• Jul
  • 13
  • 2009

Scholarship/ stipend received by a student for pursuing higher studies cannot be treated as salary

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CASE LAW DETAILS

Decided by: ITAT, CHANDIGARH BENCH `SME-B’, In The case of: Dr. Rahul Tugnait v.ITO, appeal No. :ITA NO. 197/CHD/2008, Decided on: JUNE 30, 2008

RELEVENT PARAGRAPH

5. Even if this appeal is viewed with angle of section 15 of the Act, which speaks about chargeability of salary. Section 15 of the Act is reproduced- herewith:-

“The following income shall be chargeable to income tax under the head “Salaries”-

a). any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;

b). any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer through not due or before it became due to him;

c). any arrears of salary paid or allowed to him in T7Te previous year by or on behalf of an employer or a former employer, if not charged to income tax for any earlier previous year.

[Explanation 1} For the removal of doubts, it is hereby declared that where any salary paid in advance is included in the total income of any person for any previous year it shall not be included again in the total income of the person when the salary becomes due.

[Explanation 2] Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as “salary” for the purposes of this section.

For getting salary normally there must be employee – employer or master – servant/agent relationship. The distinction between a servant or as agent can be summarized as under:-

i. Generally a master can tell his servant what to do and how to do and how to do it.

ii. Generally a principle cannot tell his agent how to carry out his instructions;

iii. A servant is under more complete control than an agent;

i. Generally a master can tell his servant what to do and how to do and how to do it.

ii. Generally a principle cannot tell his agent how to carry out his instructions.

iii. A servant is under more complete control than an agent;

iv. Generally, a servant is a person who not only receives instructions from his master but is subject to his master’s right is control instructions but is generally free to carry out those instructions according to his own direction.

v. Generally a servant qua servant has no authority to make contracts on behalf contracts on behalf of his principal.

vi. Generally an agent is paid commission upon effecting the result which he has been instructed by his principal to achieve.

vii. Generally a servant is paid wages or salary.

For ascertaining whether a person is a servant or an agent, a rough and ready test is whether under the terms of his employment the employer exercises a supervisory control in respect of the work entrusted to the person. A servant acts under the direct control/supervisory control or supervision of the principal, though he is bound to exercise his authority in accordance with all lawful orders and instructions which may be given to him form time to time by his principal/controller/supervisor. But this test is not universal in its application and does not determine in every case, having regard to the nature of employment, that he is a servant. A person who is engaged to manage a business may be a servant or an agent according to the nature of his service and the authority of his employment. Generally if may be possible to say that the greater the amount of direct control over the person employed, the stronger is the conclusion the possibility of the services rendered being in the nature of principal and agent. It is not possible to lay down any precise rule to distinguish one kind of employment from the other. The nature of the particular business and the nature of the duties of the employee will require to be considered in each case in order to arrive at a conclusion as to whether the person employed is a servant or an agent. In each case the principle for ascertaining remains the same.

Section 16 of the Act speaks about deduction from salaries whereas section 17 speaks about “salary”, “perquisite” and “profits in lieu of salary” etc. A conjoint reading of section, 15, 16 and 17 nowhere includes scholarship/ stipend which have been mentioned in section 10(16) of the Act. Therefore, it can be said that the stipend/scholarship has been specifically precluded from the mischief of sub clause (1) & (2) of section 17 of the Act.

If the aforesaid sections are analyzed by keeping them in juxtaposition, with the terms and conditions used in the bond, it can be said that it is neither a salary/wages nor perquisite. Even the Hon’ble Calcutta High Court in the case of CIT v. Jnan Parkesh Ghosh [62 Taxman 151 (Cal)] went to the extent that the professionals rendering the incidental services are not servants. Our above view is further forttfied by the following decision:-

i. Lakshimnarayana Ram Gopal & Son Ltd vs. State [25 ITR 449 (SC)]

ii. Ramprasad v. CIT [86 ITR 122 (SC)].

iii. Piyare Lal Adishwar Lal v. CIT [40 ITR 70 (SC)]

Therefore, unless and until a master servant relation is brought on record by the revenue, suggesting that the assessee is an employee of the college, the stand of the revenue cannot remain on its legs.

We are also tempting to reproduce some of the relevant portion with regard to section 10(16) from the commentary of Acharya Shuklendra:

“Scholarships granted to meet the cost of education [cl.(16)] – Clause (16) exempts the /scholarships granted to meet the cost of education. Where the assesses receives a trainee stipend from a U.S. Hospital to aim him in his pursuit of study and research and not for Hospital to aid him in his pursuit of study and research and not for services rendered and the services, if any are only incidental to the course of practical training, such a stipend would be a scholarship and would be exempt under cI.(16). In fact, this clause recognizes statutorily the departmental instructions issued in this behalf under the 1922 Act.

(i) Concept of scholarship and extent of exemption – By scholarship as ordinarily understood, we mean anything which makes education free of charge, or at a confessional rate of fees. In section 10(16) however, scholarship is not used in that sense of something in educational opportunity which is given free. The basic postulate of a scholarship in cIause (1.6) is that it is an income receipt. Nevertheless, it is excluded from the total income by being brought under section 10. The view of the Income tax statute of a “Scholarship” , therefore, differs from the popular of dictionary view of a “Scholarship” . Whereas under the popular view, scholarship is education made available gratis, the sense in which the same expression is used in the Income tax Act is positive payment made to a scholar for pursuit of his education. The considerations which make up the concept of a “Scholarship for meeting the cost of education” in s. 10(16} are that the payment is intended to be an income receipt in the hands of the scholar and that whatever is paid is intended to meet the cost of education of the recipient. Since the purpose of the payment 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 requirements are all beside the point. It is enough if the whole object of the payment is to meet the cost of education of a person and no further enquiry is called for in order toe exclude the amount form the taxable income u/s 10(16). If the payment is only for the cost of education the fact that the recipient does not spend the whole of the amount or saves something out of it or utilizes it for other purposes would not detract from the character of the payment being one for scholarship. Circulars issued by the Central Board have also proceeded on a liberal understanding of the provisions of s. 10(16). Accordingly, where a professor of mathematics is granted a grant-in-aid by a foreign university for doing advanced research in the filed of mathematics, the amount of granl-in aid would be scholarship under cl(16), and exempt even if a part or it had been utilized for the purposes of maintaining wife and children. The discretionary scholarship granted by the employer to the children of employees cannot be treated as a perquisile in the hands of children of employees because no right is created in their favour. Even if such scholarship is regarded as a perquisite, it would be exempt under clause (16) in the hands of the recipient. However, an amount paid to the assessee in the for services as an intern in a medical hospital, where service as an intern is necessary for a person who joins a medical school, cannot be regarded as a scholarship so as to qualify for exemption under this clause”.

(ii) Instances of scholarships: – The following are the instances of scholarships exempt under clause (16) as recognized by the department.

[1] Annual allowance granted to retiring research scientists by CSIR, New Delhi

[2] Stipend of research fellowships for working under the National Commission for the compilation of History of Scientists in India under the auspices of National Institute of Scientists of India

[3] Fulbright grants described as ‘maintenance allowance’ given to Fulbright students.

[4] Fulbright grant described as `maintenance allowance “given to American tutors prosecuting studies in India.

[5] Junior/Senior fellowships awarded by the Department of Atomic Energy.

[6] Financial assistance to teachers in the universities for undertaking research of learned work in science subjects and humanities.

[7] Maintenance allowance granted to foreign trainees under the scheme of the International Association for the exchange of students for Technical Experience.

[8] Research fellowship in engineering, technology, humanities and science subject

[9] Junior and Senior research fellowships awarded by CSIR.

[10] National research fellowship and fellowships to German nationals awarded by the Ministry of Education.

Viewed from aforesaid different angles and facts of the present appeal. It can be said that the scholarship/ stipend received by a student from College/Govt for pursuing higher studies, cannot be termed as salary. Therefore, this appeal of the assessee is allowed.


13 Responses to “Scholarship/ stipend received by a student for pursuing higher studies cannot be treated as salary”

  1. KALYAN GHOSH says:

    Central Government Health Scheme has deleted my wholly dependent daughter’s [unmarried, unemployed and normally resides with me] name as beneficiary on account of scholarship she receives for studying in France. She has also been denied to get prescribed medicines for full course of treatment; admissible limit six months’ medicines in one go for beneficiaries visiting foreign countries.
    I solicit guidance about beneficiary eligibility. Thanks.

  2. varun says:

    i was receiving fellowsip during my M.Tech. studies(up to june 2011, Rs8000/- p.m). then got the job. the salary from job is about 2,00,000/- in this financial year. total will be 2,00,000.00 + 8,000 * 3(3 months, april to june, of this financial year) = 2,24,000/-
    what is my taxable income.

  3. The case law quoted above speaks about scholarships received from Indian University/Government. I would like to know if the same is applicable for scholarships received from Foreign University for research studies for which the reasearcher will hve to stay in a foreign country. In short is the excess of scholarship amount left after meeting cost of research if brought in India will be taxable under our Income Tax Act. The researcher is a Resident till date.

  4. Ritu says:

    Stipend received from medical internship & fellowship grant received by a medical student exempt from tax?

  5. Naveen says:

    i receive fellowship from CSIR (junior research fellowship) and now i want to file income tax return. Wanted to know if i have to mention the amount i receive on the form or not. if yes can you please tell me where to enter it.
    thanks a lot

  6. If service as an intern is necessary for a person who joins a medical school, then stipend/salary cannot be regarded as a scholarship so as to qualify for exemption under this clause.

  7. Dr Anirban Ghosh says:

    In your comments,you have categorically mentioned that stipends received from a govt institution will be exempt from taxes,but at the end you have also said that “interns” of a medical school will not enjoy such exemption.Presently I am a post graduate trainee in Medicine in a a government medical college,where I also have to render my services as a junior doctor & I receive a stipend,so will my stipend be included or exempted from tax?We don’t know whether any TDS is deducted as the authorities have never asked for our PAN no.

  8. It should not be taxable even if its more then the guideline issued by institute. As guideline specify the minimum amount not the maximum amount.

  9. Suneet Makharia says:

    I have cleared my CA examination and receive monthly stipend from my principal much more than the guidelines issued by the Institute of CA. My principal has deducted TDS under the Head Salary. Would my stipend be taxable??

  10. No Employer-Employee relationship exist so it should not be deducted. But normally people deduct. Rate of profession tax been changed in Maharashtra. To check the new rate please visit the link given below:-
    http://www.taxguru.in/mvat/new-profession-tax-rates-after-mahrashtra-government-budget.html

  11. rohini more says:

    I m a CA final yr Article, i get stipend of 3880 after deducting Rs 120 as a professional tax from it, is the principal liable to deduct such tax?

  12. Still the same can not be treated as salary. None of the court judgement said that it should be as per the rule of respective institute.

  13. Vikram Agrawal says:

    If some one is receiving higher stipend than declared by the institue,then the higher stipend will be taxable or not

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