Dr. V. Mahadev vs Commissioner of Income Tax

Ratnam, J.—The assessee, a registered medical practitioner, who was employed in the medical department in the State of Tamil Nadu,

resigned his job and proceeded to the United States of America for securing a qualification in Internal Medicine. He joined the medical school in

the University of Massachusetts and one of the requirements of the American Board of Internal Medicine, in order to obtain certification in Internal

Medicine was that a candidate had to do internship in a hospital for a prescribed period Accordingly, the assessee worked in and completed

internship at the Worcester City Hospital from June, 1973, to June 1974. It also appears that the assessee worked there for two more years.

During the accounting period ending March 31, 1974, relevant for the assessment year 1974-75, the assessee had admittedly received 7,086.82,

and, in course of the assessment proceedings, the assessee claimed that the amount received from the hospital was in the nature of a stipend paid

to meet the expenses in connection with the post-graduate studies and hence exempt u/s 10(16) of the Income Tax Act, 1961 (hereinafter referred

to as ""the Act""). The Income Tax Officer took the view that u/s 5(1)(c) of the Act, any Income accruing or arising to an assessee outside India

during the previous year was chargeable to tax and the purpose for which the Income was received or was utilised would not change the character

thereof and subjected to tax Rs. 50,320 being the equivalent of 7,086.82. Aggrieve by this, the assessee preferred an appeal to the Appellate

Assistant Commissioner, reiterating the contention that the amount received by him from the hospital was only a scholarship and exempt u/s 10(16)

of the Act. However, the Appellate Assistant Commissioner also concurred with the view taken by the Income Tax Officer and dismissed the

appeal. On further appeal by the assessee to the Tribunal, it was contended that the amounts paid by the hospital and received by the assessee

should be considered as scholarship and, therefore, should be excluded from the computation of the total income of the assessee u/s 10(16) of the

Act. The Tribunal held that the amounts received by the assessee from the hospital constituted remuneration for services rendered and that the

assessee had not established that such payments were scholarships to enable the assessee to meet the cost of education and, according to the

Tribunal, the deduction of tax at source by the hospital authorities strengthened the view that the amounts had been paid to the assessee only as

salary and not by way of scholarship. On the dismissal of the appeal by the Tribunal, at the instance of the assessee. u/s 256(1) of the Act, the

following two questions of law have been referred to this court for opinion :

(1) Whether the sum of 7,086.82 (equivalent to Rs. 50,320) received by the assessee in the course of internship in the Worcester City Hospital is

income of the assessee within meaning of the Income Tax Act, 1961 ?

(2) If it is income, whether it is a scholarship granted to the assessee to meet his cost of education within the meaning of section 10(16) of the

Income Tax Act, 1961 ?

Learned counsel for the assessee. Strongly relying upon the decisions reported in A. Ratnakar Rao v. Addl. CIT [1982] 128 ITR 527 and

Commissioner of Income Tax, Tamil Nadu-IV Vs. V.K. Balachandran, , contended that the amounts received by the assessee were really in the

nature of scholarships granted to him for the purpose of meeting the cost of education falling u/s 10(16) of the Act and, therefore, not includible in

the computation of the total income of the assessee. On the other hand, learned counsel for the Revenue submitted that, even according to the

copy of the certificate issued by the hospital, it was clearly established that the amounts had been paid to the assessee either towards either

towards pay or wages or even payment for overtime work and such payments cannot, therefore, be regarded as scholarships granted to meet the

cost of education falling within section 10(16) of the Act. The decisions relied on by learned counsel for the assessee were also distinguished as not

being applicable on the facts and circumstances of the case.

We may first refer to section 10 of the Act which enumerates several items of income which are outside the purview of taxable total income. The

opening words of section 10 clearly indicate that the items mentioned thereunder undoubtedly bear the stamp of income character, but are

nevertheless excluded from the computation of taxable income. u/s 10(16) of the Act, scholarship to meet the cost of education has been included

in section 10 of the Act not because it does not bear income character, but precisely for the very reason that it bears such a character as, if it did

not bear the character of income, there was no need whatever for a specific exclusion. The proper view to take on section 10(16) of the act would

be that a scholarship, even though income in the hands of the scholar-recipient. Would not be included in the taxable total income, if it was a

scholarship granted to meet the cost of education. Bearing this in mind, when we examine the precise nature of the payments received by the

assessee, if is seen from annexure styled as statement of earnings that the assessee has been shown to have been paid pay of salary. It has also

been differently described as wages. The federal and State taxes had been deducted from the payments so made. It may be that in order to fulfil

one of the requirements of the Board of Internal Medicine to obtain certification in Internal Medicine, the assessee did internship in the hospital, but

then the amounts received by the assessee cannot by any means, be regarded as scholarship. Merely from the circumstances that the amounts have

been paid to the assessee by the hospital authorities during the period the assessee was doing his internship, the payments do not cease to be either

pay or salary and become metamorphosed into scholarship. The Tribunal had noticed not only the absence of evidence to show that the amounts

paid to the assessee were not remuneration for services rendered, but something else, but also a concession by the assessee that part of the

amounts paid by the hospital authorities represented overtime charges. It is difficult to accept that any overtime charges, pay or wages had been

granted to meet the cost of education, so as to make it a scholarship within the meaning of section 10(16) of the Act. We may now very briefly

refer to the two decisions relied on buy learned counsel for the assessee. In A. Ratnakar Rao Vs. Addl. Commissioner of Income Tax, Bangalore,

, in the letter issued by the hospital marked as annexure ""A"", it had been clearly stated that the stipend paid or allowed was for the benefit of the

trainee to aid him in the pursuit of study and research in paediatrics and it was. Therefore, held that the amount paid to the assessee was for the

benefit of pursuing studies and research and the amount so paid by the hospital and received by the assessee was in the nature of a scholarship.

That decision has been rendered with reference to the purpose of the payment, as a scholarship amount, to pursue study and research in

paediatrics. That decision cannot, therefore, be of any assistance in the paediatrics, that decision cannot, therefore, chandran [1985] 147 ITR 4 ,

the amounts were paid to the assessee, who was an ""exchange visitor"", in order to enable him to engage himself as a member in the school of

mathematics for doing advanced research in the filed of mathematics and to defray the expenses of his travel, study, etc., and it was under those

circumstances that the grant-in-aid was held to be a scholarship to meet the assessee''s education so as to fall u/s 10(16) of the Act. Even that

decision cannot have any application at all in the facts and circumstances of this case. Thus, on a due consideration of the facts and circumstances,

we answer the first question referred to us in the affirmative and the second question in the negative and against the assessee. The Revenue will be

entitled to the costs of this reference, counsel''s fee Rs. 500.