Public Charitable Trusts Deemed Irrevocable by Law; Absence Of ‘Irrevocability Clause’ No Ground To Deny Section 12AB Tax Registration: Bombay High Court

The Division Bench setting aside the rejection orders, held that such a requirement finds no place in the statutory framework. It observed that Section 12AB of the Act only requires the authority to be satisfied about the objects of the trust, genuineness of its activities, and compliance with applicable laws, and does not mandate the inclusion of an irrevocability clause. Any attempt to read such a condition into the provision, the Court held, would amount to adding words to the statute.

Justice B.P. Colabawalla and Justice Firdosh P. Pooniwalla observed, “…we hold that a 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. Even if the Deed provides for any revocability clause, due to operation of sections 22(3A) and 22(3B) of the MPT Act, such trusts which are registered under the MPT Act, would be irrevocable insofar as the Income-tax Act is concerned but we leave this issue open to be decided in an appropriate case. The action of Respondent No. 1 is therefore, contrary to the plain language of the statute, binding judicial precedents of this Court, and is manifestly arbitrary. Such action, as rightly pointed out by the Petitioners, 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”.

Advocate Arjun Gupta appeared for the petitioner and Senior Advocate Percy Pardiwalla appeared for the respondent.

The Bench was dealing with a batch of petitions filed by tax bodies and several public charitable trusts whose applications for renewal of registration were rejected by the Commissioner of Income Tax (Exemptions). The rejection was primarily based on the absence of an express clause in the trust deeds stating that the trusts were “irrevocable”, and on the allegation that incorrect information was furnished in Form 10AB.

Pertinently, petitioner No. 1, in the matter-the Chamber of Tax Consultants, is a society established in 1926, is one of the oldest voluntary non-profit organisations of tax practitioners, and its members are advocates, chartered accountants and tax practitioners. It is formed with the object of spreading education in tax laws and making representations to authorities on issues of public interest.

The Bench clarifying the legal position, noted that under the scheme of the Income-tax Act, particularly Section 63, a trust can be treated as “revocable” only if the instrument expressly provides for re-transfer of assets or allows the settlor to reassume control. In the absence of such a clause, a trust cannot be presumed to be revocable. On the contrary, the Court held that silence in the trust deed implies irrevocability.

The Court further relied on the provisions of the Maharashtra Public Trusts Act, 1950, emphasising that even in cases where a trust is revoked or dissolved, the assets cannot revert to the settlor. Instead, they are required to be transferred to similar charitable purposes or vest in statutory authorities. This statutory safeguard, the Court noted, reinforces the inherently irrevocable nature of public charitable trusts.

Taking note of the practical difficulties faced by applicants, the Court also criticised the design of Form 10AB, which compelled trusts to select “Yes” regarding the presence of an irrevocability clause in order to submit the form.

On that, the Court specifically noted, “In any event, the system cannot be designed in a manner so as to not allow an applicant to file an application with correct particulars. It is pertinent to note that there is a verification clause at the end of the form and the person signing the form declares that the details given in the form are true and correct to the best of his knowledge and belief. If one is forced to answer any question in any particular fashion which is not correct, then, certainly the verification clause is violated. This is completely arbitrary. The problem does not end here. An applicant is forced to write ‘Yes’ to Row number 6 despite there being no specific irrevocability clause and this is considered by Respondent No. 1 to be furnishing ‘false or incorrect information’, constituting a ‘specified violation’ under clause (g) of the Explanation below section 12AB(4) of the Act”.

“There cannot be any justification to this at all. To penalise an Assessee for a situation created by a utility designed by the Department itself is in violation of all legal principles. A procedural form cannot be used as a tool to coerce applicants into making declarations that are then used to their detriment. Therefore, we are of the view that the Respondents will have to change their system in this regard and the least which can be done is not to use this as a ground to deny registration. The argument of the Respondents that even subsequently, the trusts have asserted that they are irrevocable, which is also false, does not merit any acceptance. First of all, that is not the reason as stated in the impugned order to deny registration. At this stage, such orders cannot be improved upon. Moreover, since the Deed has no revocability clause, and, thus, the trusts have, under a bonafide belief, submitted that the trusts are irrevocable. In fact, their belief is correct and this, therefore, cannot be considered to be false or incorrect information at all”, the Bench observed.

Importantly, the Bench observed that the Revenue’s approach was contrary not only to the plain language of the statute but also to binding judicial precedents.

Cause Title: The Chamber of Tax Consultants & Ors. v. The Commissioner of Income Tax (Exemptions) & Ors. [Neutral Citation: 2026:BHC-OS:6814-DB]

Appearances:

Petitioner: Percy Pardiwalla, Sr. Advocate, Dharan Gandhi and Aanchal Vyas, Advocates.

Respondent: Arjun Gupta, Advocate.

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