1. This is a case in which the assessee, a Professor of Mathematics in the Ramanujam Institute of the Madras University, was given a grant-in-aid of $10,000 and other fringe payments during the academic year 1970-71 by the Princeton Institute of Advanced Study as consideration for his doing research work at the Institute in New Jersey for a few months. The assessee was being assessed to income-tax under our I.T. Act, 1961, in the status of a resident of India. He claimed that the grant-in-aid received by him from the Princeton Institute was to be excluded from his taxable income under s. 10(16) of the I.T. Act. The ITO turned down the assessee's claim on the score that the grant-in-aid was nothing but salary paid by a foreign institute to the assessee as a professor of mathematics. On appeal, the AAC went into the question whether the grant made by the Princeton Institute can be regarded as salary. He held that there was no employer-employee relationship between the institute and the assessee and the grant was not a salary, but a scholarship paid to the assessee for doing research work as a student of mathematics. In the departmental appeal against this order, the Tribunal held that the grant received by the assessee was undoubtedly of an income-character, but nevertheless it must be considered to be a scholarship and on that account, was to be excluded from the total income under s. 10(16) of the Act.
2. In this reference, the Tribunal's decision is canvassed by the Department as erroneous in point of law. We do not think so. The Tribunal, in our opinion, has understood the law aright and has also taken a reasonable view of the facts.
3. The Tribunal did not make the mistake of thinking that a scholarship in order to be eligible for exclusion from the total income, must not be salary or other remuneration in the hands of the recipient. This understanding of the law by the Tribunal is based on a correct reading of s. 10 of the Act. This section sets down various items of income which are but wholly outside the purview of the taxable total income. The opening words of the section show very clearly that the items listed thereunder are undoubtedly receipts of an income-character, but they are nevertheless to be excluded from the computation of taxable income. Scholarship to meet the cost of education falling under clause (16) has been included in s. 10, not because scholarship bears a non-income-character, but precisely because it bears an income-character. If scholarship does not partake of the character of income, then there is no need at all for a specific exclusion provision in s. 10(16) of the Act. The ITO regarded the grant-in-aid in this case as a remuneration, thinking that thereby it would get taxed. The AAC laboured hard to hold that it was not income, again under a wrong impression that if it were otherwise, it would not fall within the purview of s. 10(16). The true view of s. 10(16), as the Tribunal has correctly understood it, is that scholarship, even though income in the hands of the scholar concerned, would yet be excluded from the ambit of taxable total income.
4. Mr. Jayaraman, learned counsel for the Revenue, submitted that the Tribunal had enlarged the scope of the exclusion provision in s. 10(16) when they held that the expression 'to meet the cost of education' must be construed liberally. We do not think so. In our view the words 'to meet the cost of education' are not a limiting factor, but may be regarded even as surplus age. By scholarship, as ordinarily understood, we mean anything which makes education free of charge, or at a concessional rate of fees, as when we say that someone is studying under a half-scholarship.
5. In s. 10(16), however, scholarship is not used in that sense of something in educational opportunity which is given free. The basic postulate of a scholarship in clause (16) as earlier mentioned is that is an income receipt. Nevertheless it is excluded from the total income by being brought under s. 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 I.T. Act is positive payment made to a scholar for pursuit of his education. If scholarship is made free, it would not naturally come within the ambit of s. 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 pursing the education and incurring the cost thereof.
6. There are, therefore, two considerations which, together, make up the concept of a 'scholarship for meeting the cost of education' within the meaning of s. 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 meet the cost of education of the recipient. Since the purpose is to meet the cost of education, the question whether the quantum of payment is adequate or inadequate, or is or is not in excess of requirements are all beside the point. A scholarship may only meet the partial cost of education. Still it would be a scholarship within the meaning of s. 10(16). Again, a scholarship might, in a given case, prove to be more than enough for meeting the cost of education, and the scholar may make a saving out of it, or even spend the surplus otherwise. It is not the appropriation of the scholarship that matters. If the whole object of the payment is to meet the cost of education of a person, then that is enough. No further inquiry is called for in order to exclude the amount from the taxable total income under s. 10(16).
7. As we have earlier indicated, the Department's case before the Tribunal was that the assessee utilised the grant-in-aid paid by the Princeton Institute not only for his passage to and from, America and for his boarding and lodging in Princeton, New Jersey, but also for the air passage of his wife and two children and for their residential accommodation and boarding during the relevant period. This argument, however, was rightly rejected by the Tribunal as having no bearing on the eligibility of the assessee to exclusion of his scholarship from his taxable total income. The Tribunal observed that the experience of those who have gone abroad was that a person could live there more economically with his family than as alone or as a single boarder in a hotel or other place. The Tribunal also observed that the assessee, particularly, had been in a position to maintain himself and the members of his family within the means afforded by the grant-in-aid was, perhaps, fixed only with reference to the scholar alone, according to western standards. It is unnecessary to go into these aspects because, in our judgment, the eligibility of a scholarship to be excluded from an assessee's total income depends on what it is meant for by the person paying or disburising the scholarship. If it 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.
8. The assessee in this case was named as an 'exchange visitor' to engaged himself as a member in the school of mathematics for doing advance research in the field of mathematics. To defray his expenses of study, the amount of $ 10,000 for study $ 2,000 for travel and a further grant of $ 13,800 for sundries were given to the assessee. There can, therefore, be no doubt that the grant-in-aid was a scholarship to meet the cost of the assessee education. Mr. Jayaraman did not argued that advance research cannot be brought within the broad connotation of the expression 'education'. These considerations are, in our opinion, enough to return an affirmative answer to the following question of law referred to us :
'Whether on the facts and in the circumstances of the case, the grant-in-aid received by the assessee would be exempt under section 10(16) of the Income-tax Act, 1961 ?'
9. Before closing the judgment, it is necessary to point out that the interpretation we have placed on s. 10(16) is the way in which it has been understood and is being applied in several cases by the highest revenue authority under the I.T. Act, namely, the CBDT. Our attention has been drawn to a few circulars where the Board have issue instruction to the subordinate officers as to how they have got to deal with the scholarship, remuneration, maintenance grants, and other receipts which are received by foreign scholars in Indian institutions of higher learning like the Council of Industrial and Scientific Research. The Board, we may observe, has proceeded on a liberal understanding of the provisions of s. 10(16) and have accordingly given instructions to the departmental officials at the assessment level to grant exemption from tax to scholarships apparently without making much fuss about the precise nature of the receipts so long as the receipts of the scholars can be broadly brought under the heading 'Scholarship' and so long as the terms of the scholarship do not contain any purpose extraneous to education. In the face of these circulars, we are at a loss to understand why the present reference is being pressed to a decision by the Department in the Madras charge. There cannot be one rule for foreign students receiving scholarships in India and the tax treatment of such scholarships under the I.T. Act, and quit a different rule or a contrary application of the same rule, so far as the Indian scholars in foreign parts are concerned. The nature of the scholar or a foreigner, whether he be white, brown, or black, whether he receives the scholarship from an Indian institution or from a Western institution. The essence of scholarship is that it should pay for the educational enterprises of a man's pursuit after knowledge. If scholarship are given for such a purpose, it cannot matter whether the recipient is of Indian origin or is of a foreign origin. We hope that there would be even handed justice from the CBDT and all the subordinate officials of the Income-tax Department in the matter of applying the exemption for scholarship irrespective of to whom and by whom these scholarships are meted out.
10. For the reasons which we have earlier rendered on the facts of this case and on a true construction of the statutory provisions, our answer to the question of law must be in favour of the assessee and against the Department. We dispose of the reference accordingly. The Commissioner of Income-tax will pay the costs of the assessee in this case. Counsel's fee Rs. 500.