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Issues involved: Interpretation of exemption u/s 10(22) of the Income-tax Act, 1961 for an educational institution.
Summary: The judgment of the High Court of Karnataka involved a dispute regarding the exemption of income u/s 10(22) of the Income-tax Act, 1961 for an educational institution, the Academy of General Education, Manipal. The academy, a registered society, primarily engaged in educational activities, claimed exemption for its income. The dispute arose when the Revenue challenged the exemption claimed by the academy for the assessment year 1971-72. The Income Tax Officer (ITO) disallowed the claim under s. 10(22) but accepted it under s. 11. The Appellate Authority Commissioner (AAC) upheld the academy's claim, stating it was purely an educational institution not operating for profit. The Revenue further appealed to the Tribunal, which also ruled in favor of the academy. The key question was whether the academy qualified as an "other educational institution" u/s 10(22) and whether its income was solely for educational purposes. The High Court analyzed the academy's objects, activities, and income sources to determine its eligibility for exemption u/s 10(22). It was noted that the academy ran nine educational institutions and supervised 22 aided institutions, deriving income from various sources like securities, properties, dividends, and donations. The Court emphasized that for an entity to qualify for exemption u/s 10(22), it must primarily engage in educational activities and utilize income exclusively for educational purposes. The academy's balance sheet showed no inclusion of income from separate trusts running colleges or schools, indicating its income was solely for educational endeavors. Citing precedents and decisions from other High Courts, the Court reaffirmed that entities primarily established for educational purposes, even if managing or financing educational institutions, could claim exemption u/s 10(22). The Court highlighted cases where societies running educational institutions were considered educational institutions themselves, eligible for exemption. The Court concluded that the academy met the criteria as an educational institution existing solely for educational purposes, exempting its income u/s 10(22). The judgment favored the academy, answering the question in the affirmative against the Revenue. The parties were directed to bear their own costs in the matter.
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