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Legsys AI Technology Foundation ("the Applicant"), a not-for-profit company, was incorporated with the object of providing access to justice to the public, by rendering pro bono tech-services to District Courts, with the aid of Artificial Intelligence (AI). The Applicant has developed an innovative speech-to-text transcription software "Adalat AI", which is being made available across multiple courts in the country, without charging a fee. The software developed by the Applicant assisted the Courts in streamlining court proceedings, speedy disposal of cases and improving access to justice for all. To develop such software, the Applicant had received grants from various donors.
The Applicant filed an application for registration u/s 12AB of the Income-tax Act, 1961 ("the Act") with the Commissioner of Income-tax (Exemptions) ("CIT(E)"), to claim tax exemption on the donations received by it.
However, the CIT(E) rejected the application, on the ground that the Applicant was not carrying on charitable activities but was engaged in the provision of technical services in lieu of the donations it received. Against such rejection, the Applicant filed an appeal before the Hon'ble Mumbai Bench of the Income Tax Appellate Tribunal ("ITAT Mumbai").
Before the ITAT Mumbai, the Applicant asserted that its objectives and operations were entirely charitable, focused on promoting social welfare by improving access to justice and enhancing judicial efficiency. It emphasized that its MOUs with various Courts enabled deploying "Adalat AI" which enhanced speedy disposal of cases, and provided for training of court staff to adapt to technology so as to streamline faster justice delivery system. Further, it was argued that, given the absence of commercial gains from the rendition of services, classifying its activities as business was incorrect. The Tribunal also examined whether these activities constituted trade, commerce, or business, attracting the proviso to Section 2(15).
Upon considering the above arguments, the Hon'ble Tribunal concluded that the predominant object of the Applicant was to aid the judiciary for speedy disposal of cases through AI technology which was indeed "advancement of any other object of general public utility," and hence charitable purpose as defined u/s 2(15) of the Act. The Tribunal observed that the huge backlog of cases is a threat to the effective functioning of the judiciary for which the Government itself has been taking measures to reduce the pendency of litigation, and the Applicant's software and tools would aid the Government's efforts and benefit the public at large. Further, since the services were rendered on a pro-bono basis and had no commercial terms, they could not be treated as activities in the nature of trade, commerce or business so as to attract the Proviso to Section 2(15) of the Act. It was also emphatically reiterated that raising donations from unconnected third party doners, for rending such charitable activities cannot result in the activities as being in the nature of trade or commerce.
The CIT(E) was directed to grant registration to the Applicant as a charitable institution and also grant approval u/s 80G of the Act.
This judgment acknowledges that activities leveraging technology for public benefit (e.g., AI tools for courts) can qualify under "advancement of any other object of general public utility". It also lays great emphasis on the principle that receiving grants from unrelated donors does not convert charitable activities into business, provided donors do not receive quid pro quo benefits.
The Applicant was represented by Senior Adv. V Sridharan, who was briefed by Mr. S. Sriram, Mr. Samyak Lohade and Ms. Priyanshi Chokshi.
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