1982 (11) TMI 5 - HC - Income Tax

Grant-in-aid for research work qualifies as scholarship, exempt from tax under Income Tax Act

Commissioner Of Income-Tax, Tamil Nadu-IV Versus VK. Balachandran

The High Court of Madras ruled in favor of the assessee, a Professor of Mathematics, stating that the grant-in-aid received for research work qualified as ... Exemptions Issues:1. Whether the grant-in-aid received by the assessee should be excluded from taxable income under section 10(16) of the Income Tax Act, 1961Rs.Analysis:The judgment delivered by the High Court of Madras involved a case where an assessee, a Professor of Mathematics, received a grant-in-aid of $10,000 and other fringe payments from the Princeton Institute of Advanced Study for conducting research work in New Jersey. The assessee claimed that the grant-in-aid should be excluded from taxable income under section 10(16) of the Income Tax Act, 1961. The Income Tax Officer (ITO) initially treated the grant as salary, but the Appellate Assistant Commissioner (AAC) and the Tribunal considered it a scholarship for research work. The Tribunal held that the grant should be excluded from taxable income under section 10(16).The High Court upheld the Tribunal's decision, stating that the scholarship, even though income in the hands of the recipient, should be excluded from taxable income under section 10(16). The Court clarified that the purpose of the payment, i.e., to meet the cost of education, is crucial in determining whether a scholarship qualifies for exclusion. The Court emphasized that the quantum of payment or how it is utilized by the recipient is immaterial as long as the payment is intended to meet educational expenses.The Court also highlighted that the interpretation of section 10(16) by the Tribunal aligned with the understanding and application of the provision by the Central Board of Direct Taxes (CBDT). The CBDT's circulars instructed officials to grant tax exemptions to scholarships without strict scrutiny, as long as the payments were broadly categorized as scholarships and solely for educational purposes. The Court emphasized the need for consistent treatment of scholarships for both Indian and foreign scholars, irrespective of the source of funding.In conclusion, the Court ruled in favor of the assessee, holding that the grant-in-aid received for research work qualified as a scholarship to meet the cost of education and should be exempt from taxable income under section 10(16). The Commissioner of Income-tax was directed to bear the costs of the assessee in the case.