Sabyasachi Mukharji, J.
1. In this reference under Section 256(1) of the I.T. Act, 1961, the Tribunal has referred to this court the following question ;
'Whether, on the facts and in the circumstances of the case, and on the correct legal scope of Section 10(22) of the Income-tax Act, 1961, the Tribunal was justified in holding that the assessee was not entitled to exemption under Section 10(22) in respect of the income from Mahadevi Birla Girls' High School and Mahadevi Birla Sishu Vihar ?'
2. The assessment year involved is 1972-73. The assessee is a trust which had been recognised as such under Section 11 for the purpose of exemption by the ITO. We shall presently refer to the relevant provisions of the trust deed. In Part IV of the return, the assessee had claimed exemption underSection 10(22) in respect of the income from Mahadevi Birla Girls' High School and Mahadevi Birla Sishu Vihar. The ITO rejected this claim on the ground that the section applied only to educational institutions. It would be proper in view of the controversy that we have to decide in this case to refer to the relevant portion of the order of the ITO. He observed, inter alia, as follows :
'In Part IV of the return the assessee has claimed exemption under Section 10(22) in respect of the income of Rs. 17,374 from Mahadevi Birla Girls' High School and Mahadevi Birla Sishu Vihar. Section 10(22) exempts ' any income of a University or other educational institution, existing solely for educational purposes and not for purposes of profit'. The assessee is neither a University nor an educational institution. The assessee, being a trust, cannot avail of the exemption, since the section applies to an educational institution and not to a trust. The section exempts any 'income of' an educational institution and not any income from an educational institution. This shows that an educational institution must be the owner of the income. But, in the present case, the trust is the owner of the income and the educational institutions (schools) are the sources of the income in question. Another condition is that the institution must exist solely for educational purposes. But, in the instant case, the trust exists for other charitable/religious purposes also. For the aforesaid reasons, the claim for exemption under Section 10(22) cannot be allowed.'
3. Thereafter, the ITO in his computation stated as follows :
'Amount of income applied for charitable or religious purposes comes to as under :
Amountas per separate trust a/c.
(Excludingdepreciation of Rs. 1,02,122)
Addition to assets
Amountof unspent income as under :
Donation,interest, etc., as per separate trust a/c. (excluding so-called rent)
Incomefrom schools, as discussed above
4. As mentioned hereinbefore, the ITO, on the question whether Section 10(22) applied to the facts and circumstances of the case, held against the assessee. The matter was, therefore, taken up in appeal before the AAC. The AAC in his order observed that the appellant-trust established two schools, viz., Mahadevi Birla Girls' High School and Mahadevi Birla Sishu Vihar. These were owned and run by the assessee, the trust. For the calendar year 1971, the schools' account income was included in the income of the assessee. Exemption under Section 10(22) of the Act was claimed in respect of this income. Of these, Rs. 50,591 remained as income from voluntary donations and interest on investments ; a sum of Rs. 1,01,653 was applied for charitable purposes. Thus, there was an excess of expenditure of Rs. 51,082 and, accordingly, exemption under Section 11 was sought for. The AAC observed that the ITO had held that the assessee was neither a university nor an educational institution, the schools were not the owners of the income but were only the sources of income and the appellant trust was the owner of the income and, therefore, the trust did not exist solely for educational purposes but it existed for other religious and charitable purposes also. It was the case of the ITO that under Section 10(22) the exemption was' available only to an educational institution, the educational institution should be the owner of the income and the institution must exist solely for educational purposes. The ITO, therefore, held that the assessee was not entitled to exemption under Section 10(22) of the Act.
5. Incidentally, we may mention that there was another question relating to allowability of certain depreciation allowance. The ITO had held against the assessee on this point. As this question has not been referred to us, we are not dealing with this aspect of the matter of depreciation.
6 The AAC was, however, of the view that Section 10(22) of the Act applied to the facts and circumstances of this case as the trust was entitled to an exemption in respect of the schools' income and it was not necessary that only the educational institution by itself was entitled to such exemption.
7. Being aggrieved by the order of the AAC, the revenue went up in appeal before the Tribunal. The Tribunal on this aspect after discussing the relevant clauses of the deed referred to the decision of the Supreme Court in the case of Indian Chamber of Commerce v. CIT : 101ITR796(SC) and also in the case of Sole Trustee, Loka Shikshana Trust v. CIT : 101ITR234(SC) and observed as follows :
'The trustees have also the powers similar to those described in the case of Birla Sanskriti Trust by the Tribunal in its order dated 29-6-76. The objects here are more or less the same as those in the case of Birla Sanskriti Trust. Therefore, educational as well as non-educational activities are linked up together and it is absolutely in the discretion of thetrustees to carry out any of those objects of the trust in the manner they think best. For reasons mentioned by us while disposing of a similar claim for exemption under Section 10(22) in the case of Birla Sanskriti Trust, we would hold that the assessee's claim for exemption in this case fails. It is true that the income derived by the two schools is not as good as in the other case. However, we must emphasize the absence of any restrictions on profit making in the objects of the trust. Secondly, the objects are all mixed up and, therefore, we would hold that the schools do not exist solely for educational purposes and are run for purposes of profit. Reference may be made to paragraphs 14 to 20 of the Tribunal's order dated 29-6-1976.
Coming now to the claim for depreciation, we decide this point in favour of the assessee for the reasons mentioned by us in para. 22 of the Tribunal's order dated 29-6-1976 in the case of Birla Sanskriti Trust. As pointed out therein, there is no double deduction on account of the asses-see's claim for depreciation as was contended for though we have to hold, as in that case, that the charging of rent was merely notional. When the assessee's claim for exemption under Section 10(22) has been denied on the ground that it is tainted with a commercial vice, it would not be proper to treat that income as anything other than commercial income. There is no reason why depreciation should not be allowed in respect of the fixed assets used by the schools. In this connection, reference may be made to the Board's Circular dated 19-6-1968. We may reproduce para. 6 of the said circular below ;
'To sum up, the business income of the trust as disclosed by the accounts plus its other income computed as above, will be the 'income' of the trust for purposes of Section 11(1). Further, the trust must spend at least 75 per cent. of this income and not accumulate more than 25 per cent. thereof. The excess accumulation, if any, will become taxable under Section 11(1).' The above circular would make it clear that the business income has to be first computed as per the circular by adding back any debits made for capital expenditure incurred for the purposes of the trust or otherwise. It is only after the total income of the trust is computed according to the Act that the further question will arise as to how much will be taxable under Section 11. It is for that purpose that capital expenditure, among others, has to be deducted from the total income for the purpose of finding out how much has been accumulated by the assessee. Viewed in this context, it would be clear that there is no double deduction as referred to by the Income-tax Officer and the departmental representative before us. We would, therefore, direct the Income-tax Officer to allow depreciation to the trust as such and according to law.'
8. Out of this order of the Tribunal, the question, as indicated before, has been referred to this court.
9. As we have mentioned before, the Tribunal mainly relied on the fact that the owner of the income or rather the recipient of the income was neither a university nor an educational institution but a trust. The Tribunal referred to the fact that the trust deed under which the trust functioned permitted investment or application of the trust money or trust income to objects, though charitable, other than an educational institution. Therefore, the Tribunal was of the opinion that the income was not of an educational institution existing solely for education. The Tribunal emphasised that there was an absence of any restriction on profit-making in the objects of the trust and, secondly, that the objects were mixed up. Therefore, according to the Tribunal, the schools did not exist solely for educational purposes and they were run for purposes of profit. On this ground the Tribunal was of the view that Section 10(22) of the Act did not apply and the assessee was not entitled to any exemption and further that Section 11 would be applicable to the assessee to the extent it was applied,
10. In this connection it would be relevant to refer to Section 10(22) of the I.T. Act, 1961, which reads as follows :
'10. Incomes not included in total income.--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.'
11. It is also material in this connection to refer to Section 10(20), which reads as follows :
'10. (20) the income of a local authority which is chargeable under the head 'Interest on securities', 'Income from house property', 'Capital gains' or 'Income from other sources' or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service (not being water or electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area.'
12. Sub-sections (21) and (22) of Section 10 read as follows :
'(21) any income of a scientific research association for the time being approved for the purpose of Clause (ii) of Sub-section (1) of Section 35 which is applied solely to the purposes of that association ;
(22) any income of a University or other educational institution, existing solely for educational purposes and not for purposes of profit.'
13. Sub-section (20A), which was introduced by the Finance Act of 1970, along with Sub-section (22A) are as follows :
'(20A) any income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both.
(22A) any income of a hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit.'
14. Section 11(1)(a) may in this connection be referred to. The said section reads as follows :
'11. Income from properly held for charitable or religious purposes,--(1) Subject to the provisions of Sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to suoh purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent. of the income from such property.'
15. In order to get exemption, therefore, under Section 10 we must bear in mind that it must be one which is capable of inclusion in the total income of the previous year of 'any person' meaning thereby that the recipient of the income may be any person. But the income not liable to be includible under Section 10 must be the income of a university or other educational institutions which must exist solely for educational purposes (underlined* by us), that is, the income of a university or educational institutions must exist solely for the purpose of education and such an educational institution or a university must not be run for profit. These are the ingredients or the requirements of Sub-section (22) of Section 10 of the Act. There is one expression which may be noticed--that the income must be of a university or an educational institution. An argument was sought to be made that the recipient of the income or the owner of the income must be either a University or an educational institution. The expression' 'of' is capable of various meanings depending upon the context. In this connection we may profitably refer to the Oxford Dictionary, Shorter Edn., where the expression 'of' has been defined as meaning origin, derivation as also authorship. Whether it would relate to the meaning assource of origin, source of derivation or authorship would depend upon the facts and circumstances and the context in which the expression is used. In this connection it would be relevant to note that this expression 'income of a university or other educational institutions' is used in connection with the income which is not includible in computing the total income of the previous year of any person. Therefore, whenever the question is of computation of the total income of the previous year of any person, meaning thereby any assessee under the I.T. Act, as contemplated by the expression 'person', which includes a university or an educational institution, then that income, if the other conditions mentioned in Sub-section (22) are fulfilled, is entitled to the exemption. We may get some light on this aspect in respect of the intention of the Legislature in introducing Sub-section (22A) which also speaks of any income of a hospital or institution for the reception and treatment of persons. Sub-section (22A) along with Sub-section (20A) was introduced by the Finance Act of 1970, and in Clause (4), which sought to amend Section 10 of the I.T. Act, it was explained in the memo of the Finance-Bill, 1970, as follows :
'Sub-clause (a) seeks to insert a new Clause (20A) in Section 10 of the Income-tax Act retrospectively from the 1st April, 1962, i. e., the date of commencement of the Income-tax Act. The effect of the proposed amendment is that income of the Housing Boards or other statutory authorities set up for the purpose of dealing with or satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages will be exempt from income-tax.
Sub-clause (b) seeks to insert a new Clause (22A) in Section 10 of the Income-tax Act. The effect of the proposed amendment will be that the income of hospitals or other medical institutions will be completely exempt from tax, notwithstanding that such income is not fully spent during the year in which it is earned.' (See in this connection  75 ITR 70.
16. Reference may also be made to the memorandum explaining the provisions in the Finance Bill, 1970, wherein it was observed as follows [(p. 93 of 75 ITR (St.)] :
'34. Exemption from tax of the income of hospitals and other medical institutions.--At present, universities and other educational institutions existing solely for educational purposes and not for purposes of profit enjoy complete exemption from tax on their incomes. However, in the case of hospitals and similar other institutions for treatment of illness, there is no specific exemption from tax unlike in the case of universities. Medical institutions come under the category of charitable institutions and have to satisfy the conditions relating to application of not less than 75 per cent. of their current incomes to their objects in the same year inorder to qualify for exemption from tax on the remainder which is accumulated. In the context of the modifications proposed in the provisions relating to the exemption from tax of the income of charitable and religious trusts and institutions (vide paragraphs 18.1 to 18.5 of this Memorandum), it is proposed to make a specific provision for exempting from tax the income of hospitals and other medical institutions which exist solely for philanthropic purposes and not for purposes of profit. The provision, as proposed, will cover also institutions for treatment of mental defectiveness as also those for treatment of persons during convalescence or of persons requiring medical attention or rehabilitation. The income of all these categories of institutions will be exempt from tax altogether, as in the case of universities and other educational institutions at present.'
17. We may also refer to the Circular of the Central Board of Direct Taxes being Circular No. F. No. 194/16-1711 (AI), which stated as follows :
'A number of instances have come to the notice of the Board where action to assess educational institutions and hospitals have been taken on the ground that they are making profit and, therefore, the exemption Under Sections 10(22) and 10(22A) is not available to them.
2. Under Section 10(20) income of an university or other educational institutions existing solely for educational purposes and not for purposes of profit is exempt. Under Section 10(22A) income of a hospital or other institution referred to therein which exists solely for philanthropic purposes and not for purposes of profit is also exempt.
3. The question for consideration is whether an educational institution existing solely for educational purposes but which shows some surplus at the end of the year is eligible for this exemption. If the profit of the educational institution can be diverted for the personal use of the proprietor thereof, then the income of the educational institution will be subject to tax. However, there may be cases where the educational institutions may be owned by the trusts or societies to whom the provisions of Section 11 may be applicable. Where all the objects of these trusts are educational, and the surplus, if any, from running the educational institution is used for educational purposes only, it can be held that the institution is existing for educational purposes and not for purposes of profit. However, if the surplus can be used for non-educational purposes, it cannot be said that the institution is existing solely for educational purposes and such institutions will not be liable for exemption Under Section 10(22). But, in such cases, the applicability of Section 11 can be examined and if the conditions laid down therein are satisfied, the income will be exempt Under Section 11.
4. What has been stated in respect of educational institutions will equally apply to hospitals and other institutions referred to in Section 10(22A). In the case of hospitals and similar institutions, if the surplus isused for philanthropic purposes, the income of the institution will be eligible for exemption Under Section 10(22A). It is not necessary that the surplus should be used for medical purposes only.'
18. In our opinion, from the language and the context in which the expression has been used in Sub-section (22) of Section 10, it is clear that the income may be the income of any person but the source of this particular income which is not liable to be includible under Sub-section (22) of Section 10 must be the income of a university or other educational institutions which fulfils the other requirements of that sub-section, that is to say, the educational institution through which the income is generated must exist solely for educational purposes and the educational institutions be not run for profit. A person may have income from different sources. But if a particular income is from an educational institution or a university which exists solely for educational purposes and not for purposes of profit, then that income or the recipient of the other incomes would be entitled to exemption. This position, in our opinion, was also referred to, though not clearly held, in the case of Secondary Board of Education v. ITO : 86ITR408(Orissa) . There, under the Orissa Secondary Education Act, 1953, the Secondary Board, Orissa, had a fund. One of the sources of income of the Board was profits from compilation, publication, printing and sale of text books. The profits so earned entered into the Board fund. The income and expenditure of the Board was controlled and the entire expenditure was to be directed towards development and expansion of educational purposes. Even if there was some surplus, it remained as a part of the sinking fund to be devoted to the cause of education as and when necessary. This being the objective and there being various ways of control of the income and expenditure, the Board of Secondary Education could not be said to be existing for purposes of profit. It existed solely for the purposes of education. The income of the Board was, therefore, held to be exempt under Section 10(22) of the I.T. Act, 1961. It may be mentioned that this case mainly proceeded on the basis whether the Board of Secondary Education existed solely for educational purposes or any surplus generated could be considered to be profit in the sense in which the expression is used in Section 10(22) of the Act. In our opinion, the judgment also proceeded on the basis that the source of the income which was spoken of was not an income under Section 10(22) of the Act, though learned advocate for the revenue drew our attention to that here. In that case it was the income of the educational institution, that is to say, the Board of Secondary Education, and it was not the income of a trust or other p3rson which was entitled to divert its income to purposes other than education, though charitable in nature. But, that distinction, in our opinion, makes no difference. Before the Allahabad High Court in the case of Katra Education Society v.ITO : 111ITR420(All) , it was observed that Section 10(22) of the I.T. Act, 1961, exempted the income of 'a university or other educational institution existing solely for educational purposes' from income-tax. The word 'institution' had not been defined in the Act according to the Allahabad High Court. There was, therefore, no reason why an educational society could not be regarded as an educational institution if that educational society was running educational institutions.
19. Before the House of Lords this question arose in a slightly different context in the case of Ereaut (Inspector of Taxes) v. Girls' Public Day School Trust Ltd,  15 TC 529. There the question arose whether the exemption under Sch. A of the I.T. Act in England was to be given to a Public Day High School for girls. The Wimbledon High School for Girls was founded by and its premises were owned by a limited company incorporated under the Companies Act, the present name of which was the Girls' Public Day School Trust Ltd. This trust was established to provide and maintain schools for girls for all classes above those provided by the Elementary Education Acts. The capital of the trust had been derived from share capital, the dividends on which were restricted to 4 per cent. moneys borrowed on mortgage and, to a very small extent, gifts. Its receipts consisted of school fees, the Board of Education grants and rents. The general management of the school was carried on, subject to financial control by the trust through a body of governers one-third of whom was nominated by the local educational authority, the remainder being appointed by the trust. It was held by the General Commissioners that the school was a public school. This decision was upheld on the ground that the finding of the Commissioners was one at which they were entitled to arrive on the evidence. The decision though instructive does not really resolve the precise controversy before us.
20. This decision was relied on with approval by the Division Bench of the Andhra Pradesh High Court in the case of Governing Body of Rangaraya Medical College v. ITO : 117ITR284(AP) . There the Governing Body of the Rangaraya Medical College was a society founded on 16th April, 1964, under the Societies Registration Act to manage the college, which was started by another society, namely, Medical Educational Society, Kakinada, six years earlier. There was no registered document transferring the buildings to the society, as the society was awaiting orders of the Government on the exemption claimed by the society from registration charges and stamp duty. As a transfer was not complete in accordance with law, the construction of the buildings had to be undertaken in the name of the society. The society was collecting a compulsory contribution of Rs. 12,000 per seat and the bank accounts and deposits were maintained in the name of the society itself and not in the name of the college. TheITO rejected the claim made by the petitioner-society for an exemption under Section 10(22) of the Act. The objects of the governing body were :--to manage the medical college and ancillary institutions, to encourage research and study in the concerned faculties in the college, to institute additional courses and post-graduate courses, to organise and maintain hospitals, clinics, laboratories, etc., for clinical teaching and research and training of the students. On a writ petition filed by the society it was held that the assessee-society was not different from a medical college. It was only because of the pendency of the petition for exemption from the stamp duty and registration fees, which was pending with the Government, that the construction of the buildings had to be undertaken in the name of the Medical Educational Society. Further, there was no distinction between the petitioner-educational society and the college and the society was an educational institution with no motive of private or personal profit. Merely because certain surplus arose from the society's operations, it was held by the Andhra Pradesh High Court that it could not be said that the institution was run for the purpose of profit so long as no person or individual was entitled to any portion of the said profit and the said profit was utilised for the purpose of and for the promotion of the objects of the institution. Hence, the income of the petitioner.was entitled to exemption from income-tax under Section 10(22) of the I.T. Act, 1961.
21. The Madras High Court in the case of Addl. CIT v. Aditanar Educational Institution : 118ITR235(Mad) was concerned with a society registered under the Societies Registration Act, 1860. There, the assesses, a society registered under the Societies Registration Act, 1860, had for its objects to establish, run, manage or assist colleges, schools and other educational organisations existing solely for educational purposes. The assessee received a donation from a trust. The assessee started a college and utilised the entire donation for the college. The assessee claimed that as it was an educational institution existing solely for educational purposes, its income was nil. Though this was accepted by the ITO, the Commissioner held that the assessee was not entitled to any exemption under Section 11 and Section 12(2) of the I.T. Act, 1961, and, accordingly, set aside the nil assessments and directed the ITO to re-do the assessments taking into consideration the voluntary contributions received from the trust. The Commissioner also held that the assessee would not be eligible for the exemption under Section 10(22) as the exemption in that provision would apply only to an educational institution as such and not to anyone else who might be financing the running of the institution. The Tribunal, however, held that the assessee was an educational institution existing for educational purposes and not for purposes of earning any profitand, hence, the assessee itself could be termed to be an educational institution so as tocome within the ambit of Section 10(22) of the Act. On a reference to the Madras High Court, it was held that any educational institution would fall within the scope of Section 10(22) even though it may have or may not have anything to do with a university and that the college run by the assessee would come within the term 'other educational institution' in Section 10(22) of the Act.
22. The sole purpose for which the assessee had come into existence was education at the level of college and school and hence it could not be said that the assessee was only a financing body and did not come within the expression 'other educational institution' under Section 10(22) of the Act. An educational society-could be regarded as an educational institution if the society was running an educational institution.
23. All the income of a society running a college would not be exempt under Section 10(22). Only the income which has a direct relation or is incidental to the running of the institution, as such, would qualify for exemption.
24. On the facts, the Tribunal was right ; it was held by the Madras High Court, in its conclusion that the assessee was eligible for the exemption under Section 10(22).
25. There at p. 240 of 118 ITR of the report the High Court observed asfollowst :
'The further contention was that the institution, in order to qualify for the exemption under Section 10(22), should itself be the educational institution and that it was not enough if it ran an educational institution. It was pointed out that the assessee could assist colleges and that in case it merely rendered assistance, it would be in the nature of a financial body, which did not itself impart education. It is difficult to accept the argument that, in the present case, the assessee is not the educational institution. The assessee has come into existence for the purpose of establishing, running managing or assisting colleges, schools and other educational organisations. In pursuance of its objects, as seen earlier, the assessee has established a college. It is stated that the management of the college had to be vested in a registered body. It is not clear whether two registered bodies were contemplated, one being the assessee and the other the managing body. In para. 8 of its order, the Tribunal has observed as follows :
'Ultimately, affiliation for the P.U.C. course was granted to the college by the Madras University on condition that the management of the college should be by a registered body.' It was stated that the college itself was incorporated as a separate registered body. There is no material on record to show that the college was separately incorporated as a registered body. It is not possible on the facts to pursue this point further. It is enough at this stage to mention that the assessee, in order to effectuate its objects, has necessarily toimpart education only through the medium of a college consisting of professors and students. Unless a college itself is brought into existence by the professors, a college would ordinarily come into existence only by third parties, who appoint the principal and the professors. With the help of professors, students would have to be recruited and education imparted. Thus, the medium through which the assessee could effectuate its objects is the college and by employing this medium, the assessee imparts education. It is not possible to accept the contention that the assessee is only a financing body and does not, on the facts, come within the scope of 'other educational institution' occurring in Section 10(22).
The provision requires that the institution should exist solely for educational purposes and not for purposes of profit. We have already reproduced the clauses in the memorandum describing the objects of the society. In effect, there are only two clauses, viz., Clauses (a) and (b), which are material for this purpose. Clause (a) provided for establishment, running or management of colleges or assistance to colleges. Clause (b) contemplates the same being done for schools and other educational organisations. Thus, the sole purpose for which the assessee has come into existence is education at the levels of college and school.'
26. On another limb of the section, it may be relevant to refer to the observations of the court at p. 241 of the report :
'Mr. A. K. Sen, the learned counsel for the assessee, gave a categorical answer to a question as to whether an assessee like the present one could merely by running an institution for educational purposes, get exemption for all its income, whether it related to the educational purpose or not. Quite fairly, and in our opinion rightly, he stated that the expression 'existing' used in Section 10(22) clearly showed that the matter would have to be investigated in each year, and so long as it was found that the institution existed for educational purposes in the relevant year, and so long as its profit is incidental to the purpose of education, the income would be exempt, and not any income, however remotely connected with the educational institutions. A society by merely running a college cannot utilise this provision as an instrument for exemption in respect of all its sources of income which had no connection with its educational authority. There must be some correlation between the income earned and the educational institution. For instance, it is well known in this part of the country, that educational institutions, before they are granted affiliation, are required to deposit a substantial sum, and that such deposits are to be invested in Government securities or trustee securities which yield income. Though such income would otherwise be lax-able, still in view of the fact that it has a direct relation to the running of the institution which imparts education, the exemption would have tobe granted. It would not be possible or proper to lay down in any precise terms as to what would be the income of the educational institution which would qualify for exemption under Section 10(22) and what would be outside the exemption. The answer would depend upon the facts in each case. What can possibly be stated is that any income, which has a direct relation or is incidental to the running of the institution, as such, would qualify for exemption.'
27. Then, it appears to us, in view of the language used in the opening words under Section 10(1) read with Sub-section (22) of Section 10, that the recipient or the owner of the income may be an assessee or any person apart from a university or an educational institution but the income not to be included under Sub-section (1) of Section 10 must be from a source, which is a university or an educational institution, which must fulfil the other requirements of Sub-section (22) of Section 10 of the Act, that is to say, an educational institution must exist solely for educational purposes and not for purposes of profit. If those conditions are fulfilled, then the question whether the recipient or the owner of the income is other than an educational institution or a university would not affect the position. The expression 'of', as we have mentioned before, is capable of more than one construction as the Oxford Dictionary says that it is capable of both including the origin, derivation as well as authorship depending upon the context in which the expression has been used. In our opinion, this expression envisages the source, that is to say, it is the generation of a particular type of income or the source of a particular type of income, i. e., under Section 10(22). This view would also be corroborated by the expression used under Section 10(1) of the Act, namely, 'the income of the previous year of any person' with the purpose of the introduction of Sub-section (22A) in Section 10 by the Finance Act, 1970, as explained. In this case the Tribunal had emphasised that the trust, which is the assessee, had its objects in the trust deed--objects other than the educational objects, that is to say, other objects which we have referred to, which objects though charitable in nature, were not solely or exclusively for education; but that is only relating to the trust and that guides the recipient or the owner of the income. But, so far as one of the clauses of the trust deed, that is to say, Clause 2(a) and (b) of the trust deed is concerned, that is to permit the trust to establish and start, aid, run, maintain or manage schools, colleges or educational institutions of all kinds for boys and girls and adults and reading rooms, libraries, museums, and boarding houses and hostels, and similar other institutions for the benefit of the public. It is not the entirety of the income of the recipient--the trust in this case--but the income of the particular source, namely, the educational institution, that comes within the purview of Sub-section (22) of Section 10 of the Act. The next questionof the matter which requires consideration is whether the educational institution, in the facts and circumstances of this case, was existing solely for the purpose of education and not for the purpose of profit.
28. Now, here, unless there is an income, that is to say, a surplus of receipt over the expenditure, no question of not including that income under Section 10 arises. Therefore, merely because there is a surplus, that is to say, a surplus of receipt over expenditure, it cannot be said that the educational institution exists for profit, if that surplus is intended or is maintained for the purpose of education and not for the purpose of personal gain of the recipient or the owner of the income.
29. In this connection we may refer to the decision of the Supreme Court in the case of Addl. CIT v. Surat Art Silk and Cloth Manufacturers Association : 121ITR1(SC) . There, the assessee-company, incorporated under the Indian Companies Act, 1913, after certain vital amendments in its memorandum of association, was registered under Section 25 of the Companies Act, 1956. Its objects as amended were (p. 7) :
'(a) To promote commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth, (b) To carry on all and any of the business of art silk yarn, raw silk, cotton yarn, as well as art silk cloth, silk cloth and cotton cloth belonging to and on behalf of its members, (cj To obtain import licences for import of art silk yarn, raw silk, cotton yarn and other raw materials as well as accessories required by the members for the manufacture of art silk, silk and cotton fabrics, (d) To obtain export licences and export cloth manufactured by the members, (e) To buy and sell and deal in all kinds of cloth and other goods and fabrics belonging to and on behalf of the members.... (n) To do all other lawful things as are incidental or conducive to the attainment of the above objects.'
30. The 'income and property of the assessee were liable to be applied solely and exclusively for the promotion of the objects set out in the memorandum and no part of such income or property could be distributed amongst the members in any form or utilised for their benefit either during its operational existence or on its winding-up or dissolution. The assessee's income in that case was derived primarily from two sources :
(i) an annual subscription collected from its members at the rate of Rs. 3 per powerloom, with regard to which it was conceded by the department that it'was exempt from tax; and
(ii) commission of a certain percentage of the value of licence for the import of foreign yarn and quotas for the purchase of indigenous yarn obtained by the assessee for its members.
31. This commission was credited separately in a building account and out of this amount the assessee constructed a building.
32. The Tribunal held that the primary purpose for which the assessee was established was to promote commerce and trade in art silk, silk yarn and cloth as set out in Clause (a) and the other objects in Clauses. (b) to (e) were merely subsidiary objects ; that the primary purpose was plainly advancement of an object of general public utility and did not involve carrying on of any activity forprofit within the meaning of Section 2(15) of the I.T. Act, 1961. Because, whatever activity was carried on by the assessee, the fulfilment of the primary purpose was for the advancement of an object of general public utility and not for profit ; and that, therefore, the assessee's income was exempt from tax under Section 11(1). Since there was a conflict of opinion between the High Courts regarding the interpretation of the words 'not involving the carrying on of an activity for profit' within Section 2(15) of the Act, the Tribunal at the instance of the revenue had stated a case directly to the Supreme Court under Section 257 of the Act. In this connection, it would be relevant to refer to Section 2(15) of the Act which defines 'charitable purpose'. The said sub-section reads as follows :
' 'Charitable purpose' includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit.'
33. As would be evident the expression 'carrying on of an activity for profit' is simliar to the expression in Section 10(22) of the Act, with which we are concerned. It was held by the majority of the learned judges of the five judges Bench decision of the Supreme Court that the dominant or the primary purpose of the assessee was to promote commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth as set out in Clause (a) and the objects specified in Clauses. (b) to (e) were merely powers incidental to the carrying out of that dominant and primary purpose. It was further held that the dominant or primary purpose of the promotion of commerce and trade in art silk, etc., in our opinion, was an object of public utility not involving the carrying on of any activity for profit within the meaning of Section 2(15) of the Act and that the assessee was entitled to exemption under Section 11(1)(a) of the Act. It was also held by the full court that the expression 'not involving the carrying on of any activity for profit' qualify or govern only the last head of charitable purpose and not the earlier three heads. Where the purpose of a trust or institution was relief of the poor, education or medical relief, the requirement of the definition of 'charitable purpose' would be fully satisfied, even if an activity for profit was carried on in the course of the actual carrying out of the primary purpose of the trust or the institution. Therefore, the Supreme Court was of the view that if the object with which the activitywas carried on was for educational purpose, then the means of achieving that object was not material. In achieving that object the means ultimately was profit. But that would not alter the character of the object as profitable object. If any such business was carried on, the purpose of the trust or institution would cease to be 'charitable' and not only the income from such business but the entire income of the trust or the institution from whatever source derived would lose the tax exemption. The result will be no trust. If the other contention was accepted, the Supreme Court noted, where profit making was the predominant object of the activity, the purpose, though an object of general public utility, would cease to be a charitable purpose. But where the predominant object of the activity was to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arose from the activity. The exclusionary clause did not require that the activity must be carried on in such a manner that it did not result in any profit. It would indeed be difficult, the Supreme Court observed, for persons in charge of a trust or institution to so carry on the activity that the expenditure balanced the income and there was no resulting profit. That would not only be difficult of practical realisation but would also reflect unsound principle of management. The Supreme Court, therefore, was unable to accept the conclusion and the views expressed in Indian Chamber of Commerce v. CIT : 101ITR796(SC) , which was, therefore, overruled. The observations of Mr. Justice Khanna and Mr. Justice Gupta in the case of Sole Trustee, Loka Shikshana Trust v. CIT : 101ITR234(SC) were also disapproved but the observations of Mr. Justice Beg in the said decision were approved.
34. We may incidentally point out that the Tribunal in the instant case relied on the decision in the case of Indian Chamber of Commerce as well as the observations made in the case of the Sole Trustee, Loka Shikshana Trust, referred to hereinbefore.
35. Section 11(1) would be applicable to the cases of application of income while Section 10(22) deals with the generation of income. In this case the Tribunal has referred to the fact in one year that out of the income generated there was some donation to some purposes other than educational purposes. If the object was educational, the means of achievement or implementation of the object would not alter the character of the object. Therefore, with that object if a source had earned any money from donation, the means of achievement of that object, which are accomplished with that object, would not in any way, in our opinion, detract from the educational institution existing solely for the educational purpose. Therefore, we hold that this recipient of the income may be a trust or an individual and that if the source generating income exists solely for the purpose of educationand not for private profit, not in the sense of surplus of receipt over expenditure, but the source of income not to be diverted to persons other than the educational institution, then Section 10(22) would be attracted. But there is another limb, namely, the income of the educational institution, i.e., source generating the income, must be 'existing solely for educational purposes and not for purposes of profit'. But what is the meaning of the expression 'existing'. With great respect to the views of the Madras High Court in the case of Addl. CIT v. Aditanar Educational Institution : 118ITR235(Mad) of the report, set out hereinbefore, we cannot accept the position that the expression 'existing' must be judged with reference to the facts of the relevant year only. Though the facts of the relevant year would be a very material factor, whether an institution exists or is existing solely for any particular purpose or not cannot be judged only by the facts of one year. All cumulative factors will have to be taken into consideration, namely, the clause or the power enabling the institution to function, its activities in general, etc. Neither the fortuitous factor of having large surplus in any particular year, nor the solitary fact of diverting some income of the source concerned to objects charitable but not educational by itself would be decisive of the matter and in that context the facts relevant to the relevant year would be very material though not conclusive. But in this case except that there was one solitary instance in one of the prior years when there was the application of some income to non-educational purposes, there was no other fact. That by itself, in our opinion, would not be very material. If, however, an educational institution as a source of income was generally or usually used as a means of earning income to be utilised for non-educational purposes, then other considerations would apply. In that view of the matter we are of the opinion that the Tribunal was in error in not allowing the assessee the benefit of Section 10(22) of the Act. The trust which owned the educational institution may have other charitable though not educational purposes but if taking all the relevant factors the educational institution generating the income was existing for only educational purposes then the assessee was entitled to exemption under Section 10(22) of the Act.
36. With these observations, the question is answered in the negative and in favour of the assessee.
37. In the facts and circumstances of the case, parties will pay and bear their own costs.
Sudhindra Mohan Guha, J.
38. I agree.