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Tax on Stipend (CA articleship)

Farzan (Student) (57 Points)

03 January 2008

I'm working in a mid-sized firm, as far as i know our articleship stipend (C.A.) is exempt from any and all taxes. However, my firm is deducting professional tax from my stipend. Please let me know under which Act and which clause is the stipend exempt. Thanks

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24 Replies

Amit Sharma (article) (2677 Points)
Replied 03 January 2008

Whether the stipend paid to trainee is taxable if taxable under which section or head of income... Stipend may be taxable or may not be taxable based on the fact of the case. First visit the scope of total income which is defined in section 5 of the Act. It says "5. (1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which (a) is received or is deemed to be received in India in such year by or on behalf of such person ; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year ; or (c) accrues or arises to him outside India during such year " Thus all receipts are taxable unless exempt expressly under the I T Act. Stipend is not expressly exmept under the Act. Thus Stipend is certainly taxable income if it is purely being given in form of cost of living or as wages or salary or for any purpose but studies . However, if the Stipend granted is for furthering education or gaining knowledge , same can be claimed exempt u/s 10[16] of the I T act . In this regard the decision of the Karnataka High Court in A. Ratnakar v. Addl. CIT [1981] 128 ITR 527 can be applied.This was also followed by Tribunal in case of Income-tax Officer v. Dr. G.N. Ramachandran [1 ITD 902]

Venkatesh Rao (Service) (135 Points)
Replied 03 January 2008

Dear Amit, Farzan's query is with regard to deduction of Profession Tax(PT) you have narrated him about I.Tax. Dear Farzan, PT is a state Act The PT deduction shall take place if an individual is working in a state which PT law is enacted deduction is applicable for all salary class people and Professional individuals as per the slab applicable.There is no exemption in your case for PT deduction. Rgds Venkatesh Rao

Sanjay Dugar (Chartered Accountant) (206 Points)
Replied 03 January 2008

Dear all kindly refer to the case law sudhir Kr sharma v/s ITO in the jipur bench of ITAT in may 1983. in this case the stripend has been expresely excempted from income tax ............if you want the cale law mail me ur email id

CA. Amit Daga (Finance Controller CA. CS. CFA. CIFRS. M.COM. ) (9017 Points)
Replied 02 February 2008

Hi sanjay mail me the facts of this case laws everything ... my mail id is amitdaga19 @ yahoo.co.in

(Guest)

Hi dear,

I want to read that case law under which the stipend received from CA firm is exempt.

Can you please mail it to me?

Hoping for your reply.

My email id is

dipsca @ gmail.com

(Guest)

PLEASE FORWARD ME THE CASE LAW

T.S.Mohana Harish (Audit Assistant) (163 Points)
Replied 03 July 2008

Dear All,

Please sent me the above case law to my E-Mail ID- harish_ts1984 @ yahoo.com I will be Thank full to All

(Guest)

Dear Sanjay,

Can u pls mail me the case law.

(Guest)

Dear Sanjay,

can u pls mail me the case law. request for ur help

pankaj (Taxation expert) (63 Points)
Replied 09 July 2008

In Sudhir Kumar verma Vs ITO, the assesse claimed that stripend was exempt u/s 10(16) on various grounds like- learning, no contribution expected, to meet cost of books, coaching fee, examination fees etc...The decision was finally given in assessee's favor.There are many other case laws which have very lucidly explained the present issue and provision u/s 10(16) of the I T Act. Some of these are

1. 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.).

2. 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 ncluded 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.).

3. 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.).

4. 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 also ITAT's order on the same subject , favourable to assessee. For example ,Income-Tax Officer.vs Dr. V. Ramalinghaswami. (6 ITD 491) [Delhi] Tribunal held that scholarship is not taxable as per section 10(16) of the I T Act.

5. In Dr JCN Joshipura Vs ACIT [56 ITD 424]1995 , Tribunal 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)."

From the aforesaidcase laws, we can see that the courts and Tribunals have gone beyond the meaning of scholarship given in dictionary and stated that the word scholarship given under I T Act has to be seen from the angle of purpose for which payments have been made. If the basic purpose of payment to meet the cost of enhancing the knowledge of a person, such payments can come within the meaning of scholarship which incidentally not defined under the I T Act.

Therefore, I feel that earning of internship/stripend/scholarship is totally free from tax if there are no other facts which lead to show that internship/stripend/scholarship was not a session for gaining experience or furtherance of education.

(Guest)

Hi dear,

I want to read that case law under which the stipend received from CA firm is exempt.

Can you please mail it to me?

Hoping for your reply.

My email id is rounak1406 @ gmail.com

adil (Article astt.) (0 Points)
Replied 14 August 2008

i think as defined in defination and purview of it act such icome belong to income from salary and such income may be exempt under sec 10(16) because such income has been exempted in case of sudhir verma v/s ITO .

(Guest)

i would like 2 join

(Guest)

Originally posted by :Sanjay Dugar
"	Dear all kindly refer to the case law sudhir Kr sharma v/s ITO in the jipur bench of ITAT in may 1983. in this case the stripend has been expresely excempted from income tax ............if you want the cale law mail me ur email id	"