TaxTMI 
TaxTMI 
2026 (1) TMI 880
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....ted 28/9/2023 as the assessee's application in form No. 10AB dated 26/9/2023 for registration under section 12AB was rejected by the order of even date. 2. The grounds of appeal raised by the assessee in ITA No. 902/Bangalore/2024 are as under: 1. General ground: 1.1. The learned Commissioner of Income Tax (Exemptions), Bangalore [hereinafter referred to as CIT(E), Bangalore for short] has erred in passing the order under section 12AB of the Income-tax Act, 1961 (the Act) dated 26.03.2024, in the manner passed by him. The said order being bad in law is liable to be quashed. 2. Denial of registration under section 12AB of the Act:- 2.1. The learned CIT(E), Bangalore has erred in concluding that the Appellant is not eligible for registration under section 12AB of the Act and erred in cancelling the provisional registration. 2.2. The learned CIT(E), Bangalore has erred in not appreciating that i) the Appellant was incorporated under section 8 company of the Companies Act, 2013, to undertake the Corporate Social Responsibility (CSR) activities, on behalf of Infosys Limited, pursuant to the amendment to rule 7(4) of the Compan....
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....r otherwise, which exercise is to be undertaken by the Assessing officer on a yearly basis. 2.8. Without prejudice, the learned CIT(E), Bangalore has erred in not appreciating that the Appellant had undertaken activities which qualify for registration under the purpose 'advancement of any other object of general public utility' specified under section 2(15) of the Act. 2.9. On facts and circumstances of the case and law applicable, registration under section 12AB should be allowed to the appellant under 'preservation of environment' under section 2(15). Without prejudice, registration under section 12AB should be allowed under 'advancement of any other object of general public utility' under section 12AB. 3. Prayer: Based on the above grounds and other grounds adduced at the time of hearing, the Appellant prays that the order passed under section 12AB of the Act be quashed or in the alternative the registration under section 12AB be allowed to the appellant. 3. Briefly stated the facts of the case shows that assessee company was incorporated under section 8 of The Companies Act, 2013 and registered with the Registrar Of Companies on 31 August ....
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....specified period. Thus it was mandatory that the existing CSR assets held by a company were also to be transferred to a company established under section 8 of The Companies Act. The formation of the assessee i.e. Infosys Green Forum for generation of clean and green solar power was necessitated as a result of the above amendment. This is so because of the reason that according to section 135 of The Companies Act, 2013 corporate social responsibility activities listed "ensuring environmental sustainability, ecological balance'. Therefore, Infosys Limited invested in the solar panels and equipments for solar power projects, being this capital assets is required to be transferred in the assessee company. Thus in terms of the above provisions of the Companies Act, and rules of Corporate social responsibility, an 'asset Transfer And Sale Agreement' was entered into on 30 November 2021 where Infosys Ltd transferred the solar panels and other equipments installed under CSR scheme for solar power projects at SIRA taluka, Tumkur, Karnataka to the assessee. For the purpose of transfer of land, on which the solar power plant was constructed by Infosys Ltd, it entered into a lease ....
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....s Ltd. Thus, he held that assessee is engaged in generation and supply of power in a purely commercial manner as a captive power plant of Infosys limited. Thus, he did not accept that solar power plant helps in reduction of pollution and renewable energy source and hence same is eligible to be termed as a 'charitable activity' under the category of 'preservation of environment'. As, according to CIT, Assessee's main activity is of generation of power through solar plant for Infosys but not preservation of environment. He also rejected the explanation of the assessee that since generation of power is carried out by a section 8 company which is a non-profit organisation, it qualifies for exemption under section 11 and 12 of the Act. He rejected this, for the reason that assessee's activity should first fall under the definition of section 2 (15) of the Act. Since generation of power is not a charitable activity, he held that assessee is not eligible for registration under section 12 AB of the Act. He noted that according to the section 12 AB assessee is required to submit necessary documents to prove the genuineness of the activities of the trust or institution an....
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.... to be not for profit. He extensively referred impugned order and submitted that the learned CIT (Exemption) has erroneously rejected the claim of the assessee. iii. He once again referred to the provisions of the charitable purpose contained in section 2 (15) of the Act wherein it is stated that charitable purposes include preservation of environment which is inserted by Finance No. 2 act 2009 with retrospective effect from 1/4/2009. He submits that setting up of the solar power plant is a charitable purpose as it is for 'preservation of environment'. He further referred to certificate of incorporation dated 21 August 2021 issued to the assessee stating that it is a section 8 company registered under that section of the Companies Act 2013 and also pursuant to section 7 (2) of the Act. He further referred to page No. 2 where he has placed the license No. 128314 wherein it is submitted that that this company intends to supply surplus if any or other income and property in promoting its object and to prohibit the payment of any dividend to its members. He further referred to the memorandum of Association of the assessee company wherein in clause No. 3 (a) the object ....
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....to the 'Power Supply Agreement' dated 16 March 2022 entered between assessee stated to be power producer and Infosys Ltd (stated to be off taker). According to this agreement, it is mentioned that the assessee is a company Incorporated under section 8 of The Companies Act and it owns and operates the solar energy facility. Further the assessee agrees to supply all the power generated by the solar energy facility at the drawal point to Infosys Ltd. Infosys Limited as off taker agrees that out of all such electricity supplied by the assessee at the delivery point it will off take all such electricity as it is required by it from time to time. Of course, the same was subject to transmission loss component. It was further agreed that the Infosys shall offtake at least 51% of the electricity generated by the solar energy facility. It further states that Infosys holds 100% of the issued and paid-up share capital of the assessee company and both the parties are in compliance with captive requirement as specified in The Electricity Act, 2003. He further referred to the definition and interpretation mentioned in that agreement of 'captive requirement' and 'drawable point....
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....ofit. vii. He further submitted that that the land on which the solar plant was built was not on the CSR capital asset owned by Infosys Ltd and therefore it entered into a lease agreement at the rates which are in conformity with the circle rates. He also referred to page No. 580 of the paper book to show that the assessee trust for this proposition he referred to the memorandum of understanding dated 5 September 2023 between the assessee and gram panchayat wherein the government schools are identified for grant of Rs. 80 Lacs by the assessee. Thus it was stated that assessee is also running the school. Thereafter he referred to the return of income filed, the annual accounts, the notes on the activities of the assessee company is and various correspondence. [Reference to legal paper Book] viii. The learned senior advocate then took us to the provisions of section 135 of the companies act 2013 on corporate social responsibility placed at page No. 1-4 of the legal paper books state that certain classes of companies are mandated to incur corporate social responsibility expenditure. He referred to schedule VII wherein at serial No. (IV) the specific mention ....
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....ensively referred to the order of the learned CIT (Exemption) wherein the assessee has been denied the registration under section 12 A of the Act. 11. The learned authorised representative took us to the various judicial precedents relied upon him i. Punjab Plastic Waste Management Society (ITA No. 17/Chandigarh/2020 dated 14 July 2023). He referred to paragraph No. 65 of that decision to show that this assessee society for seeking registration under the purpose of preservation of environment wherein it is held to be the charitable purpose under section 2 (15) of the act. He submits that the object of the assessee is also preservation of environment by setting up the solar power plant and therefore it also satisfies this purpose. ii. CIT versus Indian Trade Promotion Organisation (2023) 152 taxmann.com 491 wherein it was held that the dominant activity of charitable institutions was not business, trade or commerce but merely because a fee or some other consideration was collected or received by an institution it would not lose its character of having been established for a charitable purpose. He submitted that by this decision the charging of the fees, would no....
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....urism Promotion Board versus Commissioner of income tax exemption (2025) 179 taxmann.com 259 to submit that even the operation of fuel station (petrol pumps) were also held to be the charitable activity and therefore the case of the assessee is on more sound footings then the issue decided by the coordinate bench in this judgement. vii. He further referred to the decision of the Bangalore bench in City Hospital Charitable Trust versus CIT exemption (2025) 175 taxmann.com 716 wherein it is held that while granting registration under section 80 G the examination by the CIT does not cover the examination of surplus accumulation or its utilisation. He therefore submitted that even otherwise the assessee is entitled to registration under section 12 AB as well as recognition under section 80 G of the act. 12. The learned senior advocate submitted that these appeals were already heard by the another bench and during the course of hearing at the time of fixing the same for clarification it was asked that [i] how solar power is a renewable energy and [ii] how solar power helps in preservation of environment, it was submitted that assessee has submitted a paper book containing 27....
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....benefit of green energy which is also taken away by the Infosys Limited. Thus, there is no benefit to the assessee company or to the public and only beneficiary is the Infosys Limited. iv. He further referred to the tariff chart and stated that at page No. 1087 assessee wanted to justify that it is supplying power to the Infosys at market rate. But that is not the fact. In fact, Infosys is buying the power from this company at less than Discom rates. There is not a single unit of power is supplied to any other entity. v. He submitted that it is a commercial activity carried on by the assessee for the benefit of Infosys Ltd and also at its own detriment, therefore it is not for the public but for the private benefit. There is no element of charity in this whole Transaction. Hence, assessee cannot be granted benefit registration under section 12 AB of the act. vi. He submits that provisions of section 2 (15) are for the benefit of public at large. He submits that the dominant object of this is benefit to the public but here the dominant object is to benefit the Infosys Ltd by giving power at reduced price. Only, further namesake benefit to the public is tha....
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....y that it seems that there is only one beneficiary of the whole project of setting up the solar power project plant by Infosys Ltd i.e. Infosys Ltd only. Then why the benefit of registration u/s 12 AB of the Act should be allowed to the assessee. 18. In response, the learned Senior Advocate vehemently submitted that - a. Infosys pays to the assessee company the power prices of Rs. 6.85 per unit which is at market rate and therefore there is no benefit to the Infosys Ltd. b. that had this assessee did not produce the power, the power would have been supplied to the Infosys by the discoms through other means which would not have preserved the environment and further at higher cost. c. there is no benefit to the Infosys as Infosys has made investment of more than Rs. 3000 crore in setting up the solar power project. Such a huge cost has already been incurred by Infosys in setting up of this plant and therefore there is no benefit to the Infosys. d. power is supplied to the grid and not to the Infosys. e. The beneficiary is Nation f. It is also not the same power which is sold by the assessee's power plant to discom which is ....
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....from such activity, unless- (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility ^80; and (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;]] 23. Activity of "preservation of environment" was also included in the above definition with retrospective effect from 1/4/2009 by The Finance Act No 2 of 2009. We do not have any inhibition in holding that setting up of a solar power plant is an activity which preserves the environment. No contrary facts are brought to our notice. 24. Facts in nutshell, shows that Infosys limited set up a 40 MW solar power plant on leasehold land as part of its CSR spending. As the amount spend is a capital expenditure and capital assets are created, as per the new CSR rules, it was required to be transferred to a new section 8 company. Thus, Assessee i.e., Infosys Green Forum, got registered as a non-profit company in terms of provision of section 8 of the companies Act 2013....
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....ted for the balance power units after granting credit units of the power Generated from Solar Power plant of this company. v. Thus, in nutshell, Infosys will be buying the power from the assessee company to the extent the electricity units, not charged to Infosys limited by Discoms. vi. The Infosys Limited has as per Power supply agreement has determined Rs 6.85 Per unit as power charges payable to the assessee company for those units. It is the fact not denied that Discoms Charges higher rate than Rs 6.85 Per Unit to Infosys Limited. As per page no 1087 of the paper book the Discom rate as on June 2021 is Rs 7.45 for units consumed less than 1 lakh unit and after that RS 7.75 per unt. SO, Infosys if this Solar Plant was not set up, would have paid these charges at that rate i.e. Rs. 7.75 per unit to any Discom. So, the assessee company paid by Infosys Limited at Market rate is misnomer. vii. This Rate shall increase by 5 % after every five years. Thus, it would be static for five years and then it will be increased by 5 % which would also be stating for next five years. Thus, after first five years, the rate of Rs 6.85 per unit will increase by Rs 0.35 p....
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.... the whole of the exercise is to get the power for Infosys Limited through captive solar power plant shown as CSR activity and then made an attempt to claim the benefit of section 11, 12 of the Income tax Act by obtaining registration u/s 12 AB of The Act and further to obtain recognition u/s 80 G (5) of the Act. 29. In common parlance it is not different from the case that a donor sets up school for his own children and claim it as 'Educational activity", a company setting up a hospital exclusively for its own promoters / employees and claiming it as medical relief, setting up an own yoga centre for himself and claiming it as 'Yoga' etc. Putting a solar panel over one's house is also preservation of environment, but these are not charitable purposes as these do not have dominant object of benefit to others i.e., public at large. These are benefit to self. In all these cases there is no public benefit at large. 30. Honourable Supreme Court in Commissioner of Income tax, Ujjain vs. Dawoodi Bohara Jamaat [2014] 43 taxmann.com 243 (SC)/ [2014] 222 Taxman 228 (SC) (MAG)/ [2014] 364 ITR 31 (SC)/ [2014] 268 CTR 1 (SC) [20-02-2014] has held that: - "30. Acco....
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.... Schedule VII of the Act for the exclusive benefit of their employees, workers, and their family members? 32. It is replied that Rule 2(1)(d)(iv) of the Companies (CSR Policy) Rules, 2014 states that any activity benefitting employees of the company shall not be considered as eligible CSR activity. As per the rule, any activity designed exclusively for the benefit of employees shall be considered as an "activity benefitting employees" and will not qualify as permissible CSR expenditure. The spirit behind any CSR activity is to benefit the public at large and the activity should be non-discriminatory to any class of beneficiaries. However, any activity which is not designed to benefit employees solely, but the public at large, and if the employees and their family members are incidental beneficiaries, then, such activity would not be considered as "activity benefitting employees" and will qualify as eligible CSR activity.". 33. We also uphold that the ld CIT(E) has looked at the object and purposes as well as the genuineness of the activity from the angle that whether such activity can be said to be for Charitable Purposes. He holds that it is a commercial venture and for the ....
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.... charitable trust for the purposes of exemption, it is necessary that the objects should be specific so as to confirm to the requirement of the income tax law in this regard. Where they are too wide, the trust may not qualify for exemption. However, a pragmatic view is required to be taken while examining the data. The material on record should be analyzed objectively. 55. The onus to prove that the objects are of charitable nature is on the assessee." "73. The Apex Court in Ahmedabad Rana Caste Association v. CIT [1971] 82 ITR 704 (SC) and CIT v. Ahmedabad Rana Caste Association [1983] 140 ITR 1 (SC) pointed out that the law recognizes no purpose as charitable unless it is for a public charity. That is to say, a purpose must, in order to be charitable, be directed to the benefit of the community or a section of the community. The expression "object of general public utility", however, is not restricted to the objects beneficial to the whole mankind. An object beneficial to a section of the public is an object of general public utility. The section of the community sought to be benefited must undoubtedly be sufficiently defined and identifiable ...... quality of a....
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....that the respondent-association has carried out an object of general public utility ? General public is undoubtedly interested in trade, commerce or industry conducted by individuals, but it is surely not interested in protecting the personal interests of these individuals if they are in conflict with the interests of trade, commerce and industry. Therefore, when an object seeks to promote or protect the interests of a particular trade or industry, that object becomes an object of public utility, but not so, if it seeks to promote the interests of those who conduct the said trade or industry. 23. This distinction between the protection of the interests of individuals and the protection of interests of an activity, which is of general public utility, goes to the root of the whole problem, and, hence, the Supreme Court has pointedly referred to this problem in Commissioner of Income-tax v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC) at page 727 of the report by observing as under : "It may be remembered that promotion and protection of trade, commerce and industry cannot be equated with promotion and protection of activities and interests merely of persons eng....
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....n association of persons can be an object of charity, and the trusts created for the benefit of such partnerships, companies and associations would be charitable trusts earning exemption under section 11. Absurdity of such a situation cannot be overemphasized. 27. What is the exact nature of "section of the public" which can legitimately become an object of a charity, is considered by Lord Greene M.R. in Powell v. Compton [1945] 1 Ch 123, 129 (CA). In that case a bequest was made for the education of a small number of individual relatives of a testatrix. The question which arose was whether these individuals formed a "section of the public" so as to make the trust a charitable trust. Lord Greene M. R. held that the trust was not a valid trust, making the following observations : "No definition of what is meant by a section of the public has, so far as I am aware, been laid down, and I certainly do not propose to be the first to make the attempt to define it. In the case of many charitable gifts, it is possible to identify the individuals who are to benefit, or who at any given moment constitute the class from which the beneficiaries are to be selected. This circum....