The central legal point established in the judgment is that for an institution to qualify for exemption under Section 10(22) of the Income Tax Act, 1961, it must primarily engage in educational activities and utilize its income exclusively for educational purposes.

Jagannatha Shetty J.—The question referred for the opinion of this court under s. 256(1) of the I.T. Act, 1961 ("Act", called shortly) at the instance of the Revenue reads as follows :

"Whether, on the facts and in the circumstances of the case, the income of the assessee is exempt under section 10(22) of the Income Tax Act, 1961 ?"

2. The facts behind the legal formulation are not in dispute. They are found correctly stated in the statement of the case and may briefly be stated thus :

3. The Academy of General Education, Manipal (the "Academy") is the assessee in these cases. It is a society registered under the Societies Registration Act, 1860. The objects for which the academy was established are stated in the memorandum of association and they are :

"(a) To make available technical and commercial education in as many as 47 subjects;

(b) to devise ways and means and accord facilities for candidates to specialise in all or any of the above courses;

(c) to give training in technical, commercial or any other form of education, as may be adopted by the Academy from time to time in such a way as to enable candidates who find themselves stranded in life for want of or with the present educational qualifications to eke out their livelihood Training includes theoretical, practical and lecturing;

(d) to establish, support, manage or conduct schools, colleges or such other institutions as may be decided by the academy;

(e) to arrange social gatherings, literary associations, lectures and debates for the benefit of students;

(f) to train students to be men of character and efficiency."

Under clause (4) of the memorandum of association, the academy is authorised and empowered;

"(a) to issue certificates, diplomas etc.;

(b) to make the objects of the academy popular among the classes and masses by any media;

(c) to enrol members and to collect funds by membership fees, donations, subscriptions or by such other sources as may be deemed expedient for running the academy;

(d) to amalgamate or affiliate any other institution whose objects and interests may in any manner directly or indirectly be substantially identified with or advance the objects or interest of the academy, etc."

the academy runs nine educational institutions. They are set out in annex. D to the statement of the case. It also controls and supervises 22 aided educational institutions which are also set out in the same annexure.

4. The academy derives income from securities, properties and from other sources like dividends, interest, registration fees, refund of scholarships, donations, etc.

5. Up to and including the assessment year 1970-71, the income of the academy has been treated as exempt. For the assessment year 1971-72, the academy filed a voluntary return showing "nil" income and claimed that its income was exempt under s. 10(22) of the I.T. Act, 1961. Alternatively, it claimed exemption under s. 11 to the extent admissible. The ITO disallowed the claim under s. 10(22), but accepted the claim under s. 11, since the objects of the academy were found to be charitable in nature and the academy did not infringe the provisions of s. 13(1)(c).

6. Aggrieved by the order by the ITO, the academy appealed to the AAC before whom detailed evidence was produced to show that the academy is an educational institution. The AAC agreed with that contention and held that the academy was purely an educational institution existing for educational purposes and not for profit and, therefore, entitled to exemption under s. 10(22) of the Act.

7. The Revenue appealed to the Tribunal challenging the order of the AAC. The Tribunal after a careful scrutiny of all the material on record also held that the academy was purely and educational institution and it was not carrying on any business. The Tribunal observed that the academy ordinarily gives donations to educational institutions as outright contributions as well as loans but no interest is charges on such advances or loans. The Trib