Fellowship /Scholarship Is Exempt

From Tax!
MARCH 19, 2007 BY TAXWORRY 1 COMMENT
I completed a training fellowship in Singapore in 2006-2007. The total duration of the
fellowship from May2006 –November 2006 was 186 days. I had received a monthly stipend
to take care of my stay and sustenance. I could save some amount which I deposited in my
savings account in India after returning back. The total stipend received by me is not taxable
according to Singapore tax laws. Will this amount deposited in my account attract income
tax or is it exempt from income tax.?In case the stay in Singapore has not been uninterrupted
(visit to India for 10 days in between to attend a conference) will the considerations
change? drgajanan2002@yahoo.com

Section 10 of the I T Act provides income which are exempt from income tax. Sub section 16 of section 10 is
regarding scholarship received by a person. It states :
’16) scholarships granted to meet the cost of education;”
Accordingly , if you got fellowship for higher education , the amount received as Stipend is not taxable. In my
view, if you saved out of such exempt income and put in your saving account , those amounts are not
taxable.There are many case laws which has very lucidly explained the provisionu/s 10(16) of the I T Act.
Some of these are

• If scholarship is paid only for meeting the cost of education, 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 the payment being one for
scholarship. CIT v. V.K. Balachandran[1984] 147 ITR 4 (Mad.).
• The proper view to take on section 10(16) of the Act would be that 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 – Dr. V. Mahadev v. CIT [1990] 51 Taxman
411/184 ITR 533 (Mad.).
• Assessee received a scholarship from a US hospital to aid his study and research and not for the
services rendered, Karnataka High Court held that the scholarship would be exempt under section
10(16), even though it was partly taxable under the American law - Addl. CIT [1981]
128 ITR 527 (Kar.).
• Where the company of which the assessee was an employee granted scholarships to the children of
its employees solely at its discretion without any reference to the terms of employment of the
employees, and the assessee’s children had also received certain sum as scholarships from the
company, even if the amounts were taken as having been paid to the assessee, they were amounts of
scholarship and hence not liable to be included in the computation of the total income of
the assessee within the meaning of section 10(16) – CIT v. M.N. Nadkarni [1986] 161 ITR 544
(Bom.).
There are Tribunals order on the same subject given as under
Income-Tax Officer.vs Dr. V. Ramalinghaswami. (6 ITD 491) [Delhi] which held that scholership is not taxable
as per section 10(16) of the I T Act.
Dr JCN Joshipura Vs ACIT [56 ITD 424]1995 , held as follows

• Dealing with the basic postulates of a scholarships in clause (16), the Hon’ble High Court in V. K. Balachandran’s case

has held 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, or 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 scholarship is made free, it would not naturally come within the ambit of section 10(16). In the sense of

payment made for studies, scholarship necessarily means some payment to meet the cost of education, the payment

being made to the person pursuing the education and incurring the cost thereof.

• There are, therefore, two considerations, which, altogether, make up the concept of a scholarship for meeting the cost

of education within the meaning of section 10(16). One is that the scholarship is a payment intended to be an income

receipt in the hands of the scholar. The other one is that whatever is paid is intended to make the cost of education of

the recipient. Since the purpose is to meet the cost of education. The question whether the quantum of the payment is

adequate or inadequate or is or is not, in excess of requirements are of beside the point. The scholarship may only

meet the partial cost of education. Still it would be a scholarship within the meaning of section 10(16).”

Therefore, in my opinion , your stipend is not taxable as per section 10(16) of I.T Act.

There is another twist to your case. In case you were non resident during Fy 2006-07 and the stipend
was paid by the Singpore Govt/university , receipt of stipend outside India is not taxable in India.

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