Income Tax Department to Challenge Bombay High Court’s Trust | Biz Flow Kit
Income Tax Department to Challenge Bombay High Court’s Trust Registration Ruling: What It Means for Charitable Trusts
The long-running debate between charitable trusts and the Income Tax Department has entered a new phase. After the Bombay High Court granted significant relief to several public charitable trusts by holding that the absence of an express “irrevocability clause” in a trust deed cannot be the sole ground for refusing registration under Section 12AB, the Income Tax Department has reportedly decided to approach the Supreme Court by filing a Special Leave Petition (SLP).
The issue is of immense importance as thousands of charitable and religious trusts across India are either applying for fresh registration or renewal under the Income-tax Act.
The Core Dispute
The controversy revolves around whether every charitable trust must specifically state in its trust deed that it is “irrevocable.”
During the process of granting registration under Section 12AB, many Commissioners (Exemption) refused registration merely because the trust deed did not expressly contain an irrevocability clause.
According to the Income Tax Department, such a clause is necessary to ensure that:
Trust assets remain dedicated to charitable purposes.
Settlors or trustees cannot reclaim the assets.
Charitable property is protected from misuse.
In many cases, registration applications were rejected solely on this technical ground.
Bombay High Court’s Landmark Relief
In a significant judgment delivered in March 2026, the Bombay High Court held that:
The Income-tax Act nowhere mandates an express irrevocability clause.
A public charitable trust is generally considered irrevocable unless the trust deed specifically provides otherwise.
Registration under Section 12AB cannot be denied merely because such wording is absent.
The Court also set aside rejection orders passed by the Commissioner (Exemption), Mumbai, in several cases.
The judgment has been welcomed by charitable organizations as it removes an unnecessary procedural hurdle that had delayed registrations.
Why Is the Department Still Contesting?
The Income Tax Department believes that an express irrevocability clause provides stronger legal protection for charitable assets.
According to tax authorities:
Public funds and charitable properties deserve maximum protection.
Future disputes regarding ownership or withdrawal of assets can be avoided.
Uniform drafting standards across trust deeds will improve governance.
Therefore, the Department reportedly intends to challenge the High Court judgment before the Supreme Court.
Practical Difficulty Faced by Old Trusts
Many charitable trusts-particularly those established decades ago-never included an irrevocability clause because:
The law never required one.
State Public Trust Acts already regulate charitable trusts.
Trust deeds were drafted according to the legal practices prevailing at that time.
In states such as Maharashtra, modifying an existing trust deed is not a simple exercise. Any amendment generally requires approval from the Charity Commissioner and compliance with the Maharashtra Public Trusts Act.
Consequently, many trusts argued before the Court that insisting on insertion of a new clause is practically impossible and legally unnecessary.
What Does the New Income-tax Act, 2025 Say?
Interestingly, the new Income-tax Act, 2025, which is scheduled to come into force from 1 April 2026, specifically recognises the concept of irrevocable charitable trusts.
This development has strengthened the Department’s position that irrevocability should be treated as an essential feature of charitable institutions.
However, an important question still remains:
Can a new statutory requirement be used to deny registration under the earlier law when the original trust deed itself was legally valid?
This issue is now likely to receive authoritative interpretation from the Supreme Court.
What Should Existing Trusts Do?
Until the Supreme Court settles the controversy, charitable trusts should adopt a cautious approach.
They may consider:
Reviewing their trust deed carefully.
Examining whether any revocation power exists.
Obtaining legal advice before making amendments.
Keeping documentary evidence showing that trust assets are permanently dedicated to charitable purposes.
Responding appropriately if registration is made subject to the outcome of the Supreme Court proceedings.
Trusts contemplating amendment must also verify the requirements under the applicable State Public Trust law before taking any action.
Wider Implications
The Supreme Court’s decision will have far-reaching consequences because it will determine:
Whether absence of an irrevocability clause alone can justify refusal of registration.
The extent of powers available to tax authorities while examining trust deeds.
Whether procedural deficiencies should override genuine charitable intent.
The future drafting standards for trust deeds across India.
The verdict is expected to impact thousands of charitable trusts, educational institutions, hospitals, NGOs and religious organizations.
Conclusion
The dispute is not merely about one clause in a trust deed; it concerns the balance between safeguarding charitable assets and avoiding unnecessary procedural hurdles for genuine institutions.
While the Income Tax Department seeks stronger protection against misuse of charitable property, charitable organizations argue that technical drafting deficiencies should not deprive genuine public trusts of tax exemption.
The Supreme Court’s forthcoming decision is expected to settle this important question of law and provide much-needed certainty to India’s charitable sector.
