SECTION 10(16) l SCHOLARSHIPS

114. Scholarships to meet cost of education - Specific cases where they have been treated as
exempt from tax under clause (16)
CLARIFICATION 1
ANNUAL ALLOWANCE GRANTED TO RETIRING RESEARCH SCIENTISTS - The Board have decided
that the annual allowance of Rs. 6,000 to the retiring research scientists granted by the Council of Scientific
and Industrial Research, New Delhi should be treated as exempt from tax in the hands of the recipients under
section 10(16) as scholarships granted to meet the cost of education.
Letter : F. No. 24/2/69-IT(A-I), dated 14-1-1968.
CLARIFICATION 2
STIPEND OF RESEARCH FELLOWSHIPS WORKING UNDER THE NATIONAL COMMISSION FOR
THE COMPILATION OF HISTORY OF SCIENCES OF INDIA - The Board have decided that the stipend of
research fellowships working under the National Commission for the Compilation of History of Sciences in
India under the auspices of the National Institute of Sciences of India should be treated as exempt from tax in
the hands of the recipients under section 10(16) as scholarships granted to meet the cost of education.
Letter : F. No. 24/25/68-IT(A-I), dated 18-9-1966.
CLARIFICATION 3
FULBRIGHT GRANTS TO AMERICAN STUDENTS - Attention is invited to the Boards Letter No. 46(83-
IT/54), dated 6-8-1954 according to which Fulbright Grants, described as maintenance allowances, are
exempt from income-tax in respect of Fulbright Students.
The United States Educational Foundation in India has now represented that the grants given to American
tutors are also intended to cover the expenses for their maintenance while they are prosecuting certain
studies in India and, as such, these should be treated as exempt under section 10(16). The Ministry of
Education are satisfied that the maintenance allowance of Rs. 1,000 per month paid to the American tutors is
for their maintenance and that the purpose of the allowance is to meet the cost of education. The Board have,
therefore, decided that the Fulbright grant described as maintenance allowance given to American tutors
may be treated as exempt from tax under section 10(16).
Letter : F. No. 24/22/67-IT(A-I), dated 7-7-1967.
CLARIFICATION 4
JUNIOR/SENIOR RESEARCH FELLOWSHIPS AWARDED BY THE DEPARTMENT OF ATOMIC
ENERGY - A reference is invited to the Boards Circular No. 6(XXIII-27) of 1962, dated 24-3-1962,
according to which the Junior and Senior Research Fellowships, instituted by the Department of Atomic
Energy, of the value ofRs. 250 p.m. and Rs. 400 p.m. respectively, for study and research in the field of
Nuclear Physics and Cosmic Rays are to be treated as exempt from tax in the hands of the recipients under
section 10(16) as being scholarships granted to meet the cost of education.
The Department of Atomic Energy has now stated that the scope of these Fellowships has been extended to
cover various other fields of research in Agriculture, Bio-chemistry, Bio-physics, Botany, Zoology, Organic
Chemistry, Electronics and Microbiology. The values of the Fellowships have also been increased as below :
Junior research fellowships ... Rs. 300 p.m.
Senior research fellowships (A) ... Rs. 400 p.m.
Senior research fellowships (B) ... Rs. 500 p.m.
The Board have decided that the abovementioned allowances in the various fields should be treated as
exempt from tax in the hands of the recipients under section 10(16) as being scholarships granted to meet the
cost of education.
DIRECT TAXES CIRCULAR - Sec. 10(16) file://///WINMAN/OFFICE FILES new/DIRECT TAXES CIRCULAR - S...
1 of 4 7/19/2014 1:00 PM
Letter : F. No. 25/37/66-IT(A-I), dated 2-12-1966.
CLARIFICATION 5
FINANCIAL ASSISTANCE TO RESEARCH WORKERS IN UNIVERSITIES FOR UNDERTAKING
RESEARCH OR LEARNED WORK - Under the scheme for grant of financial assistance to teachers in the
universities for undertaking research or learned work in science subjects and humanities (including social
sciences) as non-recurring grant (subject to a maximum of Rs. 5,000) is payable to the teachers for purchase
of special apparatus, special chemicals, stores books, consumables, etc., and for field-work in connection
with the research. The above grant will be exempt from tax under section 10(16).
Letter : F. No. 24/7/64-IT(A-I), dated 24-3-1964.
CLARIFICATION 6
MAINTENANCE ALLOWANCE GRANTED TO FOREIGN TRAINEES - IAESTE SCHEME -
REFERENCE FROM THE MINISTRY OF EDUCATION (DEPTT. OF SCIENCE) - India is a member of the
International Association for the Exchange of Students for Technical Experience (IAESTE). Under this
scheme, Indian students are sent abroad for training in other member countries and in return foreign students
come to India for training in industries/organisations/technical institutions, participating with this scheme in
India.
The foreign trainees coming to India are paid a maintenance allowance of Rs. 400 per month. It has been
decided that the maintenance allowance paid to foreign trainees, coming under the exchange scheme of
IAESTE should be treated as scholarships granted to meet the cost of education and exempted from
payment of income-tax under section 10(16).
Letter : F. No. 24/4/64-IT(A-I), dated 12-2-1964.
CLARIFICATION 7
RESEARCH FELLOWSHIPS IN ENGINEERING, TECHNOLOGY, HUMANITIES AND SCIENCE
SUBJECTS - The research fellowships in engineering technology, humanities and science subjects given by
University Grants Commission will be exempt under section 10(16). The contingent grant of Rs. 1,000 per
year to meet petty expenses will also be exempt under section 10(14) of the Income-tax Act, 1961.
Letter : F. No. 24/34/62-IT(A-I), dated 25-1-1963.
CLARIFICATION 8
JUNIOR AND SENIOR RESEARCH FELLOWSHIPS AWARDED BY THE COUNCIL OF SCIENTIFIC
AND INDUSTRIAL RESEARCH - The Council of Scientific and Industrial Research, New Delhi, awards
junior and senior research fellowships to young research workers of Indian citizenship for enabling them to
carry on research in various branches of science in the Council of Scientific and Industrial Research
establishments, Research Associations Laboratories and other institutions approved by the Council. The
allowance attached to a junior research fellowship is Rs. 200 p.m. (Rs. 300 in the case of certain engineering
subjects) and in the case of senior research fellowship, it is Rs. 400 (Rs. 500 in certain engineering subjects).
The tenure of each fellowship is normally for a period of two years.
The Board have decided that the abovementioned allowances should be treated as exempt from tax in the
hands of the recipients under terms of item 5 of the late Finance Departments Notification No. 878-F-IT,
dated 21-3-1922 (as amended from time to time) under section 60(1) of the Indian Income-tax Act, 1922 as
being scholarships granted to meet the cost of education.
Circular : No. 3(XX-III-23), dated 12-1-1961.
CLARIFICATION 9
NATIONAL RESEARCH FELLOWSHIP AND FELLOWSHIPS TO GERMAN NATIONALS AWARDED
BY THE MINISTRY OF EDUCATION - The Ministry of Education, Government of India, have recently
instituted the following fellowships :
National research fellowships in science and technology are awarded on the all-India basis for post-doctoral
DIRECT TAXES CIRCULAR - Sec. 10(16) file://///WINMAN/OFFICE FILES new/DIRECT TAXES CIRCULAR - S...
2 of 4 7/19/2014 1:00 PM
work in any branch of science or technology in universities and other institutions of university standard in
India. Each fellowship is of the value of Rs. 400 p.m. and grant of Rs. 1,000 per year is also given for any
special apparatus or equipments required for research. Each fellowship is tenable for a period of 3 years. In
special cases, it may be extended up to 5 years with the sanction of the Government.
Fellowships to German nationals studying in India under German Industrial Co-operative Scheme - Since
1952, the Government of India have been awarding 10 fellowships to German nationals every alternative year
under the Indo-German Industrial Co-operative Scheme for the study of Indian languages, religion and
philosophy, etc., at Indian universities. The normal period of award is 2 years. The benefits given under each
fellowship are as follows :
a. maintenance allowance at the rate of Rs. 500 per mensem;
b. second class railway fare from the place of residence in Germany to the port of embarkation and back;
c. second/tourist class sea passage from the port of embarkation to the port of disembarkation in India and
back; and
d. first class railway fare from the port of disembarkation in India to the place of study in India and back.
The Board have decided that these fellowships should be treated as scholarships granted to meet the cost of
education and exempted from tax under item (5) of the late Finance Department Notification No. 878-F
(Income-tax), dated 21-3-1922.
Circular : No. 49(XXIII-12), dated 13-12-1956.
CLARIFICATION 10
EXEMPTION FROM TAX OF LIVING ALLOWANCE/STIPEND PAID TO FOREIGN TRAINEES
COMING TO INDIA UNDER THE TECHNICAL CO-OPERATION SCHEME OF THE COLOMBO PLAN
AND THE SPECIAL COMMONWEALTH AFRICAN ASSISTANCE PLAN - Certain foreign nationals
come to India for receiving training in various courses of study under the Technical Co-operation Scheme of
the Colombo Plan and the Special Commonwealth African Assistance Plan (SCAAP). During the period of
their training in India, these trainees are paid a living allowance varying from Rs. 200 to Rs. 600 p.m. It has
been decided that the above living allowance payable to the trainees would be exempt from tax under section
10(14)/10(16).
Source : Income-tax Circulars, published by the Directorate of Inspection (Research, Statistics and
Publication), 1968 edition, p. 89.
CLARIFICATION 11
FELLOWSHIPS AWARDED UNDER TECHNICAL TEACHERS TRAINING PROGRAMME - The
Ministry of Scientific Research and Cultural Affairs awards about 100 fellowships under the Technical
Teachers Training Programme to prepare graduates for the teaching profession. The fellowships are of the
value of Rs. 350-25-400 and do not carry any additional allowance. The duration of a fellowship ranges from
2 to 3 years. It has been represented that the value of the fellowship may be exempted from income-tax.
The Board have decided that out of the total value of the fellowship, an amount of Rs. 250 p.m.
(representing the cost of education) may be treated as exempt from income-tax. This amount will be fully
exempt and is not to be included in the total income of the individual concerned for any purpose.
Circular : No. 11(XXIII-24) [F. No. 27/67/60-IT(A-I)], dated 4-4-1961.
115. Annual allowance payable to retired scientists under a scheme instituted by Indian Council
of Agricultural Research - Not to be exempt under clause (16) as the same being paid for their
maintenance
1. The Indian Council of Agricultural Research has instituted a scheme for Utilisation of the services of
retired scientists in the field of agriculture, animal husbandry and allied sciences. The object of the scheme is
to provide suitable facilities to enable retired scientists of established repute to continue scientific research
after their retirement. The scientists have to devote their whole-time to the research project for which the
financial assistance is provided and they are precluded from accepting any other remunerative job. The
DIRECT TAXES CIRCULAR - Sec. 10(16) file://///WINMAN/OFFICE FILES new/DIRECT TAXES CIRCULAR - S...
3 of 4 7/19/2014 1:00 PM
scheme provides for payment of an annual allowance not exceeding Rs. 6,000 to the retired scientist plus a
grant not exceeding Rs. 4,000 p.a. to cover the cost of one research assistant plus other expenses as may be
decided by the Standing Committee of the Council.
2. On a reference received from the Indian Council of Agricultural Research in this behalf, it has been
decided by the Board that the annual allowance of Rs. 6,000 payable to the individual scientists is intended
for their maintenance and it is not a payment to meet the cost of education. As such, this amount will be
taxable in the hands of the recipients. The Indian Council of Agricultural Research have instructed the
scientists to pay the tax direct to the income-tax authorities. It is, accordingly, requested to bring the decision
to the notice of all the Assessing Officers for their information and necessary action.
Letter : F. No. 24/35/66-IT(A-I), dated 4-10-1966.
JUDICIAL ANALYSIS
EXPLAINED IN - In CIT v. V.K. Balachandran [1984] 147 ITR 4 (Mad.), it was observed as under :
Before closing the judgment, it is necessary to point out that the interpretation we have placed on
section 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 Act, namely, the CBDT. Our attention has been drawn to a few
circulars where the Board have issued instructions to the subordinate officers as to how they have got to
deal with the scholarships, 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
section 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 Act,
and quite 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 scholarship is the same whoever receives it, whether he be
an Indian 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 mans pursuit after knowledge. If scholarships 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 scholarships irrespective of to whom
and by whom these scholarships are meted out. (pp. 8-9)

DIRECT TAXES CIRCULAR - Sec. 10(16) file://///WINMAN/OFFICE FILES new/DIRECT TAXES CIRCULAR - S...
4 of 4 7/19/2014 1:00 PM