Absence of an explicit irrevocability clause in trust deed no ground for rejecting application for registration or renewal under section 12AB of Income Tax Act
In a recent judgment, Hon’ble High Court held that absence of an explicit irrevocability clause in a trust deed is not a ground for rejecting an application for registration or renewal under section 12AB of the Income Tax Act, 1961 (the Act). A public charitable trust is deemed irrevocable by operation of law unless the instrument of trust expressly provides a power of revocation.
ABCAUS Case Law Citation:
5075 (2026) (03) abcaus.in HC
In The instant case, the main issue was action of the Commissioner of Income Tax (Exemptions), rejecting applications for renewal of registration under section 12AB of the Income Tax Act, 1961 (the Act) while processing renewal applications filed in Form 10AB of the Act.
The reason of rejection of the applications primarily was that the trust deed or instrument constituting the concerned charitable entities did not contain an explicit clause stating that the trust is “irrevocable” and/or providing for the manner of dissolution.
According to the Petitioner, the charitable institutions while online filing Form 10AB, were compelled to answer “Yes” to the question, “Whether the trust deed contains clause that the trust is irrevocable?” and since, the trust deeds were silent on this aspect, CIT(Exemption) had treated this reply as furnishing “false or incorrect information,” which constitutes a “specified violation” in terms of clause (g) of the Explanation below section 12AB(4) of the Act.
The Hon’ble High Court observed that a plain reading of section 12AB of the Act does not contain any condition that the trust deed must have an explicit clause stating that it is irrevocable before registration is granted, and in our view, such a condition cannot be implied also. The CIT(Exemption), therefore, is attempting to read a condition into the statute which does not exist.
The case of the Revenue was that section 11 is “subject to sections 60 to 63” and, hence, a specific clause as to irrevocability is a must for grant of registration. However, the Hon’ble High Court opined that this approach overlooks the fact that the Legislature in its wisdom only made the grant of exemption under section 11 subject to sections 60 to 63 and did not provide for any such similar provision in section 12AB of the Act.
The Hon’ble High Court noted that CIT(E) had relied upon Sections 61 and 63 of the Act and presumed that a trust is revocable in absence of an express irrevocable clause.
The Hon’ble High Court noted that the “revocable transfer” has been defined in section 63(a) of the Act and the language of section 63 is clear and unambiguous. Section 63 creates a fiction, and like all fictions, it must be strictly construed.
The Hon’ble High Court observed that for a transfer to be revocable, the instrument must contain a positive provision for re-transfer or a provision which gives a right to the transferor to re-assume power over the assets or income. There is no ambiguity in this regard. The statute does not enact that the mere absence of an irrevocability clause makes a trust revocable. On the contrary, it implies that a trust is irrevocable (which is the normal principle in all transfers) unless it is expressly made revocable. Silence in the deed implies irrevocability, not revocability.
The Hon’ble High Court further observed that once a property is dedicated to a public charitable purpose, the settlor is divested of the property and such property can never revert back to the settlor. Further, under Maharashtra Public Trusts Act, 1950, in order that a trust is a revocable trust, a power to revoke is essential. In other words, the Trust Deed should have an express clause enabling the settlor to invoke the same and revoke the trust. In the absence of any revocability clause, a trust cannot be revoked.
The Hon’ble High Court opined that the interpretation that unless there is an irrevocability clause, the trust is revocable, is completely contrary to law and has no legs to stand on.
The Hon’ble High Court further observed that the Ministry of Finance in its reply to the Public Accounts Committee of the Lok Sabha had stated that, inclusion of dissolution clause in the deed is neither necessary nor legal in States where specific legislation bars such reversion. Therefore, Income Tax Department who functions under the administrative authority of such Ministry, cannot take a contrary stand.
The Hon’ble High Court further observed that it had categorically held that the absence of a dissolution clause in the Trust Deed is not a valid ground for rejecting registration under section 12AA, as first of all there is no such requirement in section 12AA of the Act.
The Hon’ble High Court further observed that it is undisputed that in Row No. 6 of Form No. 10AB, an applicant was required to answer the question “Whether the trust deed contains clause that the trust is irrevocable?” in either of two forms ‘Yes’ or ‘No’. It is also not disputed that the trusts making the application are compelled to answer “Yes” if they want the form to be uploaded. If this question was answered in the negative, then the system does not allow the form to be filed at all.
The Hon’ble High Court opined that since the Trust 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 Hon’ble High Court held 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.
The impugned orders passed in the case of Petitioners rejecting registration / renewal under section 12AB of the Income-tax Act, were quashed and set aside. It was directed the CIT(E) shall decide the applications of the Petitioners and all other similarly situated trusts, whose orders are hereby quashed, afresh.
All consequential orders passed denying registration under section 80G of the Act, where such rejection is on the ground that once registration under section 12AB is denied, registration under section 80G also cannot be granted, were also quashed and set aside.
The Hon’ble High Court gave the following directions:
(i) The Income Tax Department 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.
(ii) The Income Tax Department shall not treat the answer “Yes” to Row 6 of Form 10AB, in the absence of any explicit clause of irrevocability, as furnishing “false or incorrect information” constituting a “specified violation”. Further, this shall not be a ground to reject an application for registration under section 12AB of the Act.
(iii) The Income Tax Department shall also amend the utility of Form 10A/10AB to allow applicants to correctly state their position regarding the irrevocability clause without being forced to make an incorrect declaration. This should be done as soon as possible.
(iv) Question number 6 in Form 10AB should be modified to read thus, “Is the trust/institution revocable?”.
Download Full Judgment Click Here >>
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