Amounts Received to Meet Costs of Education & Training
Are to be Treated Tax Exempt, Even if Not Fully Spent!
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’ should be interpreted liberally and it would also include within its scope and ambit, amounts of fellowships, stipends, grants for travel and incidental expenses, etc. awarded for acquiring education.
SCHOLARSHIPS IF NOT WHOLLY SPENT?
An interesting question that would 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.
TRAINEE’S STIPEND WHETHER TAXABLE?
In another 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.
Similarly, the Income-tax Appellate Tribunal, Jaipur Bench has in the case of ‘Sudhirkumar Sharma vs. ITO’ 17 TTJ 226, 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.
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