Case V97

Members:
JR Gibson SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 27 June 1988.

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J.R. Gibson (Senior Member)

This is an application for review of decisions of the Commissioner of Taxation disallowing objections by the applicant to assessments to income tax in respect of his income for the years ended 30 June 1982, 1983 and 1984. The objections were to the inclusion in the applicant's assessable income and allowances received by him from an Applied Health Science Fellowship, $27,034 in the year ended 30 June 1982, $35,229 in the year ended 30 June 1983 and $30,000 in the year ended 30 June 1984. The issue is whether that income was exempt under sec. 23(z) of the Income Tax Assessment Act 1936.

2. The documentary evidence at the hearing consisted of the formal documents forwarded to the Tribunal by the Commissioner of Taxation, a copy of the applicant's application for a Fellowship and documents containing information regarding the Fellowships. The applicant, who was not represented at the hearing, gave oral evidence and Dr Peter Gray, the secretary of the Medical Research Committee of the National Health and Medical Research Council (``NHMRC'') gave evidence for the respondent.

3. The applicant was born on 17 July 1950. He graduated as Bachelor of Medicine and Surgery with First Class Honours in 1974. He has subsequently become a Fellow of the Royal Australian College of Physicians and a Master of Engineering Science. Following his graduation he was a Resident Medical Officer at a well known teaching hospital and he was a Medical Registrar at one up to September 1981. He had been involved in a number of research projects and was then engaged in completing his thesis for the degree of Master of Engineering Science.

4. In 1980 the applicant applied to the NHMRC for the Fellowship in Applied Health Sciences which was subsequently granted to him. The Fellowship commenced in September 1981 and concluded in September 1984.

5. The NHMRC was instituted by an Order-in-Council dated 17 September 1936 under which its functions are:

``to advise the Commonwealth and State Governments on matters of public health legislation and administration and on any matters concerning health, medical and dental care and medical research;

to advise the Commonwealth as to the expenditure of money specifically appropriated as money to be spent on the advice of the Council;

to advise the Commonwealth Government as to the expenditure of money upon

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medical research and as to projects of medical research generally;

to advise Commonwealth and State Governments upon the merits of reputed cures or methods of treatment which are from time to time brought forward for recognition.''

The NHMRC is required to make an annual report to the Government.

The NHMRC administers the fund instituted by the Medical Research Endowment Act 1937. The Act provides in sec. 6 that the fund should be applied to provide assistance:

• (a) to Departments of the Commonwealth or of a State engaged in medical research;
• (b) to Universities for the purpose of medical research;
• (c) to institutions and persons engaged in medical research; and
• (d) in the training of persons in medical research.

6. Dr Gray said in evidence that in the area of public health the NHMRC recommends standards and measures and advises the community, the medical profession and other persons in the field of health of methods of treatment. In the medical research area it supports a range of medical research activities.

7. Dr Gray also said that the prime purpose of applied health science Fellowships awarded by the committee was to send the selected person to study at a research institution overseas to gain a broader research experience to be applied on return to Australia in the medical research field. It is a requirement of a Fellowship that the Fellow should furnish a report at the end of each year of his Fellowship and that the NHMRC is entitled to use information from those reports in its publications and reports. The NHMRC has no rights to publish a thesis or other work completed by the Fellow but the Fellow is required in any published work to acknowledge the assistance received from the NHMRC. The NHMRC has a range of awards, some of them research grants for specific research projects, some training Fellowships and some scholarships. The Fellowships are primarily for research training but may incidentally lead to qualifications for a higher degree. The Fellowship awarded to the applicant, said Dr Gray, was unusual in that it was intended to result in a higher degree as well as broader research training. Dr Gray said that the scholarships awarded by the NHMRC were directed towards persons obtaining higher postgraduate degrees.

8. The applicant's application for a Fellowship was in response to an advertisement published by the NHMRC, the relevant portions of which were substantially in the following terms:

``Purpose

The National Health and Medical Research Council invites applications for Applied Health Sciences Fellowships in a broad range of health topics.

The purpose of the Fellowships is to provide training in scientific research methods, including those of the social and behavioural sciences, which can be applied to clinical or community medicine. These areas might include research into, for example: allergic disease, dermatology, biostatics, clinical aspects of surgery, economics and evaluation of health care or health services, epidemiology, family studies, genetics, human nutrition, psychiatry or other areas where the applicant has an aptitude and interest in applied research, a specific study plan, affiliation with an overseas investigator or institution for the study, and reasonable prospects of a responsible position in Australia on completion of the Fellowship. They are not available to persons wishing to learn clinical techniques.

While the acquisition of a broad experience is the prime purpose of the Fellowships, incidental qualification towards a higher degree may not be excluded.

The objectives of the Fellowships differ from those of the council's C.J. Martin Fellowships which are primarily for purpose who have been engaged in fields of basic research in the biomedical sciences to enable them to work overseas on specific projects under nominated advisers. The Council will not consider applications from the same candidate for both Fellowships.

Eligibility

The Fellowships are open to graduates in relevant areas who comply with the conditions set out below and who have

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demonstrated their interest in and ability to pursue a career in research and/or teaching in the specific fields of Applied Health Services.

Those eligible to apply are:

• (i) Australian citizens who are graduates;
• (ii) Other graduates of Australian universities who are not sponsored under Australian or other official and programs;
• (iii) Other graduates from overseas who are eligible for permanent residence status.

Applicants in (ii) and (iii) above must be in Australia at the time of application and must not be under bond to any foreign government.

Criteria for Selection

The Fellowships are open to graduates in all relevant fields, not only medical and dental graduates. In considering applications the Council will place emphasis on the applied value of the proposed research training and preference will be given to persons who already have research experience and are seeking advanced study not available in Australia. The Fellowships are competitive and shall be awarded by the Council on the recommendations of a selection committee. The Council shall exercise discretion as to the number of Fellowships recommended in any one year and will not necessarily undertake to award Fellowships in any one of the abovementioned areas of research.

Administration of Fellowship

Applied Health Sciences Fellowships shall normally be administered by the institution in Australia through which the applicant has applied and to which the NH & MRC shall forward stipend payments, travelling expenses, family allowances, etc.

Tenure

The Fellowships are normally awarded for two years overseas and one year in Australia. Special conditions apply to Fellowships in Allergic Diseases and Dermatology. Fellowships in Allergic Diseases are available for one year overseas or one year in Australia; Fellowships in Dermatology research will be available for two years overseas and two years in Australia.

Stipend, Travelling Expenses and Allowances

Fellowship stipends shall be determined by the Council based on qualifications, experience and status of the applicant.

Please refer to information kit available from the administrative officer of your institution for details of current allowances.''

9. In his application the applicant proposed a two year course from September 1981 to September 1983 at a well-known institution in the United States. The course proposed was ``Medical Engineering and Medical Physics Ph.D. Program with thesis project on computerised clinical data bases''. In the detailed reasons given in support of his application, the applicant said, inter alia:

``that upon completion of the course the Australian community would be provided with a clinician with a strong background in engineering, dedicated to the development of technology for improving health care.''

10. By notification dated 8 May 1981 the applicant was informed that the grant had been approved for the project; the Fellowship being for two years study at the United States institution and for one year's support on return to Australia. The amounts paid by way of stipend and allowances were specified. The grant was expressed to be in accordance with the conditions of the award.

11. The conditions of the award required, inter alia, that the successful candidate should:

• (a) submit an annual report of work done;
• (b) devote full time to the approved program;
• (c) ensure that a copy of all published material arising from the Fellowship be furnished to the NHMRC and that recognition be given to it in any publication.

12. The United States institution at which the applicant commenced his course in September 1981 is well known and the applicant said that it was of the same standing as the University of California, Los Angeles. It has professorial staff and confers degrees. One

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of the professors was a supervisor of the applicant during his course, which concluded in September 1983. The applicant then returned to Australia to the hospital at which he had formerly been Medical Registrar and which had administered the grant. He then registered as a student at a University in Australia but has not yet completed his thesis, the acceptance of which will qualify him for a degree of Ph.D.

13. The question for the Tribunal is whether the moneys received by the applicant were exempt from income tax under sec. 23(z) of the Income Tax Assessment Act 1936 which at the relevant time was in the following terms:

``(z) income derived by way of a scholarship (other than a scholarship referred to in paragraph (zaa)), bursary or other educational allowance by a student receiving full-time education at a school, college or university, but not including -

• (i) an amount received by the student from a person or authority upon condition that the student will (or will, if required) render, or continue to render, services to that person or authority;
• (ii) an amount received under the scheme known as the National Employment and Training Scheme;
• (iii) an amount received under the scheme known as the Former Regular Servicemen's Vocational Training Scheme; or
• (iv) income derived under a Post-Graduate Award granted under the Student Assistance Act 1973;''

14. The applicant submitted that the moneys received by him under the Fellowship fell within sec. 23(z) because he was a student receiving full time education at a University and the moneys were not received by him on the condition that he would render service to the NHMRC. For the Commissioner, it was submitted that the Fellowship was not for the education of the applicant and that the moneys were received by him as a researcher at an approved institution, not as a student. It was further submitted that if the income was by way of a scholarship, and the applicant was a student within the meaning of sec. 23(z), it was received subject to conditions that the applicant should render services to the NHMRC and was therefore excluded from exemption for sec. 23(z)(i).

15. Section 23(z) was considered in the Supreme Court of New South Wales by Rath J. in
F.C. of T. v. Hall 75 ATC 4156. At that time the provision was in slightly different form but the relevant parts were substantially the same as those set out earlier in these reasons. In that case the taxpayer was granted a Research Fellowship by the Asthma Foundation of Tasmania which required him to make a study for the benefit of that Foundation at the University of New South Wales under the supervision of an Associate Professor. The Asthma Foundation did not object to the taxpayer combining the project with the preparation of a thesis for the degree of Doctor of Medicine at the University. Rath J. held that the applicant was receiving full-time education at the University, but that the income received by him from the Fellowship was not a ``scholarship, bursary or educational allowance'' because those words connote an educational purpose in the person or body who provides the allowance, and the Asthma Foundation of Tasmania did not have such a purpose. The real character of the moneys received by the taxpayer was found by Rath J. to be that of moneys for the performance of work. Rath J. further held that in the circumstances of the case the work done by the taxpayer constituted the rendering of services to the Asthma Foundation.

16. In the course of his reasons for judgment in Hall's case, Rath J. referred to authorities on the width of the concept of education and said that education involved the imparting of both knowledge and system. He considered that research by a student for a higher degree, done under supervision and direction, could fall within the concept of education.

17. The Tribunal is satisfied on the facts before it that the applicant while at the U.S. institution was a student receiving full-time education at a University. It is also satisfied that one of the purposes of the NHMRC in making the grant was educational and that the moneys received by the applicant for the three years of the Fellowship were by way of scholarship or educational allowance. What remains to be considered is whether the moneys were received upon condition that the applicant would render services to the NHMRC and were

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therefore excluded from exemption by sec. 23(z)(i).

18. The expression ``render services'' is capable of covering a very wide range of activities which to a recipient of services might be considered to be to his, her or its benefit. There is no limitation to a particular type of services such as, for example, services as an employee, which are sometimes required pursuant to the conditions of scholarships. In my opinion, the services referred to in sec. 23(z)(i) cannot be limited to those of the kind referred to by McTiernan J. in
Reversby Credit Union Co-operative Limited v. F.C. of T. (1964-1965) 112 C.L.R. 564 at pp. 577-578, when considering the expression ``the rendering of services'' in a different context. Because sec. 23(z)(i) is so widely expressed, it extends, in my opinion, to cover the condition of the grant to the applicant that he should submit an annual report to the NHMRC, even although that was a relatively minor service and the value of it to the NHMRC could in no way be equated with the value of the grant of the Fellowship. The Tribunal therefore finds that sec. 23(z)(i) applies and that the moneys received by the applicant under the Fellowship were not exempt income.

19. For these reasons the decision of the Tribunal is that the objection decisions the subject of the applications be affirmed.