JUDGMENT A.K. Yog and Prakash Krishna, JJ.
1. These two references were heard together and are being disposed of by a common judgment as the question of law and facts are overlapping with each other. The Income Tax Appellate Tribunal has made these references under Section 256(1) of the Income Tax Act 1961 (hereinafter referred to as the Act). The following question of law has been referred in Income Tax Reference No. 25 of 1997 for the assessment year 1988 -89:-
Whether scholarship given to the students of employee's of the Co. be included in the assessee 's income?
2. Whereas in the Income Tax Reference No. 104 of 1995, Income Tax Appellate Tribunal, Meerut has referred the following question for the assessment year 1988-89:-
Whether on the facts and in the circumstances of the case the ITAT was legally correct in confirming the order of the lower Appellate Authority by allowing scholarship to the assessee's son as exempt?
3. The facts of both the above references are identical and the Tribunal while deciding the appeal in the case of Shri Y.K. Seth, giving rise to the reference No. 104 of 1995, has followed its earlier order passed in the case of Shri B.L. Garg giving rise to the reference No. 25 of 1997. Both the assessees were employees of Modi Rubber Limited, Modipuram in the relevant assessment years. While computing the taxable income, the assessing officer found that the assessee has not disclosed a sum of Rs. 18,000/- in the case of Shri B.L. Garg and a sum of Rs. 12,000/- in the case of Shri Y.K. Seth. These amounts were paid by the Company to the assessee's son as scholarship. The Assessing Officer after rejecting the assessee's plea that the said amount is exempt under Section 10(16) of the Act added them in the income of the assessee on the ground that the said sum is liable to be added in the income of the assessee being perquisite.
4. The Tribunal in both the cases found that the payment was made by the employer to the children of the assessees as scholarship and as such the said amount is liable to be exempt under Section 10(16) of the Act.
5. Shri S.Chopra, the learned standing counsel for the department who appeared in I.T.R. No. 104 of 1995 made leading argument which was adopted by Shri A.N. Mahajan, the learned standing counsel for the department in the connected Income Tax Reference. Shri Suyash Agrawal appeared on behalf of the assessee in I.T.R. No. 25 of 1997. None appeared on behalf of the assessee in ITR No. 104 of 1995. But, the assessee through his letter submitted that reference should be rejected as tax effect is less than Rs. 30,000/- in view of the CBDT Circular No. 319/11 of 1987.
6. The learned counsel for the department submitted with the help of Section 17(2)(iii)(c) of the Act that the amount given by company to the assessee's son as scholarship is a perquisite and liable to be taxed under the head salary under Section 17 of the Act. It was submitted that by giving scholarship to the son of the assessee the company in a way reimbursed the amount of expenses which would have been incurred by the assessee. The assessee has, thus, been ultimate beneficiary and has been benefited by the employer company. It was further submitted that the scholarship was given to the assessee's son without there being any such scheme and at least no such scheme has been placed on the record. The grant of scholarship to the assessee's son was in the nature of device adopted by the company to reduce the tax liability and it was argued that we should interpret the Act in such a manner so as to curb the tax avoidance device, adopted by the assessee and his company. Reliance has been placed upon certain decisions which we will consider at the appropriate place.
7. In contra, the learned counsel for the assessee submitted that there is no dispute that the amount was paid as scholarship to the assessee's son by the company. The payment was made gratis. Section 10 of the Act grants exemption to certain incomes. Elaborating the argument it was submitted that even assuming for the sake of argument that the amount of scholarship was perquisite, it is liable to be exempt under Section 10(16) of the Act.
8. We have given careful consideration to the respective submissions of the learned counsel for the parties. The meaning of word 'scholarship' as per Webester's Third New International Dictionary 1966 Edition is as follows:-
Scholarship - a sum of money or its equivalent offered (as by an educational institution, a public agency or a private organization or foundation) to enable a student to pursue his studies at a school, college or university.
9. It has been defined as maintenance or stipend for student awarded by an educational institution in Funk & Wagnalls Standard Dictionary International Edition, which is reproduced as under:-
Scholarship - Maintenance or a stipend for a student awarded by an educational institution.
10. The Encarta World English Dictionary gives the following meaning to word scholarship :-
Scholarship- Financial help for a student,
1. a sum of money awarded to a student on the basis of academic merit, to help with living expenses, study or travel,
2. formal study, academic learning or achievement,
3. academic works, a body of learning or an academic subject.
11. Section 10 sets down various items of income which are outside the purview of total taxable total income. Section 10 of the Act is in Chapter III of the Act, the heading whereof is ' incomes which do not form part of total income'. The heading of Section 10 is quite clear and does not admit any ambiguity. The heading of Section 10 itself is suggestive of fact that certain receipts which are income are not included in total income. The relevant portion of Section 10 reads as follows:-
Incomes not included in total income - In computing the total income of previous year of any person, any income falling with in any of the following classes shall not be included -
1...
2...
3...
16. Scholarship granted to meet the cost of education.
12. A bare perusal of Section 10 would show that while computing the total income of previous year of any person certain incomes including scholarship granted to meet the cost of education shall not be included in the total income of previous year of any person.
13. In Commissioner of Income Tax, Tamil Nadu - IV v. V.K. Balachandran . the Madras High Court has held that the opening words of Section 10 show very clearly that the items listed thereunder are undoubtedly receipts of an income - character but they are nonetheless to be excluded from the computation of the taxable income. We are in quite agreement of the aforesaid view of the Madras High Court and find sufficient force in the argument of the assessee that even if, for the sake of argument the payment of scholarship to assessee's son is treated as perquisite, is not liable to be included in view of Section 10 of the Act. The various receipts or items of the income enumerated in Section 10 presupposes that they are 'income'. Otherwise there would have been no occasion for legislature to make a provision to exclude them from the total income of a person.
14. The learned standing counsel for the department have canvass before this Court that the payment of scholarship was nothing but a perquisite to the assessee and as such it is liable to be included in the hands of assessee under Section 17 of the Act. The said argument is misconceived and liable to be rejected for the reasons more than one. No question whether the payment of scholarship to an employee's son by a company is a perquisite or not, has not been referred by the Tribunal for the opinion of this Court, rightly pointed out by the learned counsel for the assessee. To this, the learned counsel for the department has submitted that the scholarship amount is liable to be included in the hands of the assessee under Section 17(2)(iii)(c) of the Act. He submitted that the scholarship was paid without there being any scheme and as a device adopted by the company to avoid the payment of tax. We find from the order of the Tribunal in the case of B.L. Garg that it has placed reliance upon a copy of its order in ITA No. 185 (Del) of 1992 for the assessment year 1988-89 in the case of assessees itself wherein a detailed order was passed. A copy of that order has not been made part of the paper book nor the learned counsel could inform as to whether any reference was filed or not by the department against the aforesaid order. The amount of scholarship was received by the assessee's son and not by the assessee has not been in dispute. In CIT v. M.M Nad Kami the Bombay High Court has held that when the scholarship was paid entirely gratuitously by the company and in its sole discretion and payment of scholarship amount was never received by the employee but the children concerned, the scholarship amount cannot be treated as a perquisite received by the assessee as contemplated under Section 17(2)(iii)(c) of the Act. It has also rejected the contention of the Revenue to reframe the question and consider Section 17(2)(iv) of the Act as there was no reference on that point by the Tribunal. This decision is the complete answer to the submissions made on behalf of the department.
15. Now we will consider the cases relied upon by the learned standing counsel. Reliance has been placed upon a decision of Madras High Court in the case of Dr. V. Mahadev v. CIT (1980) 184 1TR 533. In this case the Tribunal found that the payment was received by the assessee as wages. Part of the amount represented overtime charges and taxes were deducted by the authority concerned. The assessee joined the medical school in the University of Massechussets. To fulfill the requirements of 'American Board of Internal Medicine', the assessee done internship at a hospital and received certain amount which was claimed by him as scholarship amount. The Tribunal recorded a finding that the amount represented wages etc. In this fact situation, the High Court held that the payments, thus, received by the assessee was towards the pay or salary and was not scholarship. In this case the case of CIT v. V.K. Balachandran (supra) was distinguished on the ground that the assessee in that case received the amounts for doing advance research in the field of mathematics and to defray the expenses of his travel, study etc. Therefore, the case of Dr. V. Mahadev (Supra) is distinguishable on the facts. In the case in hands there is no dispute with regard to the nature of the amount received by the assessee's son, as the department at no stage contended that the amount received by the assessee's son was not in the nature of scholarship.
16. The other cases relied upon by the learned counsel for the assessee; Commissioner of Income Tax v. Raghu Sinha (2003) 262 ITR 378 which deals with the reimbursement of medical expenses incurred on treatment of employee; Karmchari Union v. Union of India which deals with the question as to whether various allowances namely clearness allowance, city compensatory allowance, house rent allowance, leave encashment etc. are taxable as income, which arose from a judgment of our court in the case of All India Defence Accounts Association v. Union of India being besides the points needs no detailed consideration. The learned standing counsel could not point out any relevancy of these cases with regard to the questions referred by the Tribunal for consideration. We have carefully examined these cases and we find that there is not even a whisper in any of these cases with respect to the provision of Section 10(16) of the Act, which is presently involved.
17. In view of our discussion as above, we find that the order of the Tribunal is perfectly justified in law and the view taken by the Tribunal is in conformity with Section 10(16) of the Act. We answer the question referred in both the references in affirmative i.e. in favour of the assessee and against the department. No order as to costs.