TMI Blog2008 (6) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of the assessee is that the assessee is a student of post-graduation in Rajindra Medical College and received stipend/scholarship of Rs. 2,65,955 and claimed exemption from tax under s. 10(16) of the Act. Our attention was also invited to pp. 8 to 11 of the paper book filed by the assessee. On the other hand the learned senior Departmental Representative pleaded that it is a salary, therefore, the impugned order was supported. Reliance was placed on Dr. V. Mahadev vs. CIT (1990) 82 CTR (Mad) 236 : (1990) 184 ITR 533 (Mad) and further contended that the cases relied upon by the assessee are not applicable to the present appeal. 3. We have considered the rival submissions and perused the material available on the file. Brief facts are that the assessee completed his MBBS degree and joined Rajindra Government Medical College, Patiala, as a junior resident for post-graduation degree. The assessee received Rs. 2,65,955 from the college as a scholarship/stipend for the purpose of higher education. The assessee claimed the impugned amount as exempt under s. 10(16) of the Act which was disallowed by the learned AO. On appeal the assessment order was upheld which is under challeng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... njab, Health and Family Welfare Department (hereinafter referred to as the competent authority) whose decision in this behalf shall be final to enforce the bond, principal and the sureties. (iv) Shall jointly and severally pay to the Government on demand without demur a sum of Rs. three lakhs for the purpose of this clause the expression refusal to serve the Government would include the refusal on the part of the principal to appear before the selection committee of the Government, for personal interview etc. if any to consider his suitability of employment under the Government in terms of the bond. (v) It shall be further condition of the bond that although the principal have secured employment under the Government through his own effort or otherwise without the knowledge notice of the Government within the period of six months after qualifying for full registration passing the examination, such appointment shall still be automatically deemed to have been made by the Government in terms of this bond. (vi) And upon making such payment the above written bond shall be void and of no effect but otherwise it shall be and remain in full force and virtue. (vii) It is further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of CIT vs. V.K. Balachandran (1984) 147 ITR 4 (Mad). The Hon'ble Bombay High Court in the case of CIT vs. M.N. Nadkami (1986) 52 CTR (Bom) 213 : (1986) 161 ITR 544 (Bom), even went a step further wherein the company where the assessee was employee, granted scholarship to the children of its employee solely at its discretion, without any reference to the terms of employment of its employees, and the assessee's children received certain sum as scholarship from the company, these were held to be not includible in the computation of the total income of the assessee within the meaning of s. 10(16) of the Act. Identical ratio was laid down in the case of CIT vs. B.L. Garg (2006) 202 CTR (All) 145 : (2006) 155 Taxman 189 (All) and A. Ratnakar Rao vs. Addl. CIT (1981) 22 CTR (Kar) 83 : (1981) 128 ITR 527 (Kar). The learned senior Departmental Representative, during arguments, relied upon the decision of the Hon'ble Madras High Court in the case of Dr. V. Mahadev vs. CIT wherein the assessee joined medical school in America. The assessee was paid some amount for services as intern, which was described as wages. The impugned amount paid was held to be not exempted under the Act. In that c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 from 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 it 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of scholarship and extent of exemption-By scholarship as ordinarily understood, we mean anything which makes education free of charge, or at a concessional rate of fees. In s. 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 cl. (16) is that it is an income receipt. Nevertheless, it is excluded from the total income by being brought under s. 10. The view 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 IT 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (11) Living allowance/stipend paid to foreign trainees coming to India under the technical co-operation scheme of the Colombo Plan and Special Commonwealth African Assistance Plan." We are also reproducing herewith certain notifications/letters etc. issued by the competent authorities in respect of scholarship and other allowances paid to scientists, retired scientists, teachers and other research fellows etc. which speaks about exemption and denial in respect to s. 10(16) of the Act: Allowance to retired scientists-Annual allowance payable to retired scientists under the scheme for 'utilization of the services of retired scientists in the field of agriculture, animal husbandry and allied sciences' is not a payment to meet the cost of education and will be taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fellowships (Rs. 300 - Rs. 500 per month) granted by the Council of Scientific and Industrial Research, New Delhi should be treated as exempt from tax in the hands of recipients-Circular No. 3(XXIII-23), dt. 12th Jan., 1961. Fellowships to German Nationals-National research fellowships in science and technology and fellowships to German nationals studying in India under German Industrial Co-operative Scheme should be treated as scholarships granted to meet the cost of education and exempted from tax-Circular No. 49(XXIII-12), dt. 13th Dec., 1956. Living allowance/stipend under Colombo Plan and Special Commonwealth African Assistance Plan-Living allowance/stipend (Rs. 200 - Rs. 600 per month) paid to foreign trainees coming to India under the technical co-operation scheme of the Colombo Plan and the Special Commonwealth African Assistance Plan would be exempt from tax under s. 10(16)-Source, income-tax circular published by the Directorate of Inspection (Research, Statistics and Publication), 1968, Edition p. 89. Fellowships granted by Scientific Research and Cultural Affairs Ministry-Out of the fellowships awarded under technical teachers training programme by the Ministry of Scien ..... 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