Lakshmikumaran & Sridharan Represented Legsys AI Technology Foundation In ITAT Mumbai On charitable Status Of AI-Based Public Benefit Services

Lakshmikumaran & Sridharan represented Legsys AI Technology Foundation in ITAT Mumbai on charitable status of AI-based public benefit services

The premier full-service Indian law firm, Lakshmikumaran & Sridharan represented Legsys AI Technology Foundation (“the Applicant”) before the Hon’ble Mumbai Bench of the Income Tax Appellate Tribunal (ITA Nos. 4757 & 4761/Mum/2025, Order dated 21.11.2025) concerning its application for registration under Section 12AB of the Income-tax Act, 1961 and claim for tax exemption on donations received.

Background of the Applicant

Legsys AI Technology Foundation, a not-for-profit company, was incorporated with the objective of providing access to justice to the public by rendering pro-bono tech-services to District Courts through Artificial Intelligence (AI). The Applicant developed an innovative speech-to-text transcription software, “Adalat AI”, which is made available across multiple courts in India without charging any fee. This software assists courts in streamlining proceedings, speeding up case disposal, and improving access to justice. To develop the software, the Applicant had received grants from various donors.

Rejection by CIT(E)

The Applicant filed an application for registration under Section 12AB with the Commissioner of Income-tax (Exemptions) (“CIT(E)”) to claim tax exemption on donations. However, CIT(E) rejected the application, holding that the Applicant was engaged in providing technical services in return for donations, and therefore, not carrying out charitable activities.

Appeal before ITAT Mumbai

The Applicant filed an appeal before ITAT Mumbai, asserting that its objectives and operations were entirely charitable, aimed at promoting social welfare by improving access to justice and enhancing judicial efficiency. The Applicant highlighted that MOUs with various courts enabled deployment of Adalat AI, which facilitated speedy disposal of cases, along with training of court staff to adapt to technology. It was further argued that since the services were provided pro-bono and without commercial gain, classifying the activities as business was incorrect. The Tribunal also examined whether these activities could constitute trade, commerce, or business under the proviso to Section 2(15).

ITAT Mumbai Decision

Upon reviewing the submissions, the Hon’ble Tribunal concluded that the predominant object of the Applicant was to aid the judiciary in speedy disposal of cases through AI technology, which qualifies as “advancement of any other object of general public utility” and hence constitutes a charitable purpose under Section 2(15) of the Act.

The Tribunal noted that the backlog of cases poses a threat to judicial efficiency and that the Applicant’s software tools support government efforts to reduce pendency and benefit the public at large. Since the services were rendered pro-bono with no commercial terms, they could not be treated as trade, commerce, or business for the purposes of the proviso to Section 2(15). It was also emphasized that raising donations from unconnected third-party donors for charitable activities does not convert them into business activities.

Direction to CIT(E)

The CIT(E) was directed to grant registration to the Applicant as a charitable institution and approve donations under Section 80G of the Act.

Conclusion

This judgment reinforces the principle that technology-driven initiatives aimed at public benefit, such as AI tools for courts, can qualify as charitable activities under advancement of any other object of general public utility. It also clarifies that receiving grants from unrelated donors does not transform charitable activities into business, provided there is no quid pro quo arrangement.

The Applicant was represented by Senior Advocate V Sridharan, who was briefed by S. Sriram (Executive Partner), Samyak Lohade (Principal Associate), and Priyanshi Chokshi (Advocate).

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