Charitable trusts need not have ‘irrevocable’ clause in trust deed for tax registration: Bombay High Court

The Bombay High Court has held that charitable trusts in Maharashtra cannot be denied income tax registration or renewal merely because their trust deeds do not contain an “irrevocability” clause to expressly indicate that their property will irrevocably remain dedicated to charitable purposes [The Chamber of Tax Consultants & Ors. v. Commissioner of Income Tax (Exemptions) & Ors].

On an examination of the relevant laws, a Division Bench of Justices BP Colabawalla and Firdosh P Pooniwalla found that public charitable trusts are presumed to be irrevocable unless stated otherwise.

"Public charitable trust is deemed irrevocable by operation of law unless the instrument of trust expressly provides a power of revocation. The absence of an explicit irrevocability clause is not a ground for rejecting an application for registration or renewal under section 12AB of the Act," the Court's March 9 ruling said.

The Court proceeded to strike down a recent departmental practice that had led to mass rejections of registration or renewal applications by charitable trusts for want of express "irrevocability" clauses in trust deeds or clauses on how the trust would be dissolved if such irrevocability conditions are not met.

"The Respondents shall refrain from rejecting applications for registration/renewal under section 12AB solely on the ground of the absence of an explicit irrevocability and/or dissolution clause in the Trust Deed/instrument," the Court said.

The Court also underlined that Section 12AB (governing registration of charitable trusts) only requires the authority to be satisfied about the objects of the trust, the genuineness of its activities and compliance with other laws.

“It does not contain any condition that the trust deed must have an explicit clause stating that it is irrevocable before registration is granted,” the order uploaded on March 18 said. 

The ruling came in a plea filed by the Chamber of Tax Consultants, the Bombay Chartered Accountants’ Society and six long‑standing Mumbai charitable trusts whose applications for renewal of registration under section 12AB of the Income-tax Act, 1961 had been rejected by the Commissioner of Income Tax (Exemptions). 

Under the post‑2021 regime, all existing registrations migrated to time‑bound registrations under section 12AB, requiring trusts to file online Form 10AB for renewal. The petitioners said this controversy affected a large number of trusts across Maharashtra.

They pointed out that the Income Tax Department’s portal would not accept Form 10AB unless the applicant answered “Yes” to a question asking whether the trust deed contained an “irrevocability clause."

Once this answer was given to enable filing, the Commissioner treated the same declaration as false or incorrect information wherever the deed was silent on irrevocability, and rejected applications for renewal on that basis.

The Revenue department defended its action by arguing that an express irrevocability clause was a prior condition for the grant of registration to charitable trusts. 

It argued that public trusts registered under the Maharashtra Public Trusts Act (MPT Act) could still be deemed "revocable" under Sections 60–63 of the Income-tax Act.

The Revenue authorities argued that the absence of an explicit irrevocability clause in deeds governing charitable trusts meant the settlor (the founder of the trust) retained the ability to "resume power" over the trust's income or assets. 

Including a irrevocability clause in the trust deed was, therefore, essential to safeguard against potential misuse of property dedicated to the charitable trust, the department emphasized. 

The trusts countered that the department was attempting to write into Section 12AB a condition that the Parliament had never enacted.

They stressed that the same entities had enjoyed registration for years under Sections 12A and 12AA, and had even obtained registration under Section 12AB in 2021, without any amendment to their deeds. 

The Court agreed with the trusts and found the IT commissioner’s approach to be completely baseless, unfounded and manifestly arbitrary, holding it contrary to the statutory scheme and binding precedents. 

“Such action, as rightly pointed out by the trusts, have shaken the entire ecosystem of functioning of the charitable trusts. It cannot be forgotten that the trusts are contributing to nation building by doing charitable activities and that too, voluntarily and, thus, must be treated with a fair and reasonable approach by the revenue”, the Court added.

The Court was particularly critical about the manner in which the trusts were inconvenienced due to the new system of online renewals.

“A procedural form cannot be used as a tool to coerce applicants into making declarations that are then used to their detriment” the Court said, while directing the department to modify its system. 

The Court proceeded to grant the trusts relief by quashing the rejection orders against the six petitioner trusts.

The Court made it clear that authorities cannot refuse registration or renewal of registration for charitable trusts under Section 12AB solely because a trust deed lacks an express irrevocability or a dissolution clause. 

Furthermore, the Court mandated that the Income Tax Department must fix its portal to allow applicants to correctly fill Form 10AB (by not making it impossible for them to proceed unless they have an irrevocability clause in their deed).

All pending applications from the trusts must be decided anew within six weeks, with any new registration orders becoming effective from April 1, 2026, the Court's March 9 order added.

Senior Advocate Percy Pardiwalla, with advocates Dharan Gandhi and Aanchal Vyas appeared for the tax consultants and trusts who petitioned the Court.

Advocate Arjun Gupta appeared for the Income Tax and Revenue Departments.

[Read judgment]