Hastie, Chief Judge, Ganey, Circuit Judge, and Weiner, District Judge.
Before us on this appeal are three taxpayers*fn1 who, while employees of the Westinghouse Electric Corporation, were participants in the Westinghouse Bettis Fellowship and Doctoral Program through which each received a stipendiary grant and leave of absence from his employer in order to research, write, and defend his Ph. D. thesis in engineering at either the University of Pittsburgh or Carnegie Institute of Technology (now Carnegie-Mellon University).
There was testimony below that the Bettis Atomic Power Laboratory, at which each taxpayer was employed before and after his academic leave of absence, is owned by the United States Government and is operated by Westinghouse under a "cost-plus" type of contract with the Atomic Energy Commission. Appellants' theses related to the work program of the Laboratory in the field of nuclear engineering.
Income tax was withheld from the monthly allowances received by each of the three appellants; each filed a claim for refund of this tax on the grounds that the grant was excludable from his gross income as a scholarship under Int. Rev. Code of 1954, § 117. These claims were rejected by the Internal Revenue Service, and again by a jury in the trial below.
The correctness of this determination is the subject of this appeal.
The crucial terms "scholarship" and "fellowship grant" appear in the relevant § 117 without any definition whatsoever.*fn2 In the absence of any guidance as to the content of these statutory concepts embodied in the Code itself, we agree with the Tax Court that
"a proper reading of the statute requires that before the exclusion comes into play there must be a determination that the payment sought to be excluded has the normal characteristics associated with the term 'scholarship.'"
Elmer L. Reese, Jr., 45 T.C. 407, 413 (1966), aff'd per curiam, 373 F.2d 742 (4th Cir. 1967). Without attempting a comprehensive definition, we can simply mention some of the more salient "normal characteristics" of such scholarships or fellowship grants that are exemplified in the situation before us.
Appellants' stipends were awarded as subsidies to full-time students, in an amount bearing an appropriate relation to each recipient's needs. Their continuance was contingent upon the participant's maintenance of the academic standards required of a candidate for a graduate degree by the university which each appellant attended. While receiving these grants, appellants were on an academic leave of absence from their employment for the specific purpose of completing their doctoral dissertations. These are the most important positive characteristics which appellants' grants shared with scholarships generically. We turn now to the Code and the legislative history for an understanding of the distinctions with which Congress intentionally colored the kind of grant it wished excluded from gross income for internal revenue purposes.
Most notable in the legislative tax treatment of scholarships is that the Congress in 1954 was painting with a broad brush. Grants which properly qualify as scholarships are excluded from taxation in very unqualified terms by § 117(a). In the case of candidates for a degree, such as appellants before us, this exclusion is explicitly limited in the statute only as not applying
"to that portion of any amount received which represents payment for teaching, research, or other services in the nature of part-time employment required as a condition to receiving the scholarship or fellowship grant."
Int. Rev. Code of 1954, § 117(b)(1). The statute as it applies to degree candidates provides no ceiling for the amount that the candidate may exclude from his gross income, as long as it otherwise properly qualifies for scholarship tax treatment. This is in sharp contradistinction to the limit of $300 a month for a maximum of 36 months to ...