Kerala High Court Sets Aside Income Tax Assessment Treating PG Student's Stipend As Salary

The Kerala High Court on 17 August set aside an income tax assessment order treating the stipend received by a postgraduate medical student as salary, holding that the Assessing Officer failed to consider his claim that stipend paid to a student is exempt from income tax.

A Division Bench comprising Justices Devan Ramachandran and Basant Balaji allowed the appeal filed by Nahas Kakkattummal and set aside both the Single Judge's judgment and the assessment order, directing the Assessing Officer to reconsider the matter after giving the student an opportunity to produce relevant documents. The judges held:

"Be that as it may, we cannot find favour with the impugned judgment, when it is admitted that the “stipend” paid to a student stands fully exempted from the ambit of the “Act”. The Assessment order does not answer this at all, but proceeds to hold that the sums in question are “salary”, relying solely on certain documents stated to have been obtained from the University..."

Kakkattummal was pursuing postgraduate medical studies at King George's Medical University, Lucknow. He contended that the amounts he received during the course were stipend and not salary. He relied on documents showing that he had been admitted as a postgraduate student and submitted that the applicable regulations required postgraduate students to be paid stipend.

The Income Tax Department, however, submitted that the University had informed it that the payments were made as salary for work performed and that tax had also been deducted at source. It argued that the dispute involved questions of fact and that Kakkattummal should pursue the alternative statutory remedy.

The High Court disagreed with this approach. It noted that the assessment order did not deal with Kakkattummal's claim that stipend received by a student was exempt under the Income Tax Act. Instead, the Assessing Officer treated the payments as salary by relying solely on documents obtained from the University.

It held that the nature of the payments was a vital question of fact which Kakkattummal had to be given an opportunity to establish through relevant documents.

The Bench also noted that the Assessing Officer had failed to consider other materials relied upon by him, including the University certificate and the Government Order relating to his admission.

Accordingly, the High Court directed the Assessing Officer to reconsider the matter after giving Kakkattummal an opportunity to produce the necessary documents and other relevant material and thereafter pass a fresh assessment order. It clarified that it had not expressed any final opinion on the merits of the dispute.

For Appellant: Advocates K.K. Krishna, Achyuth Menon, Parvathy Menon, V. Harisankar and Anna Anto

For Respondent: Additional Standing Counsels G. Keerthivas and Harikumar G. (Gopinathan Nair).