Several public charitable trusts in India have approached the Bombay High Court challenging the Income Tax Department’s insistence that trust deeds must explicitly state that the trust is "irrevocable" to qualify for tax exemption registration.
Professional bodies including the Chamber of Tax Consultants and the Bombay Chartered Accountants' Society, along with multiple charitable trusts, filed a writ petition on February 27 contesting the department's interpretation of the law. They argue that the requirement to include a specific "irrevocable clause" in trust deeds has no clear statutory backing under the current tax framework.
The controversy stems from the Income Tax Department's stance that, without an explicit declaration of irrevocability, there is no legal safeguard preventing the settlor - the individual or entity establishing the trust from reclaiming the assets. As a result, tax authorities have reportedly refused to grant or renew registrations under Section 12A for trusts whose deeds do not contain such wording.
Tax professionals, however, say the department's position misinterprets existing law. Experts note that under the Income Tax Act 1961, a trust transfer is already considered irrevocable unless the settlor explicitly retains the power to revoke it. Therefore, they argue, the presence of a revocation clause, not the absence of an irrevocability clause, should be the determining factor.
Charitable organisations have also highlighted practical difficulties in amending long-standing trust deeds. Any modification often requires approvals from the Charity Commissioner and in some cases, the courts, making the process time-consuming and expensive. Many trusts have operated for decades without such clauses and fear that denial of registration could jeopardise their tax-exempt status.
The issue has gained further attention as the proposed new income tax framework, expected to take effect from April 1, 2026, explicitly states that charitable trusts must be irrevocable. Experts argue that this provision in the upcoming law should not be retrospectively applied to existing trusts under the current legislation.
Legal precedents have also been cited in support of the trusts' position, including rulings referenced in the landmark case involving All India Spinners Association and later interpretations by the Supreme Court of India in the Radhasoami Satsang Case.
Trust representatives maintain that as long as the trust property is legally bound to be used solely for charitable or religious purposes, the requirement for a separate irrevocability clause is unnecessary. The matter is now expected to be examined by the Bombay High Court, and its ruling could significantly impact the compliance requirements for charitable trusts across the country.
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