Monday, May 12, 2008

scholarship / stipend

scholarship / stipend
Fwd: [Chartered_accountant] How To Know If Stipend or Scholarship or Posted by: "Paras Chhajed, FCA, Rajnandgaon" paraschhajedji Sun May 11, 2008 9:21 pm (PDT) ---------- Forwarded message ----------From: Jiggs <>Date: May 10, 2008 1:45 PMSubject: [Chartered_accountant] How To Know If Stipend or Scholarship orFellowship Awarded To You Is Tax Exempt?To: recipients
*How To Know If Stipend or Scholarship or Fellowship Awarded To You Is TaxExempt ?*
Dear Sir,I am on a Commonwealth Professional Fellowship to UK for 03 months.If I save some of my stipend would be tax exempted. However, I would bepaying tax for the income I had for rest of 09 months in India. Thus pleasesuggest about the status of stipend I receive here in United Kingdom.
2.I am a research scholar doing my integrated PHD in Harish-ChandraResearch Institute, Allahabad (an autonomous institute funded by departmentof atomic energy ). I get fellowship of 14000/- per month. I want to knowwhether I need to pay any income tax on it or not. How is it exempted fromtax (if it is) ?I ask this to account officer here, he says it is taxable asits not scholarship but a fellowship. Are fellowship and scholarship aretreated different sources of income legally? Rajarshi Tiwari , Allahabad
3. I am a Senior Research Fellow in Defence Research and DevelopmentOrganization. I am geting fellowship amount 14000/- Rs. per month. I want toknow is this fellowship amount come in Income Tax or exempted . Navin Kumar, Mussoori
4. Are awards and fellowships that are being given to the scientists aretaxable? Pl. carify. K. Srinivasu, New Delhi
5. Whether fellowship given to research fellows exempted from tax ornot .Amrita, Agra
6. A fellow receives certain amount (Rs. 1,80,000=00 p.a.) as fellowshipform Harish-Chandra Research Institute, Allahabad, an Institution fullyaided by Department of Atomic Energy, Government of India. Whether thisfellowship is exempt from Income Tax? Naresh Kumar Arora ,Allhabad
7.I am a Junior Research Fellow working under DBT project. My annual incomeis around 1.8lakhs.According to IT section 10(16) fellowships of CSIR andother national organisations are exempted from tax. Sarika , Banglore
8. I was offered with Junior Research Fellowship (JRF) on Department ofScience and Technology (DST), Govt. of India sponsored project implementedat one of the Research Institutes in Kerala.As far I know, the ResearchFellowships are exempted from tax under section 10(16) of the IT Act. Kindlyadvice. Sreejith, TrivendrumAlthough , answer to this topic was given by me in nthe past, but so manynew queries were raised in the past , that I feel it warrants a detailedarticle. Hence , topic is selected as "Topic of the Week"
The stipend or fellowship or scholarship are money or benefit one receivesfor certain specific reasons. That the income in the nomenclature"Stipend","Scholarship"or "Fellowship" is taxable is undisputed. However , section 10 of the I TAct expressly provides that certain income , even though taxable incharacter , shall be free of tax . Subsection 16 of section 10 provides asunder**
*10.* In computing the total income of a previous year of any person, anyincome falling within any of the following clauses shall not be included.....(16) scholarships granted to meet the cost of education;
Therefore , if a person gets scholarship for the purpose of education , thesame ,though taxable income , has to be granted exemption u/s 10(16) of theI T Act.
What is scholarship?
To quote from Allahbad High Court which gave favourable decision to assesseein a combined order in cases of
1. Commissioner of Income-tax v. B.L. Garg [2007] 289 ITR 218 (All)2. Commissioner of Income-tax v. Y.K. Seth [2007] 289 ITR 218 (All)
The meaning of the wordScholarship<as">>asperWebster's Third New International Dictionary, 1966 Edition is as follows :"Scholarship<>:A sum of money or its equivalent offered (as by an educational institution,a public agency or a private organization or foundation) to enable a studentto pursue his studies at a school, college or university."
Funk & Wagnalls Standard Dictionary, International Edition, which isreproduced as under :
"Scholarship Maintenance or a stipend for a student awarded by aneducational institution."
The Encarta World English Dictionary gives the following meaning to the wordscholarship<>:
"Scholarship—Financial help for a student,
1. a sum of money awarded to a student on the basis of academic merit, tohelp with living expenses, study or travel,
2.. formal study, academic learning or achievement,
3. academic works, a body of learning or an academic subject."
When Is Stipend /Fellowship or Scholarship tax free?This is a question of fact. As is stated above , in case a person gets moneyor facility of money worth purely for enhancing his scholarship oreducation, section 10(16) makes such taxable receipt as "non taxable" .There are many decisions of the high Court and Tribunal which have given thefavourable decision to assessee by looking into facts and finding that thereceipt by respective assessee were in nature of scholarship. Some of thedecisions are discussed with facts in background.1. A. Ratnakar Rao vs Add CIT 128 ITR 527The facts of the case was that he assessment year is 1971-72. The assesseefiled the return of income for the period ending March 31, 1971. He declaredhis total income at Rs. 61,117. He, also indicated in the returns that hehad received $ 7,725 from the Jewish Hospital, Brooklyn, U.S.A. during theperiod from July 1, 1970, to March 31, 1971, by way of scholarship. The A.Oinitially accepted , but later on audit objection, the amounts wereconsidered as taxable.
The court's decision
"The Jewish Hospital and Medical Centre of Brooklyn has a large physiciangraduate training programme. A trainee stipend of $ 10,300 was paid to eachphysician during the academic year July 1, 1970, to June 30, 1971. Theprimary purpose of the programme is to further the education and training ofthe recipient in his individual capacity and the amount provided by theguarantor for such purpose does not represent compensation for services topatients nor does it serve the interest of the guarantor. In other words,services are of only incidental benefit to the hospital. The trainee stipendis defined as an amount Paid or allowed, or for the benefit of, anindividual trainee to aid him in the pursuit of study and research inpediatrics."**
**From the above certificate it is evident that the amount paid to theassessee by the hospital was for the benefit of securing training and topursue study and research in pediatrics. Therefore, there cannot be anydoubt that the entire amount paid by the hospital and received by theassessee was in the nature of scholarship to pursue study and research inpediatrics and also for the purpose of securing training in that field andit was not for the services rendered as such and the services, if any,rendered by the assessee was only incidental to the course of practicaltraining. . Attention of the Tribunal was invited to the position in law inthe United States according to which the scholarship amount received wasexempted in full if the study or course of education in respect of which itwas granted was leading to a degree and in other cases the exemption wouldbe limited to the extent of $ 300 per month. There was also evidence to theeffect that the assessee had obtained deduction at the rate of $ 300 permonth on the ground that though the amount received by him from the Jewishhospital was in the nature of scholarship it was not for pursuing a courseof education leading to a degree.
2. CIT vs Balachandran 147 ITR 4The facts of the case was that the assessee, a Professor of Mathematics inthe Ramanujam Institute of the Madras University, was given a grant in aidof $10,000 and other fringe pay ments during the academic year 1970-71 bythe Princeton Institute of Advanced Study as consideration for his doingresearch work at the Institute in New Jersey for a few months. The assesseewas being assessed to income tax under our I.T. Act, 1961, in the status ofa resident of India. He claimed that the grant in aid received by him fromthe Princeton Institute was to be excluded from his taxable income under s.10(16) of the I.T. Act. The ITO turned down the assessee's claim on thescore that the grant in aid was nothing but salary paid by a foreigninstitute to the assessee as a professor of mathematics. On appeal, the AACwent into the question whether the grant made by the Princeton Institute canbe regarded as salary. He held that there was no employer employeerelationship between the institute and the assessee and the grant was not asalary, but a scholarship paid to the assessee for doing research work as astudent of mathematics. In the departmental appeal against this order, theTribunal held that the grant received by the assessee was undoubtedly of anincome character, but nevertheless it must be considered to be ascholarship<and">>andon that account, was to be excluded from the total income under s.10(16) of the Act.
On appeal being filed by Department against Tribunal decision, the MadrasHigh court dismissed departmental appeal by noting :
In s. 10(16), however, scholarship is not used in that sense of some thingin educational opportunity which is given free. The basic postulate of ascholarship in cl. (16) as earlier mentioned is that it is an incomereceipt. Nevertheless it is excluded from the total income by being broughtunder s. 10. The view of the income tax statute of a " scholarship ",therefore, differs from the popular, or dictionary, view of a " scholarship". Whereas under the popular view, scholarship is education made availableratis, the sense in which the same expression is used in the I.T. Act ispositive payment made to a scholar for pursuit of his education.. Ifscholarship is made free, it would not naturally come within the ambit of s.10(16). In the sense of payment made for studies, scholarship necessarilymeans some payment to meet the cost of education, the payment being made, tothe person pursuing the education and incurring the cost thereof. There are,therefore, two considerations which, together, make up the concept of a "scholarship for meeting the cost of education " within the meaning of s.10(16). One is that the scholarship is a payment intended to be an incomereceipt in the hands of the scholar. The other one is that whatever is paidis intended to meet the cost of education of the recipient. Since thepurpose is to meet the cost of education, the question whether the quantumof payment is adequate or inadequate, or is or is not in excess ofrequirements are all beside the point. A scholarship may only meet thepartial cost of education. Still it would be a scholarship within themeaning of s. 10(16). Again, a scholarship might, in a given case, prove tobe more than enough for meeting the cost of education, and the scholar maymake a saving out of it, or even spend the surplus otherwise. It is not theappropriation of the scholarship that matters. If the whole object of thepayment is to meet the cost of education of a person, then that is enough.No further inquiry is called for in order to exclude the amount from thetaxable total income under s. 10(16).
3.*Dr. J.C.N. Joshipura. vs Assistant Commissioner Of Income-Tax. 56 ITD 424, (Mum)* The appellant is an Orthopaedic Surgeon mainly attached to JaslokHospital. During the relevant assessment year, the appellant received agrant of Rs. 15,000 from the said hospital. This grant said to have beenpaid to the senior and deserving doctors attached to Jaslok Hospital once inthree years for attending conferences or for study tour for advancement ofknowledge and experience. A certificate dated 16-10-1986 bearing Ref. No.DRC/TG/86-87, was issued by the Jaslok Hospital & Research Centre. The A.Oconsidered the same as professional income.
The tribunal held
The requirement of section 10(16) is that the scholarship<must">>mustbe granted to meet the cost of education. Cost of education comprise withinits ambit, not only tuition fee, which the student is required to pay to theInstitution. It includes all other incidental expenses which are incurredfor acquiring the education. The word ' education ' includes within its ken,knowledge, understanding and reflection. One cannot get education just bypaying tuition fee. One acquires knowledge by going to the school. Butknowledge gathered at the school is not the complete education. The scope ofeducation is vast. If one is required to travel to a place for the sake ofeducation, the expenditure on travelling will also come within the ambit ofthe expression ' cost of education '. Therefore, travel grant given for thepurpose of education shall form integral part of the cost of education.*............*we examine the purpose for which travel grant was given to the appellant.It was explained that it was given to provide an opportunity to get firsthand experience and become practically acquainted at close quarters with therapid scientific developments, taking place all over the world, in themedical field particularly in the line of orthopaedics.
18. Considering the profession of the appellant, his specialised knowledgein the field of orthopaedics and his educational qualifications, theappellant can very well be placed in the category of scholars. The travelgrant was provided to the appellant so that he could sharpen his erudite inthe field of orthopaedics. Therefore, in our opinion, the amount of Rs.15,000 given to the assessee clearly comes within the ken of section 10(16)of the Income-tax Act, 1961. We, therefore, direct the Assessing Officer togrant exemption as contemplated in the said section.
19. In the result, the appeal of the assessee stands allowed
*4. Income-Tax Officer. vs Dr. V. Ramalinghaswami. **6 ITD 491 [Delhi]*
Facts of the case was that The assessee is an individual at present workingas Director General, Indian Council of Medical Research. During the accountyear period relating to the assessment year before us, he received ascholarship*<>*of the value of 18,500 US dollars from the Department of Health, Educationand Welfare, National Institute of Health, Maryland. In terms of Indianmoney the value came to Rs.1,55,400. At the time of filing of the return he claimed 50 per cent of themoney so received as exempt under section 80R of the Income-tax Act, 1961('the Act'). The ITO, however, without giving any relief added the fullamount of Rs. 1,55,400 as the assessee's income. **
*2. *The assessee went in appeal and contended that in view of thenature ofscholarship*<and">>andthe*purpose for which the same had been granted as per the certificate dated17-12-1976 from the Institute in the USA, nothing was taxable in view of thejudgments of their Lordships of the Karnataka High Court in S. RanganathaRao v. Accountant-General [1981] 129 ITR 130 and A. Ratnakar Rao v. Addl.CIT [1981] 128 ITR 527 (Kar.). He had also filed a copy of the tax return,filed and assessed in USA. The Commissioner (Appeals) allowed his appeal
Decision against assessee
However Every payment which is received by a person in the nomenclature ofStipend or Fellowship or even Scholarship may or may not be truly bescholarship in the sense of meeting the cost of education. For example , anemployee can be given benefit in the nomenclature of "stipend' which mayactually be a wage or salary.That was the reason ,Madras High Court ,in caseof Dr V Mahadev vs CIT *1990] 184 ITR 533 (MAD.) *held on the basis of factthat the stipend received by Dr Mahadev was not exempt from tax. The factsand the decision of the High Court is described briefly for betterunderstanding
The facts of the caseDr Mahadev ,was employed as doctor in the State of Tamil Nadu. He resignedthe job and joined University of Massachussets for securing a qualificationin Internal Medicine .One of the requirements for obtaining certification inInternal Medicine, was that a candidate had to do internship in a hospitalfor a prescribed period. Accordingly, the assessee worked in and completedinternship at the Worcester City Hospital from June, 1973, to June, 1974.During the accounting period ending March 31, 1974, relevant for theassessment year 1974-75, the assessee had admittedly received 7,086.82, and,in the course of the assessment proceedings, the assessee claimed that theamount received from the hospital was in the nature of a stipend paid tomeet the expenses in connection with the post-graduate studies and henceexempt under section 10(16) of the Income-tax Act, 1961.The A.O , CIT(A)andthe Tribunal disagreed with the contention of the assessee. The assesseeapproached High Court of Madras which concurred with A.O and Tribunalfinding and dismissed appeal stating
The proper View to take on section 10(16) of the Act would be that ascholarship, even though income in the hands of the scholar-recipient, wouldnot be included in the taxable total income, if it was a scholarship grantedto meet the cost of education. Bearing this in mind, when we examine theprecise nature of the payments received by the assessee, it is seen fromannexure E styled as statement of earnings that the assessee has been shownto have been paid pay or salary. It has also been differently described aswages. The Federal and State taxes had been deducted from the payments somade. It may be that in order to fulfill one of the requirements of theBoard of Internal Medicine to obtain certification in Internal Medicine, theassessee did internship in the hospital. But then the amounts received bythe assessee cannot, by any means, be regarded as scholarship. Merely fromthe circumstances that the amounts have been paid to the assessee by thehospital authorities during the period the assessee was doing hisinternship, the payments do not cease to be either pay or salary and becomemetamorphosed into scholarship. The Tribunal had noticed not only theabsence of evidence to show that the amounts paid to the assessee were notremuneration for services rendered, but something else, but also aconcession by the assessee that part of the amounts paid by the hospitalauthorities represented overtime charges. It is difficult to accept that anyovertime charges, pay or wages had been granted to meet the cost ofeducation, so as to make it a scholarship within the meaning of section10(16) of the Act.
********Circulars of CBDT
CBDT vide different circulars had made the following fellowship and grantstax free u/s 10(16)
1. Fellowship by Department by Atomic Energy2. Financial assistance to research workers in universities.3. Fellowship awarded under technical teachers training programmee4. Fellowship by UGC.5. Junior and senior research fellowship awarded by CSIR .6. Fellowship awarded under technical teachers training programme
*Following circulars gives express exemption to foreigners u/s 10(16) *
1. Stipend under Colombo Plan and SCAAP2. *National research fellowships to German national awarded by Ministryof Education*3. Fullbright Grants to American Students4. Maintenance Allowance to Foreign students under IAESTE scheme.
Interesting note taken by High Court
In *CIT *v. *V.K. Balachandran *[1984] 147 ITR 4 (Mad.), it was observed asunder :"Before closing the judgment, it is necessary to point out that theinterpretation we have placed on section 10(16) is the way in which it hasbeen understood and is being applied in several cases by the highest revenueauthority under the Act, namely, the CBDT. Our attention has been drawn to afew circulars where the Board have issued instructions to the subordinateofficers as to how they have got to deal with the scholarships,remuneration, maintenance grants, and other receipts which are received byforeign scholars in Indian institutions of higher learning like the Councilof Industrial and Scientific Research. The Board, we may observe, hasproceeded on a liberal understanding of the provisions of section 10(16) andhave accordingly given instructions to the departmental officials at theassessment level to grant exemption from tax to scholarships apparentlywithout making much fuss about the precise nature of the receipts so long asthe receipts of the scholars can be broadly brought under the heading'Scholarship' and so long as the terms of the scholarship do not contain anypurpose extraneous to education. In the face of these circulars, we are at aloss to understand why the present reference is being pressed to a decisionby the Department in the Madras charge. There cannot be one rule for foreignstudents receiving scholarships in India and the tax treatment of suchscholarships under the Act, and quite a different rule or a contraryapplication of the same rule, so far as the Indian scholars in foreign partsare concerned. The nature of the scholarship is the same whoever receivesit, whether he be an Indian scholar or a foreigner, whether he be white,brown, or black, whether he receives the scholarship from an Indianinstitution or from a Western institution. The essence of scholarship isthat it should pay for the educational enterprises of a man's pursuit afterknowledge. If scholarships are given for such a purpose, it cannot matterwhether the recipient is of Indian origin or is of a foreign origin.We hope that there would be even handed justice from the CBDT and all thesubordinate officials of the Income-tax Department in the matter of applyingthe exemption for scholarships irrespective of to whom and by whom thesescholarships are meted out..Therefore , if you find that any scholarship/fellowship if granted to aforeigner has been made exempt, a claim by an Indian citizen can certainlybe made
In nutshellIf you receive any money or facility which is given exclusively foreducation purpose , your claim for exemption u/s 10(16) will be correct.Even if the some of the amount is saved. However, the wages faking thescholarship will not be allowed exemption u/s 10(16)
Regards,Jigar N Chheda
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