Application for 80G and 12AB recognition for captive solar power plant denied for lack of public benefit and dominant private object

Application for recognition under 80G(5) and registration under 12AB for a captive solar power project was rejected on the basis that the activity lacked the requisite public benefit under the definition of charitable purposes. The predominant object test requires benefit to the public or a sufficiently wide class, and private or captive benefit to a single corporate shareholder defeats charitable character; incidental private benefit is permissible but here the dominant object was supply of power to the 100% shareholder. Activities designed exclusively to benefit employees or a corporate donor do not qualify as charitable and the claim was denied.

---

---

Issues: (i) Whether the assessee (a section 8 company owning a solar power plant) is entitled to registration under section 12AB of the Income-tax Act, 1961 on the ground that its activity of generating solar power amounts to 'preservation of environment' or 'advancement of any other object of general public utility'. (ii) Whether the assessee is entitled to recognition under section 80G(5) of the Income-tax Act, 1961.

Issue (i): Whether the assessee deserves registration under section 12AB of the Income-tax Act, 1961.

Analysis: The assessee is a section 8 company created to take over CSR capital assets (a 40 MW solar power project) from its 100% shareholder and supplies power pursuant to a power supply agreement predominantly benefitting that shareholder. Section 2(15) recognises 'preservation of environment' as a charitable purpose but the dominant object test requires the benefit to inure to the public or a sufficiently defined section of the public rather than to a single private entity. CSR rules and General Circular No.14/2021 require CSR activities to be for public benefit and not for exclusive benefit of a companys employees or related single beneficiary. The material shows continuous captive consumption/crediting of the plant's generation to the holding company, contractual allocation of green benefits to the off-taker, and tariff and operational arrangements that result in predominant benefit to the holding company. Precedents establish that incidental private benefit does not defeat charity but where the dominant object is private benefit to a particular entity, registration under section 12AB is not permissible. The onus to prove dominant public benefit lies on the assessee and the contractual and factual matrix here does not establish such dominant public benefit.

Conclusion: Registration under section 12AB is refused and the assessee's appeal on this issue is dismissed. This conclusion is against the assessee.

Issue (ii): Whether the assessee deserves recognition under section 80G(5) of the Income-tax Act, 1961.

Analysis: Recognition under section 80G(5) depends on the assessee being established for charitable purposes as defined in section 2(15). Given the dismissal of the claim for registration under section 12AB on the ground that the dominant object benefits a single private entity, the requirement for section 80G recognition is not satisfied. The factual and contractual allocation of benefits to the holding company precludes concluding that the activity is predominantly for public benefit.

Conclusion: Recognition under section 80G(5) is refused and the assessee's appeal on this issue is dismissed. This conclusion is against the assessee.

Final Conclusion: The appeals are dismissed because the dominant object of the assessee's activities is to confer benefit on a single related private entity rather than to a public or a sufficiently defined section of the public, and therefore the statutory conditions for charitable status and associated tax recognitions are not met.

Ratio Decidendi: Where the dominant object of an institution's activity is to confer benefit on a single private entity (even if the activity involves preservation of environment), the activity does not qualify as a charitable purpose under section 2(15) and registration under section 12AB and recognition under section 80G cannot be granted.

---