DEDUCTION IN RESPECT OF INTEREST ON LOAN TAKEN FOR HIGHER EDUCATION

Section 80E of the Income Tax Act, 1961 (‘Act’ for short) allowed deduction in respect of interest on loan taken for higher education from the financial institution or any approved charitable institution.  For the purposes the term ‘higher education’ is defined 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.

The deduction of interest on education loan is allowed for seven years from the initial assessment year in which the assessee starts paying the interest on the loan.  The education loan taken by the assessee shall be for his relative.  The term ‘relative’ is defined for this purpose as the spouse and children of that individual or the student for whom the individual is the legal guardian.

The approved  Charitable institution shall be an institution specified in, or, as the case may be, an institution established for charitable purposes and approved by the prescribed authority under Section 10(23C) of the Act or an institution specified under Section 80G(2).

The issue to be discussed in this article whether such higher education should be in India or it may be in abroad with reference to decided case law in ‘Nitin Shantilal Muthiyan V. Deputy Commissioner of Income Tax’ – 2015 (9) TMI 947 - ITAT PUNE.  The facts of the case run as follows:

The assessee is an individual.  He filed his return of income declaring total income at ₹ 61,03.220.  His son is taking higher education (MS Electrical Engineering) in Washington, USA.  The assessee filed his return of income declaring total income of ₹ 61,03,220/-.  He claimed a sum of ₹ 73,125/ towards the payment of interest on education loan for higher studies of his son.  The Assessing Officer asked the assessee to explain as to why the deduction claimed under Section 80E amounting to ₹ 73,125/ should not be disallowed since the same is allowable only in case of higher education pursued in Indian Educational Institutes duly authorized in India and not for higher education pursued abroad or in foreign educational institutes.  The assessee contended before the Assessing Authority that nowhere in the Act it is mentioned that the education should be taken only in India.  The Assessing Authority rejected his explanation and confirmed the demand of income tax.

Aggrieved against the order of the Assessing Authority, the assessee filed appeal before Commissioner of Income Tax (Appeals).  The assessee reiterated his stand before the appellate authority.  The Commissioner (Appeals) upheld the order of lower authority holding that-

• The assessee has not furnished any evidence that the University where his son is undertaking education is approved either by the Central Government or by any other authority authorized for this purpose;
• There is no evidence to suggest that he is pursuing higher education;
• The assessee has no even given name or program undertaken by his in any of the authorized University or Institute;

Therefore the appeal lies before the Tribunal.  Before the Tribunal the appellant submitted the following:

• Both the lower authorities have failed to read the provisions in proper perspective;
• The Assessing Officer, in his order confirmed the demand the educational institute has not been approved under the provisions of Income Tax whereas the Commissioner (Appeals) upheld the order of lower authority on a different ground;
• His son has taken further higher studies after completion of Bachelor of Engineering in Electronics and Telecommunication Branch from the University of Pune;
• He has submitted the certificate issued by the George Washington University, Washington awarding the degree of Master of Science, Electrical Engineering to his son Rounak Nitin Muthiyan;
• There is no stipulation under Section 80E of the Act that the education should be in India only;
• If the Legislature has such an intention it would have been definitely and specifically mentioned as it has been mentioned in Section 11 of the Act which provided that any income from the property held for charitable purposes are exempt from tax only to the extent it is applied in India;
• When the section has not imposed any condition about education in India the deduction as claimed by the assessee should not be disallowed

The Revenue heavily relied on the order of Commissioner (Appeals).

The Tribunal, after hearing the arguments of both sides, held that the findings of the Commissioner (Appeals) that the assessee has not even given name or program undertaken by his son and no details are furnished is without any merit since the Assessing Officer has categorically mentioned in the assessment order that his son is taking higher education in Washington and the assessee has submitted the certificate issued by Pune University and Washington University.  This course cannot be pursued unless a student completes his senior secondary examination or its equivalent.  Nowhere the section provides that the higher education should be taken in India only and not abroad. Had there been such an intention by the Legislature it would have been definitely and specifically mentioned.  Therefore if the Legislature wanted the education in India itself for availing of deduction, the Legislature would have specifically stated so in the section itself.  Since the studies of higher education in USA of the son of the assessee and interest expenditure are not in dispute, The Tribunal did not find any reason as to why the assessee shall not get the benefit of deduction under Section 80E of the Act.  The Tribunal allowed the appeal.