Section
10(16) of the Income-tax Act provides that any scholarships granted to a person
to meet the cost of education is exempt from tax.
Meaning
of Scholarship
Scholarship is the amount paid to
any person to meet the expenses to be incurred on ‘Cost of Education’. Any
amount received by a person as scholarship is considered as income in his
hands. However, such amount received by a person is exempt if the same is
received for the purpose of meeting the education expenses.
Who
can claim the benefit of exemption
The receiver of the scholarship is
eligible to claim exemption under section 10(16). Further, any sum received by
employee directly from his employer towards scholarship of his child is also
eligible for exemption. The basis for exemption is that the payment shall be
made to meet the cost of education and the sole discretion for the payment
shall be the benefit of the receiver. Even though the payment is made by the
employer and is received directly by the child concerned, such amount shall not
be treated as income in the hands of the employee, rather as exempted income in
the hands of the receiver.
Cost
of Education
The term ‘cost of education’ takes
within its ambit not only tuition fee but all other incidental expenses
incurred for acquiring education. The word “education” includes within its ken
knowledge, understanding and reflection.
Condition
to claim exemption under section 10(16)
The only condition to claim exemption
with respect to such scholarship income is that it is for meeting the education
expenses only. The fact that the recipient does not spend the whole amount
towards education or that he is able to save something out of it would not
detract from the character of payment being one for scholarship.
If
the assessee has received the scholarship from foreign institute to aid his
studies and research, even though the amount so received is taxable in the
source country, the same shall not be taxed in his hands.
It is not necessary that
scholarship should be financed by the Government
It
is not necessary that scholarship should be financed by the Government. Once it
is proved that the amount received is “scholarship”, it will be fully exempt
from tax irrespective of its terms of award.
No further enquiry, if object is
to meet cost of education
The
eligibility of a scholarship to be excluded from an assessee’s total income
depends on what it is meant for the person paying or disbursing the
scholarships. If it is paid only for meeting the cost of education, it is
exempt from tax even if the recipient, does not spend the whole amount towards
education or that he is able to save something out of it. To put it
differently, if the whole object of the payment is to meet cost of education,
then no further inquiry is called for in order to exclude the amount from
taxable income under section 10(16).
Incidental Expenses
The
term “cost of education” takes within its ambit not only tuition fee but all
other incidental expenses incurred for acquiring education – [Dr. J. C.N Joshipura v. ACIT (1996) 56 ITD
424 (Born.)]
Amount
of exemption available under section 10(16)
The entire amount of scholarship granted
to meet the cost of education is available as an exemption. There is no upper
limit prescribed under the Act.
Instances of
scholarships exempt under section
10(16)
The following are the instances of scholarships exempt
under clause (16) as recognized by the department.
(i) Annual allowance granted to retiring research
scientists by CSIR, New Delhi
(ii) 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
(iii) Fulbright grants described as ‘maintenance
allowance’ given to Fulbright students.
(iv) Fulbright grant described as `maintenance
allowance “given to American tutors prosecuting studies in India.
(v) Junior/Senior
fellowships awarded by the Department of Atomic Energy.
(vi) Financial
assistance to teachers in the universities for undertaking research of learned
work in science subjects and humanities.
(vii) Maintenance allowance granted to foreign
trainees under the scheme of the International Association for the exchange of
students for Technical Experience.
(viii) Research fellowship in
engineering, technology, humanities and science subject
(ix) Junior and Senior research fellowships
awarded by CSIR.
(x) National research fellowship and fellowships
to German nationals awarded by the Ministry of Education.
(xi) 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 grant-in aid would be scholarship
exempt under Section 10(16).
(xii) Discretionary scholarship granted by the
employer to the children of employees cannot be treated as a perquisite 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 section
10(16) in the hands of the recipient.
(xiii) 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 section 10(16).
CBDT Circulars on the subject
Fellowship by Department by Atomic Energy
A reference is invited to the Board’s Circular No. 6(XXIII-27) of 1962, dated 24.03.1962,
according to which the Junior and Senior Research Fellowships, instituted by the
Department of Atomic Department
of Atomic Energy, of the value of
Rs. 250 p.m. and Rs. 400 p.m. respectively,
for study and research in
the field of Nuclear Physics and Cosmic Rays are to be treated as
exempt from tax in the hands of the
recipients under section 10(16) as being scholarships
granted to meet the cost of education.
The Department of Atomic Energy has now stated that the scope of these Fellowships has
been extended to cover various other fields of research in Agriculture, Bio-chemistry, Bio-physics,
Botany, Zoology, Organic Chemistry, Electronics and Microbiology. The
values of the Fellowships
have also been increased as below :
|
Junior research fellowships Rs 300 p.m.
|
|
Senior research fellowships (A) Rs 400 p.m.
|
|
Senior research fellowships (B) Rs.
500 p.m.
|
The Board have decided that the abovementioned allowances in the various fields should be treated as exempt from tax in the hands of the recipients under section 10(16) as being
scholarships granted to meet the cost of education. –
[Letter : F. No. 25/37/66-IT(A-I), dated 02.12.1966.
CLARIFICATION 5
Financial assistance to research workers in universities- Under the scheme for grant of financial
assistance to teachers in the universities for undertaking research or learned work in science subjects and humanities (including social sciences) as non-recurring grant
(subject to a maximum of Rs. 5,000) is payable to the teachers for purchase of special
apparatus, special chemicals, stores’ books, consumables,
etc., and for field-work in
connection with the research. The above grant will be exempt from tax under
section 10(16). – [Letter : F. No. 24/7/64-IT(A-I), dated 24.03.1964]
Fellowship by UGC
The research fellowships in engineering technology, humanities and science subjects given by University Grants Commission will be exempt under section
section 10(16). The contigent grant of Rs. 1,000 per year to meet petty expenses will also be exempt
under section 10(14) of the Income Tax Act, 1961. - [Letter : F. No. 24/34/62-IT(A-I), dated 25.01.1963]
Junior and senior research fellowship awarded by CSIR
The Council of Scientific and Industrial Research, New Delhi, awards junior and senior
research fellowships to young research workers of Indian citizenship for enabling them to carry on
research in various branches of science in the Council of Scientific and Industrial
Research
establishments, Research Associations’ Laboratories and other institutions
approved by the Council. The allowance attached to a junior research fellowship is Rs. 200
p.m. (Rs. 300 in the case of certain
engineering subjects) and in the case of senior research
fellowship, it is Rs. 400 (Rs. 500 in certain engineering subjects). The tenure of each
fellowship is normally for a period of two years.
The Board have decided that the abovementioned allowances should be treated as exempt from
tax in the hands of the recipients under terms of item 5 of the late Finance Department's Notification No. 878-F-IT, dated 21.03.1922 (as amended from time to time) under section 60(1) of the Indian Income-tax Act, 1922 as being scholarships granted to meet
the cost of education. – [CBDT Circular No. 3(XX-III-23), dated 12.01.1961]
Fellowship awarded under technical teachers training programme
The Ministry of Scientific Research and Cultural Affairs awards about 100 fellowships under the Technical
Teachers’ Training Programme to prepare graduates for the teaching profession. The
fellowships are of the value of Rs. 350-25-400 and do not carry any additional allowance.
The duration of a fellowship ranges from 2 to 3 years. It has been represented that the
value of the fellowship may be exempted from income-tax.
The Board have decided that out of the total value of the fellowship, an amount of Rs. 250
p.m.
(representing the cost of education) may be treated as exempt from income-tax. This amount will be
fully exempt and is not to be included in the total income of the individual concerned for any purpose. – [CBDT Circular No.11(XXIII-24) [F. No. 27/67/60-IT(A-I)], dated 04.04.1961]
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)
Assessee
had completed his MBBS and joined a medical college as a junior resident for
post graduation degree. He received certain amount from college as a scholarship/stipend
for purpose of higher education and he claimed same as exempt under section
10(16). Assessing Officer disallowed. Held: Since, bond executed between
assessee and college, showed that the bond itself mentioned scholarship holders
as assessee was selected for a Government scholarship for pursuing/studying
post graduation course in Government Medical College, therefore, It could be
said that scholarship/stipend received by a student from college/Government,
for pursuing higher studies cannot be termed as salary, hence, exemption was
allowed to assessee. – [Dr. Rahul Tugnait
v. ITO (2009) 315 ITR 139 : 123 TTJ 251 : 23 DTR 301 (2010) 124 ITD 480 (ITAT
Chandigarh)]
The ITAT, Ahmedabad, in the case of ACIT v. 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. Assessee received certain sum being Humboldt Research Award from
Alexander Von Humboldt Foundation, Germany His name was approved by the Council
of Scientific and Industrial Research as a beneficiary of the said award. Assessee
claimed same as exempt under section 10(16). 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). Whether in view of
decision of Madras High Court in CIT v. V. K. Balachandran (1985) 23 Taxman 29,
assessee was entitled to exemption under section 10(16) – Held, yes. (Related Assessment
year : 2001-02) – [ACIT v. Girish Saran
Agarwal , ACIT v. (2007) 160 Taxman 79 (ITAT Ahmedabad)]
Scholarship
gratuitously granted to employees son - When the scholarship was paid entirely
gratuitously by the company and in its sole discretion and payment of
scholarship amount was never received by the employee but the children
concerned, the scholarship amount cannot be treated as a perquisite received by
the assessee as contemplated under section 17(2)(iii)(c) - amount is liable to
be exempt under section 10(16)
The assessees was
employee of Modi Rubber Ltd., Modipuram, in the relevant assessment year. While
computing the taxable income, the Assessing Officer found that the assessee has
not disclosed a sum of Rs. 18,000 in the case of Shri B. L. Garg. These amounts
were paid by the company to the assessee's son as scholarship. The assessing
officer after rejecting the assessee's plea that the said amount is exempt
under section 10(16) of the Act added them in the income of the assessee on the
ground that the said sum is liable to be added in the income of the assessee
being perquisite. The Tribunal in the
cases found that the payment was made by the employer to the children of the
assessees as scholarship and as such the said amount is liable to be exempt
under section 10(16) of the Act. (Related Assessment year : 1990-91) – [CIT v. B.L. Garg (2007) 289 ITR 218 : (2006)
155 Taxman : 202 CTR 145 : 155 TAXMAN 189 (All.)]
The appellant is an Orthopaedic Surgeon mainly attached to
Jaslok Hospital. During the relevant assessment year, the appellant received
agrant of Rs. 15,000 from the said hospital. This grant said to have been paid
to the senior and deserving doctors attached to Jaslok Hospital once in three
years for attending conferences or for study tour for advancement of knowledge
and experience. The Assessing Officer considered the same as professional
income. The tribunal held the requirement of section 10(16) is that the
scholarship must be granted to meet the cost of education. Cost of education
comprise within its ambit, not only tuition fee, which the student is required
to pay to the Institution. It includes all other incidental expenses which are
incurred for acquiring the education. The word 'education' includes within its
ken, knowledge, understanding and reflection. One cannot get education just by paying
tuition fee. One acquires knowledge by going to the school. But knowledge
gathered at the school is not the complete education. The scope of education is
vast. If one is required to travel to a place for the sake of education, the
expenditure on travelling will also come within the ambit of the expression ‘cost
of education’. Therefore, travel grant given for the purpose 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 first hand experience and become practically
acquainted at close quarters with the rapid scientific developments, taking
place all over the world, in the medical field particularly in the line of
orthopaedics. Considering the profession of the appellant, his specialised
knowledge in the field of orthopaedics and his educational qualifications, the appellant
can very well be placed in the category of scholars. The travel grant was
provided to the appellant so that he could sharpen his erudite in the 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 to grant exemption as
contemplated in the said section. (Related assessment
year : 1987-88) – [Dr.
J.C.N. Joshipura. v. ACIT (1996) 56 ITD 424, (Mum)]
Scholarship amount of Rs. 2,400 given by the employer to the
two children of the assessee-employee is exempt under section 10(16)
The
amount of scholarship paid to the children of the assessee was not a perquisite
given to the assessee, it is really not necessary to decide question No. 2 at
all, but we propose to answer it because, even if we are wrong in our decision
in respect of question No. 1, we are of the opinion that the amounts of the
aforesaid scholarships could not be added to the income of the assessee as they
were scholarships granted to meet the cost of education. In this connection, it
was urged by Mr. Jetly on behalf of Revenue that the amount of Rs. 2,400 paid
during the two assessment years should not be regarded as scholarships paid to
the assessee, as they were not paid to the assessee but paid directly to the
children of the assessee and for their benefit. In our view, this argument his
to be stated to be rejected. If these amounts were not to be treated as
perquisites given to the assessee, the question of including them in the income
of the assessee would not arise at all, and if the said amounts are to be
included in the income of the assessee on the ground that they are perquisites
as suggested by the Revenue, we fail to see how it would be open to the Revenue
in the same breath to contend that the said amounts were not paid to the
assessee. If the amounts are taken as having been paid to the assessee, they
were amounts of scholarship, which is not disputed before us, and hence they
are not liable to be included in the computation of the total income of the
assessee under the provisions of section 10(16) of the Income-tax
Act. – [CIT v. M. N.
Nandkarni (1986) 161 ITR 544 : 25 Taxman 9 (Bom.)]
Taxability of a scholarship, where the recipient has not spent the whole
amount
It is enough that
the whole object of payment is to meet the cost of education of a person and no
further inquiry should be made as regards the actual education costs incurred
for the purpose of determining tax exemption.
The expression cost
of education does not restrict itself to mean tuition fee but also includes all
other incidental expenses, which are incurred for acquiring the education. The
scope of education is vast and if one is required to travel to a place for the
sake of education, the expenditure on travelling would also come within the
ambit of the expression. Therefore, travel grant given for the purpose of
education also form an integral part of the cost of education.
The Madras High Court, in the case of
CIT v. V. K. Balachandran, 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). – [CIT
v. V. K. Balachandran (1984) 147 ITR 4 : (1985) 23 Taxman 29 (Mad.)]
Exemption is available to an assessee
notwithstanding the country of his origin. –
[CIT v. V. K. Balachandran (1984) 147 ITR 4 : (1985) 23 Taxman 29 (Mad.)]
Stipend received by an articled clerk undergoing Chartered Accountancy
training cannot be treated his income and therefore qualifies for exemption under section 10 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.
Stipend received by
the assessee, an articled clerk, from a concern of chartered accountants cannot
be treated as a payment made for services rendered by him to chartered
accountants. The assessee, an articled clerk, being a newly recruited graduate,
cannot assist the chartered accountants in their work and he joined them only
with a view to learning and receiving training. The stipend paid to the
assessee was only to enable him to meet out the cost of books, examination fee,
etc., which he had to pay during the course of training. The same could not,
therefore, be treated as assessee's income and, therefore, was exempt under
section 10(16). – [Sudhir Kumar Sharma v. ITO (1983) 17 TTJ 226 : 15 Taxman 100 (ITAT Jaipur)]
Scholarship received from a foreign institution was meant to
meet cost of education, therefore, same is fully exempt under section
10(16)
The
certificate of the concerned foreign institute which gave the scholarship to
the assessee, the certificate given by the concerned institute showed that the
scholarship was meant to meet the cost of education, etc. It squarely fell
within section 10(16) so fully exempt. – [ITO v. Dr.
V. Ramalinghaswami (1983) 6 ITD 491 (ITAT Delhi)]
Tax treatment would remain unchanged even if the
scholarship is received for pursuing a course of education not leading to a
degree
In the case of A. Ratnakar Rao v.
Addl. CIT, 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. – [A. Ratnakar Rao v. Addl. CIT (1981) 128 ITR 527 : 6 Taxman 144 (Karn)]
No comments:
Post a Comment