
taxability of a scholarship, where the recipient has not spent the
whole amount. The Madras High Court, in the case of ‘CIT vs. V.K.
Balachandran’ 147 ITR 4, had occasion to consider this very issue. The
High Court held that where the purpose of payment of scholarship is to
meet the cost of education, the question whether the quantum of payment
is adequate or inadequate, or, is or is not in excess of the requirement
is beside the point. It is enough if the whole object is to meet the
cost of education of a person and no further enquiry is called for in
order to exclude the amount from the taxable income under Section
10(16).
In
this case, the taxpayer, a professor of mathematics was awarded
grant-in-aid by a foreign university for doing advance research in the
field of mathematics. The Court held that the fact that the recipient
does not spend the whole of the amount or saves something out of it or
utilizes for other purposes would not detract from the character of the
payment being one for scholarship and accordingly exempt from tax.
The
Income-tax Appellate Tribunal, Ahmedabad, in the case of ‘ACIT vs.
Girish Saran Agarwal, had occasion to consider the taxability of DM
30,000 received by a PRL Scientist as Humboldt Research Award from
Alexander Von Humboldt Foundation, Germany. The taxpayer’s name was
approved by the Council of Scientific and Industrial Research as a
beneficiary of the said award. According to the Assessing Officer, the
amount received by the taxpayer was not a scholarship but an award which
did not fall within the ambit of section 10(16).