Facts of the Case

  1. The Income Tax Department insisted that trust deeds of charitable and religious trusts must contain an express irrevocability clause.
  2. According to the Department, such a clause is necessary to ensure that trust assets remain permanently dedicated to charitable purposes.
  3. Several public charitable trusts applied for registration under Section 12AB of the Income-tax Act, 1961.
  4. Registration was denied in certain cases because the trust deeds did not expressly provide for irrevocability or dissolution.
  5. The affected trusts challenged the denial before the Bombay High Court.
  6. By its judgment dated 9 March 2026, the Bombay High Court held that absence of an express irrevocability clause does not automatically justify refusal of registration.
  7. The Court observed that public charitable trusts are generally regarded as irrevocable unless the settlor has expressly reserved a power of revocation.
  8. Aggrieved by the ruling, the Income Tax Department decided to challenge the judgment before the Supreme Court of India.

 

Issues Involved

1. Whether registration under Section 12AB can be denied solely because a trust deed does not contain an express irrevocability clause?

2. Whether public charitable trusts are presumed to be irrevocable in the absence of an express power of revocation?

3. Whether the Income Tax Department can insist upon mandatory inclusion of an irrevocability or dissolution clause as a pre-condition for registration?

4. Whether denial of registration on this ground is legally sustainable under the Income-tax Act, 1961?

5. Whether protection of charitable assets requires statutory insistence on an express irrevocability provision?

 

Petitioner’s Arguments

The Income Tax Department contended that:

  • Irrevocability is an essential characteristic of a genuine charitable trust.
  • In the absence of an express irrevocability clause, there remains a possibility that settlors, trustees, or controlling persons may divert or reclaim charitable assets.
  • Charitable properties and funds must remain permanently dedicated to charitable purposes.
  • Registration should not be granted where trust deeds fail to adequately safeguard charitable assets.
  • The Bombay High Court's interpretation weakens safeguards against misuse of charitable institutions.
  • An express irrevocability clause should be treated as a necessary requirement for registration under Section 12AB.

 

Respondent’s Arguments

The charitable trusts argued that:

  • The Income-tax Act does not mandate inclusion of an express irrevocability clause in every trust deed.
  • Public charitable trusts are inherently dedicated to public purposes and are ordinarily treated as irrevocable.
  • Registration cannot be denied on grounds not expressly prescribed under the statute.
  • Absence of a specific clause does not automatically indicate that the trust is revocable.
  • The Department's approach imposes additional conditions not contemplated by law.
  • Charitable institutions should not be deprived of registration and consequential tax benefits merely because of drafting variations in trust deeds.

 

Court Findings / Observations

The Bombay High Court held that:

  • Absence of an express irrevocability or dissolution clause does not, by itself, justify refusal of registration under Section 12AB.
  • A public charitable trust is generally regarded as irrevocable unless the settlor has specifically reserved the power to revoke it.
  • The Income Tax Department cannot deny registration solely on the basis of absence of such a clause.
  • Registration authorities must examine the overall nature, objects, and legal character of the trust rather than relying upon a technical drafting omission.
  • Conditions not expressly contemplated under the statute cannot be introduced as mandatory requirements for registration.

 

Court Order

  • The Bombay High Court ruled in favour of the charitable trusts.
  • The Court directed that registration could not be refused solely because the trust deed lacked an express irrevocability clause.
  • The Income Tax Department has decided to challenge the judgment before the Supreme Court of India.
  • The issue is expected to be authoritatively settled by the Supreme Court.

 

Important Clarification

Clarification 1

The Bombay High Court did not hold that trust deeds should avoid irrevocability clauses. It only held that absence of such a clause is not by itself sufficient for rejection of registration.

Clarification 2

The Income Tax Department continues to maintain that irrevocability is important for protecting charitable assets and preventing diversion of funds.

Clarification 3

The Supreme Court's final decision may determine whether an express irrevocability clause can be treated as a mandatory condition for registration under Section 12AB.

Clarification 4

Trusts seeking registration should continue to ensure proper drafting of trust deeds and compliance with all statutory requirements under the Income-tax Act, 1961 and applicable trust laws.

 

Sections Involved

Income-tax Act, 1961

  • Section 11 – Income from property held for charitable or religious purposes.
  • Section 12 – Income of trusts or institutions from voluntary contributions.
  • Section 12A – Conditions for applicability of Sections 11 and 12.
  • Section 12AB – Procedure for registration of charitable or religious trusts/institutions.
  • Section 13 – Circumstances under which exemption may be denied.

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