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:

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.”

3. Under cl. (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.”

4. 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. 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 unders 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 of 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 an 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 charged on such advances or loans. The Tribunal also found that the academy receives advance deposit, tuition fees on behalf of some of the institutions but it transmits those amounts to the respective institutions.

8. The Revenue has challenged the validity of the conclusion reached by the Tribunal and at its instance the question has been referred to this court under s. 256(1) of the Act.

9. Section 10(22) under which the academy claims exemption from payment of income-tax reads as under:

“10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included—…

(22) any income of a university or other educational institution existing solely for educational purposes and not for purposes of profit.”

10. It will be seen from the above provisions that the exemption is available to universities and other educational institutions which exist solely for educational purposes. The academy is admittedly not a university. The question then is whether it falls under the category of “other educational institution”. Mr. Srinivasan, learned counsel for the Revenue, submitted that the academy in order to claim the benefit of s. 10(22) should itself be an educational institution and it is not enough if it runs some schools or colleges. In such cases, according to the counsel, the academy is only entitled to the benefit of s. 11, as rightly held by the assessing authority. He also urged that the educational institutions established by the trusts, although founded by the academy, are entitled to be assessees in their own right and the academy cannot claim the benefit of s. 10(22) in respect of the income of those institutions. The counsel, however, did not dispute that the academy does not exist for purposes of profit. Mr. Sarangan, learned counsel for the assessee, referred to us the balance-sheet of the academy. It will be seen therefrom that the academy is not claiming exemption of the income of any trust which runs the college or school. We are told that those trusts are separately assessed. The academy in these cases is only claiming exemption so far as its income is concerned.

11. For the purpose of examining the claim under s. 10(22), we must first scrutinise the objects of the academy and its activities, primary and incidental. We may state at the outset that the assessee in order to claim the benefit of s. 10(22) need not necessarily be a school or a college where education is imparted. Nor should such school or college be different from the assessee who claims the benefit of s. 10(22). That would be clear if we peruse the provisions of the various sub-sections of s. 10, viz., ss. 10(3), 10(4), 10(4A), 10(4B), 10(20), 10(20A), 10(22), 10(22A) and 10(23). It will be, therefore, obvious that the income of the assessee is exempt under s. 10(22) if the assessee is an educational institution or an establishment which primarily engages itself in educational activities. The institution, however, may incidentally take other activities for the benefit of the students or in furtherance of their education. It may invest its funds in any manner, but the income generated therefrom must be utilised exclusively for educational activities. If these requirements are complied with, the assessee's income shall be exempt under s. 10(22) of the Act.

12. The academy is a registered society and it carries on organised activities as per the objects set out in the memorandum of association. Its primary object is to establish, support, manage or conduct schools, colleges and such other educational institutions. It has got income of its own. In its balance-sheet the incomes of the twenty-two colleges or institutions established under separate trusts have not been included. Nor do we find therein the income of the nine schools which are run directly by the academy. It appears that there was no income in that year from any one of those schools. The academy out of its income has given outright grants to some of those schools. The academy has not spent its income for any purpose unconnected with education. It is, therefore, an educational institution existing purely for educational purposes and not for profit.

13. In Sole Trustee, Sole Trustee, Lok Shikshana Trust v. Cit, Mysore, [1975] 101 ITR 234 at 241, the Supreme Court, while examining the scope of the word “education” used in s. 2(15) of the 1922 Act, observed:

“What education connotes in that clause in the process of training and developing the knowledge, skill, mind and character of students by normal schooling.”

14. Even this narrow meaning given to the word “education” in the above case could be applied to the case of the academy since it is itself running nine schools, where the process of training is imparted to students by normal schooling.

15. Our view finds, support from several decisions of other High Courts. A case of a society running educational institution came up for consideration before the Allahabad High Court in Katra Education Society v. ITO, [1978] 111 ITR 420. The question arose whether the society by running an institution could claim exemption under s. 10(22) of the Act. It was held (at p. 421):

“The word ‘Institution’ has not been defined in the Act. There is no reason why an educational society cannot be regarded as an educational institution if that educational society is running educational institution or institutions.”

16. In Additional Commissioner Of Income-Tax, Madras-I v. Aditanar Educational Institution., [1978] 118 ITR 235, the Madras High Court has followed the principle stated in Katra Education Society's case, [1978] 111 ITR 420 (All). The assessee in that case was also a society registered under the Societies Registration Act, 1860. Its objects were to establish, run, manage or assist colleges, schools and other educational organisations for educational purposes. The assessee started a college and utilised the donations received for it for the purpose of education in that college and it claimed exemption of that income under s. 10(22). The Commissioner held that the assessee was not eligible for exemption under s. 10(22) on the ground that the exemption under that provision would be available only to an educational institution as such and not to others who might be controlling or financing the college. But the Tribunal reversed that finding and held that the assessee was an educational institution existing for educational purpose and not for the purpose of earning any profit. The Madras High Court, on a reference, held that the sole purpose for which the assessee was constituted was to establish colleges and schools, and, therefore, it would come within the term “other educational institution” in s. 10(22).

17. In Governing Body of Rangaraya Medical College v. ITO, [1979] 117 ITR 284, the Andhra Pradesh High Court also considered a similar question. The society concerned in that case was managing a medical college called “Rangaraya Medical College”. The society was collecting contributions for admission to that college and the bank accounts and deposits in respect thereof were maintained in the name of the society itself and not in the name of the college. The society claimed exemption in respect of its income under s. 10(22). The ITO rejected that claim. But the High Court on a writ petition filed by the society held that there was no distinction between the assessee-society and the college and the society was an educational institution with no motive of profit or personal gain. It was further observed that merely because certain surplus arose from the society's operation, it cannot be held that the institution was being run for the purpose of profit so long as no person or individual was entitled to any portion of the said profit and so long as that profit was not utilised for any purpose other than the promotion of the objects of the society.

18. In Secondary Board of Education v. ITO, [1972] 86 ITR 408, the Orissa High Court has upheld the plea of the Secondary Board of Education for claiming exemption of its income from income-tax under s. 10(22) on the ground that the income and expenditure of the Board were controlled and the entire expenditure was directed towards development and expansion of educational purposes. It was also observed that even if there was some surplus earned by its incidental activities, that surplus, so long as it remains as part of the sinking fund to be devoted to the cause of education, cannot take away the right of the Board to claim exemption under s. 10(22) of the Act.

19. In CIT v. Sindhu Vidya Mandal Trust, [1983] 142 ITR 633, the Gujarat High Court has accepted the claim of the assessee-trust for exemption in respect of its income under s. 10(22). The assessee therein like the assessee before us derived income from three sources, namely, primary and secondary schools run by it, interest on bank deposits and donations. The ITO rejected the claim of the assessee and proceeded to compute the total income of the assessee in the light of the provisions of s. 11(1) of the Act as was done in the present case. The assessee carried the matter in appeal before the AAC. The AAC reversed the finding recorded by the ITO holding that the income derived by the assessee-trust was exempt under s. 10(22) of the Act. The Revenue went up in appeal before the Tribunal. The Tribunal held that the assessee-trust was a body which existed solely for educational purposes and not for the purpose of profit. The High Court on a reference agreed with that view. Considering the facts and circumstances of the case in the light of the decisions to which we have called attention, in our judgment, the assessee is an educational institution the income of which is exempt under s. 10(22) of the Act and we accordingly answer the question in the affirmative and against the Revenue.

20. The parties will pay and bear their own costs.