Madras High Court
Dr. V. Mahadev vs Commissioner Of Income-Tax on 20 March, 1990
Equivalent citations: [1990]184ITR533(MAD)
JUDGMENT Ratnam, J.
1. 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 under section 10(16) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). The Income-tax Officer took the view that under section 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 under section 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 under section 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. Under section 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 ?"
2. Learned counsel for the assessee. Strongly relying upon the decisions reported in A. Ratnakar Rao v. Addl. CIT [1982] 128 ITR 527 (Kar) and CITY v. V. K. Balachandran [1984] 147 ITR 4 (Mad), 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 under section 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.
3. 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. Under section 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 Ratnakar Rao v. Addl. CIT [1981] 128 ITR 527 (Kar), 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 (Mad), 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 under section 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.