ITAT Deletes Rs 18.34 Lakh Tax Addition on PG Medical Stipend, Holds Payment Linked to Education Eligible for Section 10(16) Exemption:

The Income Tax Appellate Tribunal, Delhi, has deleted the tax addition of Rs 18,34,578 received by Snehlata, a resident of Rewari, Haryana, as stipend during her post graduate medical studies.

Snehlata was on a full-time course of MS (General Surgery) from Aligarh Muslim University (AMU). She was paid Rs 18.34 lakh by the university as stipend for her post-graduate medical education and compulsory residency training during the relevant financial year.

The AO has offered the entire amount to be taxable salary and not an educational scholarship. The Commissioner of Income Tax (Appeals)/NFAC also upheld the tax addition.

Snehlata then challenged the decision before the Delhi ITAT.

The tribunal considered an earlier decision of the Chandigarh ITAT in the case of Hiteshi Aggarwal v. PCIT. In that case, a doctor pursuing postgraduate medical studies had received about Rs 8.61 lakh as a stipend.

The Chandigarh tribunal had held that the stipend could not simply be treated as salary because it was connected with the student's postgraduate education. It allowed the exemption under Section 10(16) of the Income Tax Act.

The Delhi ITAT found Snehlata's case to be similar. It noted that she was a qualified MBBS doctor pursuing a full-time MS (General Surgery) course and that the Rs 18.34 lakh was received in connection with her postgraduate education and compulsory residency training.

Based on the earlier ruling, the Delhi tribunal accepted that the payment had an educational character and could be considered a scholarship or educational stipend. It therefore deleted the entire tax addition of Rs 18,34,578.

Section 10(16) of the Income Tax Act provides an exemption for scholarships granted to meet the cost of education.

However, the ruling does not mean that every payment described as a “stipend” is automatically tax-free. The actual nature and purpose of the payment have to be examined.

If a payment is essentially remuneration for employment or services, simply calling it a stipend or scholarship would not make it exempt from tax.

In Snehlata's case, the tribunal focused on the fact that she was a postgraduate medical student and that the stipend was linked to her academic course and compulsory residency training.

The ruling may be relevant to students in professional courses where practical or clinical training forms part of their education. It makes clear that compulsory training, by itself, does not necessarily mean that payments received by a student must be treated as salary.

The Delhi ITAT consequently allowed Snehlata's appeal and directed the tax department to delete the Rs 18.34 lakh addition.