A group of public charitable trusts and professional bodies have approached the Bombay High Court challenging what they describe as an “irrational and unlawful” insistence by the Income Tax (I-T) Department that trust deeds must explicitly declare trusts as “irrevocable” to qualify for tax registration and exemption.

The writ petition, filed on February 27 before the Bombay High Court, contests the tax department’s demand that trust deeds unambiguously state that the trust is irrevocable — a condition that trustees argue is neither mandated under the Income Tax Act, 1961 nor historically required in practice.

The Income Tax Department has reportedly refused to grant or renew registration under Section 12A of the Income Tax Act to certain charitable trusts on the ground that their trust deeds do not contain a specific clause declaring the trust to be “irrevocable.”

Tax authorities maintain that in the absence of such a clause, there is no statutory safeguard preventing a settlor — the individual who creates the trust — from reclaiming the assets, thereby defeating the charitable purpose and potentially misusing tax exemptions.

However, trustees and tax professionals have dismissed these concerns as misplaced. They argue that once a valid public charitable trust is constituted and registered, it is inherently irrevocable unless the settlor has expressly retained a power of revocation.

Senior chartered accountant Gautam Nayak stated that the law on irrevocability is well settled. “Unless the trust deed specifically grants the settlor the power to revoke the trust, the transfer of property to the trust is irreversible. There is no requirement under the Income Tax Act for a separate clause declaring irrevocability,” he said.

Professional bodies including the Chamber of Tax Consultants and the Bombay Chartered Accountants’ Association have backed the petitioners. They contend that public charitable trusts are, by their very nature, established for public benefit and governed by binding legal obligations that prevent diversion of assets.

Petitioners argue that the tax department’s interpretation amounts to adding a condition not contemplated under the statute. “Rejecting registration applications based on an incorrect reading of the law and the trust deed is unjustified,” one of the petitioners stated.

Under existing provisions, charitable trusts and Section 8 companies (non-profits under the Companies Act) must obtain registration under Section 12A to claim income tax exemption. According to the petition, authorities have recently begun denying registration or renewal where deeds lack an express irrevocability clause.

Trustees have also highlighted the practical difficulties involved in amending trust deeds merely to insert such a clause.

Amending a trust deed can be a lengthy and expensive process, often requiring the consent of beneficiaries, approval from the Charity Commissioner, and in certain cases, court intervention. In many public trusts, beneficiaries are indeterminate or represent the public at large, making consent impractical.

Further complications arise where the settlor is deceased. In such cases, legal experts point out, it would be absurd to treat the trust as revocable or to attribute tax liability to a non-existent settlor if assets were hypothetically redistributed.

Legal experts have suggested that instead of insisting on deed amendments, the department could accept indemnity bonds from trusts affirming that they are irrevocable and that assets will continue to be applied solely for charitable purposes.

New Income Tax Act Angle

The issue has gained prominence in light of the new Income Tax Act, which is set to come into effect on April 1, 2026, and explicitly states that charitable trusts must be irrevocable.

However, petitioners argue that even under the new regime, such a requirement cannot be retroactively imposed through interpretative expansion where the earlier law did not mandate a specific clause.

They maintain that under long-standing legal principles and judicial precedents, public trusts are inherently bound to apply their property exclusively for charitable purposes. Courts, including the Supreme Court, have previously upheld that income applied strictly toward charitable objects qualifies for tax exemption.

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