The Bombay High Court ruled charitable trusts cannot be denied Section 12AB registration or renewal solely for lacking an irrevocability clause. Justices BP Colabawalla and Firdosh P Pooniwalla affirmed trusts are presumed irrevocable unless expressly revocable.
MUMBAI: The Bombay High Court has ruled that charitable trusts in Maharashtra cannot be denied income‑tax registration or renewal solely because their trust deeds lack an express “irrevocability” clause confirming that the property will remain dedicated to charitable purposes.
The Division Bench of Justices BP Colabawalla and Firdosh P Pooniwalla, after examining the applicable law, held that public charitable trusts are presumed to be irrevocable unless the trust instrument expressly provides for revocation.
The Court’s order stated,
“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 bench struck down a departmental practice that had resulted in widespread rejection of registration or renewal applications because trust deeds did not contain explicit “irrevocability” or dissolution clauses.
The Court directed,
“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 emphasised that Section 12AB which governs registration of charitable trusts requires the authority to be satisfied about the trust’s objects, the genuineness of its activities and compliance with applicable laws.
The order observed,
“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 petition was brought by the Chamber of Tax Consultants, the Bombay Chartered Accountants’ Society and six longstanding Mumbai charitable trusts whose renewal applications under section 12AB had been rejected by the Commissioner of Income Tax (Exemptions). Under the post‑2021 regime, existing registrations were migrated to time‑bound registrations under section 12AB, requiring trusts to file Form 10AB online for renewal. The petitioners said the issue affected many 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 that answer was entered to enable filing, the Commissioner would treat it as a false or incorrect declaration where the deed was silent on irrevocability and reject the renewal application.
The Revenue defended the practice, arguing that an express irrevocability clause was a precondition for registration and that public trusts under the Maharashtra Public Trusts Act (MPT Act) could be regarded as “revocable” under Sections 60–63 of the Income‑tax Act. The department maintained that, without an explicit irrevocability provision, the settlor might retain the ability to resume control over the trust’s income or assets, so an irrevocability clause was necessary to guard against misuse.
The trusts countered that the department sought to read into Section 12AB a requirement that Parliament had not enacted, noting that they had long been registered under Sections 12A and 12AA and had obtained registration under Section 12AB in 2021 without altering their deeds.
The Court agreed with the trusts, finding the Commissioner’s approach arbitrary, unfounded and inconsistent with the statutory scheme and binding precedent.
The Court added,
“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 bench also criticised the inconvenience caused by the new online renewal system.
“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, and directed the department to revise its system.
The Court quashed the rejection orders affecting the six petitioner trusts and reiterated that authorities cannot deny registration or renewal under Section 12AB solely because a trust deed lacks an express irrevocability or dissolution clause. It further ordered the Income Tax Department to update its portal so Form 10AB can be completed without forcing an irrevocability answer.
All pending applications by the trusts must be reconsidered within six weeks, and any fresh registration orders will take effect from April 1, 2026, the March 9 order added.
Senior Advocate Percy Pardiwalla, along with advocates Dharan Gandhi and Aanchal Vyas, represented the petitioners. Advocate Arjun Gupta appeared for the Income Tax and Revenue Departments.
Case Title: The Chamber of Tax Consultants & Ors. v. Commissioner of Income Tax (Exemptions) & Ors
FOLLOW US FOR MORE LEGAL UPDATES ON YOUTUBE