Taxability of stipened

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24 November 2011 stiped received to MBA Student, is it taxable?
if not under ehich section?

CA. RICHI SAXENA

CA. RICHI SAXENA (Expert)
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25 November 2011 An increasing number of management and engineering students from premier Indian institutes are bagging internship offers from institutions abroad.

For instance, Indian Institute of Technology, Bombay, has placed around 80 B Tech students for internship with foreign universities such as Western Michigan, Carnegie Mellon and University of Alberta. According to reports, it may place 340 engineering graduates with many such companies and universities by April-end.

Besides, major companies such as Deutsche Bank, Barclays Capital, Procter & Gamble, ITC, Bank of America-Merrill Lynch, PricewaterhouseCoopers, Daimler, Microsoft, IBM, Sony and Honda have also recruited Indian students for summer internship abroad.

In addition to gaining hands-on technical experience, another perk is high stipends offered by these foreign institutions. The students will earn anywhere between $2,500 and $3,500 a month – Rs. 110,000 to Rs. 150,000 ($1 = Rs. 44.42).

It must be remembered that since a stipend is considered as income by income tax authorities, it is taxable according to the applicable slab.

NOW READ THE FOLLOWING:-

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]

AS SUCH THERE LIES CONTROVERSY AS TO WHETHER STIPEND RECEIVED IS TAXABLE OR NOT.

CA. RICHI SAXENA