Snehlata Vs ITO (ITAT Delhi)
Compulsory Hospital Residency Is Part of Medical Education—Stipend Received by PG Doctor Exempt Under Section 10(16): Delhi ITAT
Summary: The Delhi Bench of the Income-tax Appellate Tribunal has held that a stipend received by a qualified MBBS doctor while pursuing a full-time postgraduate medical course, including compulsory residency training in the hospital, constitutes a scholarship granted to meet the cost of education and is therefore exempt under section 10(16) of the Income-tax Act, 1961. Merely because the student undergoes practical or clinical training in a hospital, the educational stipend cannot automatically be characterised as salary.
Facts of the case
The assessee was a qualified MBBS doctor pursuing a full-time postgraduate degree course in MS (General Surgery) at Aligarh Muslim University. As part of the postgraduate programme, she was also required to undergo compulsory residency training.
During the relevant previous year, the assessee received a stipend of ₹18,34,578 from Aligarh Muslim University. She claimed that the amount was received solely in connection with her postgraduate medical education and compulsory residency training. Accordingly, the stipend was claimed as exempt under section 10(16), treating it as a scholarship granted to meet the cost of education.
The Assessing Officer, however, treated the amount as taxable salary and added it to the income of the assessee. The Commissioner (Appeals)/National Faceless Appeal Centre sustained the addition. The assessee therefore approached the Delhi Tribunal.
Issue before the Tribunal
The principal question before the Tribunal was whether the stipend received during the postgraduate medical course and compulsory hospital residency was an educational scholarship exempt under section 10(16), or remuneration in the nature of taxable salary.
Section 10(16) exempts from tax “scholarships granted to meet the cost of education.” The provision does not prescribe any monetary ceiling, nor does it require the amount to be described specifically as a scholarship. Therefore, the decisive consideration is the real nature and purpose of the payment, and not merely the nomenclature adopted by the institution.
Tribunal’s decision
The Tribunal noticed that there was no dispute regarding the essential facts. The assessee was pursuing a full-time postgraduate degree in General Surgery, and the stipend had been received from Aligarh Muslim University in connection with that course and the compulsory residency training attached to the academic programme.
The Tribunal relied upon the Chandigarh Bench decision in Hiteshi Aggarwal v. PCIT, Panchkula, ITA No. 132/Chd/2021. In that case also, the assessee was a medical doctor pursuing a postgraduate degree and had received a stipend during the course of her studies. The Chandigarh Tribunal accepted that the stipend was intended to meet the cost of education and could not be equated with salary.
Following the above decision, the Delhi Tribunal held that the stipend received by the assessee was eligible for exemption under section 10(16). The addition of ₹18,34,578 was consequently deleted and the appeal of the assessee was allowed.
TDS deduction does not determine taxability
An important aspect emerging from the precedent relied upon by the Tribunal is that deduction of tax at source by the medical college or hospital does not conclusively determine the character of the receipt.
In Hiteshi Aggarwal, the college had deducted TDS on the stipend. Nevertheless, the Tribunal accepted the claim under section 10(16), since the evidence showed that the payment was an educational stipend connected with the postgraduate course.
TDS is only a machinery provision for collection of tax. The exemption available to the recipient must be examined independently according to the true character of the receipt. Therefore, even if the stipend appears in Form 26AS or AIS and TDS has been deducted, the student can claim the exemption and seek a refund, provided the educational character of the payment is properly established.
Compulsory residency does not convert education into employment
A postgraduate medical course necessarily includes substantial clinical and practical training. The student may attend patients, assist in surgery, perform ward duties and participate in emergency or night duties. However, these activities are also methods through which postgraduate medical education is imparted.
Consequently, the mere fact that the student performs hospital duties cannot lead to the conclusion that an employer–employee relationship exists. Where residency training is a compulsory and integral part of the academic programme, the stipend paid during such period retains its educational character.
The position may be different where a person has completed the educational course and is appointed by the hospital as a junior resident, senior resident, medical officer or consultant under an independent contract of employment. In such a case, the payment may represent remuneration for services and may be taxable as salary or professional income, notwithstanding that it is described as a stipend.
Author’s comments
The decision correctly emphasises the substance and dominant purpose of the payment. Every payment described as a stipend does not automatically become exempt under section 10(16). Equally, every stipend paid by a hospital cannot be treated as salary merely because the postgraduate student performs clinical duties.
The relevant test is whether the recipient continues to be a student undergoing a recognised academic programme and whether the clinical or residency duties form an integral part of that programme. The course prospectus, admission letter, university regulations, residency requirements, stipend certificate, bond, government notification and confirmation from the institution would constitute important supporting evidence.
However, the decision should not be understood as granting a blanket exemption to all payments received by doctors from hospitals. The exemption is fact-dependent. If the payment is principally consideration for services rendered under an employer–employee relationship, section 10(16) may not apply.
The ruling nevertheless provides substantial relief to postgraduate medical students. It recognises that medical education cannot be separated from practical hospital training and that compulsory residency, by itself, does not transform an educational stipend into taxable salary.
Cases Discussed
- Hiteshi Aggarwal Vs PCIT, Panchkula, ITA No. 132/Chandi/2021
- Dr. Rahul Tugnait Vs. ITO, ITA No. 197/Chd/2008, decided on 30/06/2008
- CIT Vs. Rippen Ahuja, 54 I.T. Reps 285 (P&H)
- Kusum Lata(Smt.), Panchkula Vs. CIT, Panchkula [2014] I.T. Reps 243 (ITAT Chd)
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT DELHI
This assessee’s appeal for assessment year 2024-25, arises against the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre [in short, the “CIT(A)/NFAC”], Delhi’s order dated 23.4.2026 involving proceedings under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).
Heard both the parties. Case file perused.
2. It emerges during the course of hearing that the assessee presses for her sole substantive ground on merits challenging both the learned lower authorities’ action treating her educational stipend as taxable salary instead of exempt scholarship under section 10(16) of the Act amounting to Rs. 18,34,578/-, in the assessment order and upheld in the lower appellate discussion.
3. That being the case, both the parties vehemently reiterate their respective stands against and in support of the impugned stipend. I wish to make it clear that there is no dispute in principle that the assessee is an individual; a qualified MBBS doctor, who during the relevant previous year, was pursuing a full time Post Graduate Degree Course namely MS (General Surgery. And that during this period, she received stipend amounting to Rs. 18,34,578/- from Aligarh Muslim University which was solely for pursing PG Medical education and compulsory residency training attached to the academic programme, and, thus, she claimed exemption u/s. 10(16) of the Act treating the same as scholarship/stipend granted to meet the cost of education. I find that this tribunal in ITA No. 132/Chandi/2021–Hiteshi Aggarwal vs. PCIT, Panchkula has decided the instant issue of stipend received by postgraduate medical students is intended to meet the cost of education, as exempt as follows :-
“3. Shri Rakesh Cajla appearing on behalf of the assessee submitted that the assessee is a medical doctor by profession. During the period relevant to A.Y. 2016-17 the assessee was pursuing her Post Graduation degree in Guru Gobind Singh Medical College, Faridkot. During the Post Graduation Course she received stipend in the nature of scholarship aggregating to Rs. 8,61,202/- . TDS of Rs. 101,000/- was deducted by the college on the aforesaid stipend. The assessee in her return of income for the A.Y. 2016-17 inadvertently declared stipend / scholarship as salary. Thereafter, she revised her return of income declaring income of Rs. 15,816/- after claiming exemption under section 10(16) of the Act in respect of stipend and claimed refund of the TDS deducted by the college.
4. In scrutiny assessment proceedings, the Assessing Officer (the A.O.) made detailed inquiry. A specific query was raised by the A.O. regarding exemption claimed under section 10(16) of the Act vide notice issued under section 142(1) dt. 12/10/2018. The assessee furnished detailed reply with supporting documents, the same is at page no. 15 & 16 of the paper book. The A.O. thereafter issued notice dt. 25/10/2018 under section 133(6) to the Principal Guru Gobind Singh Medical College, Faridkot to clarify regarding nature of payment made to the assessee during F.Y. 2015-16. In reply to the notice it was informed on behalf of the college that the payment made to the assessee during the F.Y. 2015-16 was in the nature of stipend. The ld. Counsel referred to the reply from tax consultant of the college at page 17 and statement of stipend paid to the assessee at page no. 5 of the paper book. The ld. Counsel further referred to the scholarship bond executed by the assessee at page 6 to 10 of the paper book. The ld. Counsel submitted that under the provision of Section 10(16) of the Act scholarship granted to meet the cost of education is exempt from tax. In support of his submissions he placed reliance on following decisions:
(i) Dr. Rahul Tugnait Vs. ITO in ITA No. 197/Chd/2008 decided on 30/06/2008
(ii) CIT Vs. Rippen Ahuja, 54 I.T. Reps 285 (P&H)
(iii) Kusum Lata(Smt.), Panchkula Vs. CIT, Panchkula [2014] I.T. Reps 243 (ITAT Chd)
5. The ld. Counsel pointed that the stipend / scholarship was paid to the assessee in accordance with the Punjab Government Notification dt. 23/12/2013. The A.O. after examining the issue in detail accepted the revised return filed by the assessee and passed the assessment order dt. 26/11/2018. The ld. Counsel submitted that the PCIT has erred in invoking revisional jurisdiction under section 263 of the Act as the A.O. after making detailed enquiry has passed the assessment order. The assessment order is fair and justified, hence, requires no interference in revisional jurisdiction.
6. Per contra Shri Vikram Batra, representing Department vehemently defended the order passed by the PCIT under section 263 of the Act. The ld. DR submitted that the assessee in her original return of income had offered the income under the head ‘Salary’ thereafter, she revised her return and changed her stand by claiming exemption under section 10(16) of the Act.
7. We have heard the submissions made by rival sides and have examined the orders of the authorities below. The PCIT has invoked revisional jurisdiction under section 263 of the Act to reject the assessment order dt. 26/11/2018 wherein the A.O. has accepted the revised return filed by the assessee claiming exemption under section 10(16) of the Act in respect of stipend / scholarship received during her Post Graduation Degree in anesthesia.
8. A perusal of the records reveal that during assessment proceedings a specific query was raised by the A.O. in respect of assessee’s claim of exemption under section 10(16) of the Act. The assessee in response to that notice furnished a detailed reply. The A.O. also issued notice under section 133(6) of the Act to Guru Gobind Singh Medical College, Faridkot where the assessee was pursuing her Post Graduation Degree. The college also confirmed that the payments made to the assessee during F.Y. 2015-16 were in the nature of stipend. The assessee has also furnished stipend statement for the F.Y. 2015-16 at page 5 of the paper book and Bond executed by the assessee for scholarship at page 6 to 10 of the paper book. A perusal of aforesaid bond shows that the assessee was selected for Government scholarship and the payments were made to the assesse in accordance with the Government Notification. The college had deducted TDS on the payment of stipend, the assessee claimed refund of TDS in her revised return. The A.O. after making detailed inquiry accepted the revised return. The A.O. allowed assessee’s claim after making detailed inquiries. We find no error in the assessment order.
9. For invoking revisional jurisdiction under section 263 of the Act, twin condition as envisaged under section 263 of the Act have to be satisfied i.e the assessment order should be erroneous and prejudicial to the interest of the Revenue. Even if one of the twin conditions is not satisfied, the provision of section 263 of the Act cannot be invoked.
10. In the light of the facts discussed above, we are of the view that there is no error in the assessment order. The PCIT has erred in invoking revisional jurisdiction under section 263 of the Act.
11. We find that the Coordinate Bench in the case of Dr. Rahul Tugnait Vs. ITO (supra) wherein the facts were somewhat similar held that the assessee is eligible to claim deduction u/s 10(16) of the Act on stipend received during post graduation course. In the said case the assessee / appellant had joined Rajinder Government Medical College, Patiala to pursue his Post Graduation Degree. He had received stipend in the form of scholarship during his Post Graduation course from the college. He had executed the Bond similar to the one executed by the assessee in the instant case. The Coordinate Bench after examining the 5 fact held that the assessee was eligible for claiming exemption under section 10(16) of the Act in respect of scholarship / stipend received during his Post Graduation studies. The stipend / scholarship cannot be equated to salary. The issue raked up by the ld. PCIT in reivisional jurisdiction in the present case is identical to the one adjudicated by the Tribunal. It is neither the case of “lack of inquiry”, therefore the impugned order is liable to be quashed. We hold and direct accordingly.”
4. I adopt the above extracted detailed reasoning mutatis mutandis to delete the addition in the instant case in very terms.
No other ground or argument has been pressed.
5. This assessee’s appeal is allowed in above terms.
Order pronounced in the open court on 30th July, 2026.
