Rama Jois, J.
1. The Income-tax Appellate Tribunal, Bangalore Bench, has referred the following three question for the opinion of this court :
'(1) Whether the Tribunal was justified in law in holding that the Commissioner was competent to consider before initiation of proceedings under section 263, material which was brought on record subsequent to the passing of the order which is the subject-matter of revision
(2) Whether the Tribunal was justified in law in coming to the conclusion that where the Income-tax Officer has exempted a particular sum from tax and the Commissioner acts under section 263 to withdraw such exemption it is for the assessee to lead evidence to show that the sum in question was exempt from tax
(3) Whether, on the facts and in the circumstance of the case, the Tribunal was correct in upholding the order of the Additional Commissioner or Income-tax that the amount of $ 7,725 equivalent to Rs. 57,938, received by the assessee from the Asst. Director of Jewish Hospital, Brooklyn, U.S.A., was not exempt from taxation as scholarship under section 10(6) of the Income-tax Act, 1961 ?'
2. The relevant facts which are set out in the statement of the case are as follows :-
3. The assessment year is 1971-72. The assessee filed the return of income for the period ending March 31, 1971. He declared his total income at Rs. 61,117. He also indicated in the returns that he had received $ 7,725 from the Jewish Hospital, Brooklyn, U.S.A. during the period from July 1, 1970, to March 31, 1971, by way of scholarship. Before the ITO he pleaded that the said amount was not taxable in view of s. 10(16) of the I.T. Act. The ITO accepted the plea of the assessee and exempted the said income from tax. Subsequently, there appears to have been some audit objection in respect of the exemption allowed by the ITO. Therefore, the Commissioner initiated action under s. 263 of the Act on January 10, 1975. He proposed to bring the income to tax on the ground that the amount received by the assessee was not in the nature of scholarship but it was salary for the services that he had rendered. Before the issue of notice, it appears that the income-tax department had received a reply dated March 4, 1974, from the Department of Treasury, U.S., to their querry. The information furnished reads as follows :
'Our audit division determined that Mr. Rao received taxable earning for services rendered at Jewish Hospital during 1971. Mr. Rao's assessed tax was $ 1,782.41 paid by withholding credits of $ 1,664.48 and a payment of $ 123.78.'
4. The assessee contended before the Commissioner that the entire amount received from the Jewish Hospital by him was scholarship given to him for undergoing training in pediatrics. The Commissioner rejected the objection of the assessee and held that the assessee had not produced any evidence to show that the scholarship was wholly exempted or partly exempted under the United States' law and that the employer's certificate indicated that there was relationship of employee between the hospital and the assessee and, therefore, the amount received by the assessee was salary and, therefore, liable to tax under the Act. He directed the ITO to modify the assessment treating the said amount as income.
5. Against the order of the Commissioner the petitioner preferred an appeal to the Tribunal. The Tribunal even after having noticed that under the American law, the amounts received for pursuing a course of education leading to a degree was fully exempt from taxation but amounts received for pursuing education, which did not lead to a degree, was exemption only to the extent of $ 300 per month and that such a deduction had been allowed in favour of the assessee in the United States, still proceeded to hold that the amount received by the assessee was in nature of salary income and not scholarship and dismissed the appeal of the assessee.
6. Thereafter, at the instance of the assessee, the three question have been referred. We shall take up the third question for consideration first. In support of the plea that the amount received by the assessee from the Jewish Hospital was a scholarship amount, he had produced a letter given by the Jewish Hospital, which is marked as annexure A, which reads :
'The Jewish Hospital and Medical Centre of Brooklyn has a large physician graduate training programme. A trainee stipend of $ 10,300 was paid to each physician during the academic year July 1, 1970, to June 30, 1971. The primary purpose of the programme is to further the education and training of the recipient in his individual capacity and the amount provided by the grantor for such purpose does not represent compensation for services to patients nor does it serve the interest of the grantor. In other words, services are of only incidental benefit to the hospital. The trainee stipend is defined as an amount paid or allowed, or for the benefit of, an individual trainee to did him in the pursuit of study and research in pediatrics.'
7. From the above certificate it is evident that the amount paid to the assessee by the hospital was for the benefit of securing training and to pursue study and research in pediatrics. Therefore, there cannot be any doubt that the entire amount paid by the hospital and received by the assessee was in the nature of scholarship to pursue study and research in pediatrics and also for the purpose of securing training in that filed and it was not for the services rendered as such and the services, if any, rendered by the assessee was only incidental to the course of practical training. Attention of the Tribunal was invited to the position in law in the United States according to which the scholarship amount received was exemption in full if the study or course of education in respect of which it was granted was leading to a degree and in other cases the exemption would be limited to the extent of $ 300 per month. These was also evidence to the effect that the assessee had obtained deduction at the rate of $ 300 per month on the ground that though the amount received by him from the Jewish hospital was in the nature of scholarship it was not for pursuing a course of education leading to a degree.
8. Learned counsel relied on the provision of law in the United States which is set out at page 375 of the World Tax Series (Taxation in the United States-Hovered Law School).'3. Prizes and awards ; scholarships and fellowships : Specific Code provisions are applicable to prizes and awards and to scholarships and fellowships........
9. Amounts received as scholarships and fellowships grants are also excluded from gross income under specified conditions and in limited amounts. In general, if the individual receiving the scholarship or fellowship is a candidate for a degree, the entire amount received is excluded from income, except amounts received as compensation for teaching, research, or other part-time employment. If the individual is not a candidate for a degree, the exclusion is limited to $ 300 monthly.'
10. Therefore, the very fact that the assessee had secured deduction to the extent of $ 300 per month out of the amount received from the Jewish hospital conclusively establishes that the amount received was in the nature of a scholarship. Once it is established that the amount received was in the nature of a scholarship though the exemption given under the United States' law was limited to $ 300 per month on the ground that the course of education was not one leading to a degree, there being no such restriction under s. 10(16) of the I.T. Act, 1961, the whole of the amount received by the assessee stands exempted. In our view, the Tribunal after having noticed the position in law in the United States was in error in stating that it was immaterial that such deduction had been given to the assessee in the United States and that the amount received by the assessee was an income and was not scholarship and was not exempted under s. 10(16) of the I.T. Act, on the view that the amount was not meant to cover only expenses for education, but obviously represented the salary for the services rendered. There was no basis for this assumption, particularly in view of the second paragraph of the certificate issued by the Jewish hospital.
11. Accordingly, our answer to question No. 3 is in the negative, that is, the Tribunal was in error in upholding the order of the Additional Commissioner of Income-tax that the amount of $ 7,725 was not liable for exemption under s. 10(16) of the I.T. Act.
12. In view of our answer to question No. 3, question Nos. 1 and 2 have becomes academic and need not be answered.