DEDUCTION UNDER SECTION 80E OF INCOME TAX ACT, 1961

[Mr. M. GOVINDARAJAN]

Introduction

Section 80E of the Income Tax Act, 1961 (‘Act’ for short) was introduced by the Finance Act, 1994 with effect from 01.04.1995.  The said section was amended by the Finance Act, 2000 which came into effect from 01.04.2001.  Further the said section was substituted by a new section by the Finance Act, 2005 with effect from 01.04.2006. 

Deduction in respect of interest on loan

Section 80E allowed deduction in respect of interest on loan taken for higher education.  Section 80E (1) of the Act provides that in computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, any amount paid by him in the previous year, out of his income chargeable to tax, by way of interest on loan taken by him from any financial institution or any approved charitable institution for the purpose of pursu­ing his higher education or for the purpose of higher education of his relative (the spouse and children of that individual or the student for whom the individual is the legal guardian).

The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of the initial assess­ment year (the assessment year relevant to the previous year, in which the assessee starts paying the interest on the loan) and 7 assessment years immediately succeeding the initial assessment year or until the interest is paid by the assessee in full, whichever is earli­er.

Approved charitable institution

Section 80E(3a) of the Act defines the expression ‘approved charitable institution’ as a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act); or any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf.

Higher Education

Section 80E (3b) of the Act defines the expression ‘higher education’ as any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognized by the Central Government or State Government or local authority or by any other authority authorized by the Central Government or State Government or local authority to do so.

Case laws

Some case laws in respect of Section 80E of the Act are given below-

Loan taken in the joint name

In SHRI YOGENDRA KHANDELWAL PROP. M/S STEEL SYNDICATE OF INDIA VERSUS ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-3, JAIPUR AND VICE-VERSA - 2018 (1) TMI 1034 - ITAT JAIPUR during the course of assessment proceedings, the Assessing Officer observed that the loan has been taken in the name Shri Arpit Khandelwal who happens to be an assessee and himself, and since loan not repaid by the assessee, the assessee did not fulfill the necessary conditions for claiming deduction under section 80E of the Act and deduction so claimed was disallowed. During the appellate proceedings, the assessee filed copy of the loan account statement and the repayment made during the year. The Commissioner of Income Tax (Appeals) taking the same into consideration and also the amendment which has been brought in section 80E of the Act which talks about allowance of deduction of any amount paid for the purpose of higher education of assessee’s relative, allowed the deduction claim by the assessee amounting to Rs. 170,008/-.

The Income Tax Appellate Tribunal (‘ITAT’ for short) observed that on perusal of section 80E, it provides for deduction in respect of interest on loan taken by the assessee from any financial institutions for the purpose of higher education of his relative. There is no bar that the loan cannot be taken in the joint name of the assessee and his relative. So long as the loan has been taken in the name of the assessee, even if he happens to be co-applicant and co-borrower, and so long as payment of interest is made by the assessee, the ITAT did not see any specific bar in terms of section 80E which can disallow such claim of the assessee. Further, there is no finding that Shri Arpit Khandelwal has made a similar claim in his return of income. So long as the payment of interest is effected by the assessee on loan taken by him, he stands eligible for deduction under section 80E of the Act. 

Submission of evidence

In THE INCOME TAX OFFICER, NON-CORPORATE WARD-16 (3) , CHENNAI VERSUS SHRI GAURAV SYAL - 2017 (11) TMI 1948 - ITAT CHENNAI, the issue was against the action of the Commissioner of Income Tax (Appeals)  in granting the relief to the assessee under section  80E of the Act to the extent of Rs. 1,85,000/-. It was a submission that the Commissioner of Income Tax (Appeals) has entertained the fresh evidence in the form of the letter issued from SBI regarding the deposit of sum of Rs.1,85,000/- towards the educational loan account of Shri Guarav Syal and Shri Rajan Syal. It was a submission that the evidence was not produced before the Assessing Officer.   In reply, the Department submitted that it had no objection, if the issue is restored to the file of the Assessing Officer for re-adjudication.  The ITAT held that as the said evidence has not been produced before the Assessing Officer for examination, in the interest of natural justice, the issue in respect of the deduction under section 80E is restored to the file of the Assessing Officer for re-adjudication after granting adequate opportunity to the assessee of being heard.

Loan of relatives

In SMT. VANDANA MANOJ SHAH VERSUS ITO, WARD-15 (4) , AHMEDABAD - 2016 (3) TMI 1452 - ITAT AHMEDABAD the assessee has filed her return of income on 28.7.2011 declaring total income at Rs.6,22,660/-. The assessment was finalized under section 143(3) of the Act on 27.12.2012. The Assessing Officer has observed that the assessee has made a claim of Rs.31,959/- under section 80E of the Income Tax Act. The claim under section 80E of the Act can be made by an assessee for incurring interest expense on the loan taken for the purpose of education for himself/herself or for their relatives. The Assessing Officer has observed that the education loan was taken by the married major son of the assessee, and therefore, cannot claim interest under section 80E of the Income Tax. The Assessing Officer rectified the assessment order under section 143(3). He disallowed a sum of Rs.39,959/- and determined taxable income of the assessee at Rs.6,58,820/- as against Rs.6,26,861/- determined in the scrutiny assessment.  Appeal to the Commissioner of Income Tax (Appeals) did not bring any relief to the assessee.

The ITAT observed that a perusal of the section 80E would indicate that if an assessee has incurred interest expenditure for the education loan of any relatives in any financial year, then such interest would be allowed to the assessee as deduction. The case of the Assessing Officer is that loan was taken by the married major son of the assessee for his education. It is pertinent to observe that the power of rectification under section 154 of the Act can be exercised only when the mistake, which is sought to be rectified, is an obvious patent mistake, which is apparent from the record and not a mistake, which is required to be established by arguments and long drawn process of reasoning on points, on which there may conceivably be two opinions.  In the present case, before carrying out rectification as suggested by the Assessing Officer one has to decide the nature of loan, who has taken the loan etc. It will require long drawn process of hearing. It is a debatable question. The assessee annexed form no.16 along with her return and shown the deduction under section 80E. This step must have been taken by the designated employer or by the assessee after due consideration of section 80E and loan documentation. Such stand can be dispelled after perusal of the loan documents and other details. It cannot be a subject matter of proceedings under section 154. Therefore, ITAT allowed the appeal of the assessee and deleted the disallowance.