Public charitable trusts in India are currently facing a significant procedural hurdle when applying for the renewal of their registration under Section 12A of the Income Tax Act, 1961. The issue centers on Form 10AB, an online application that requires trusts to answer “Yes” or “No” to whether their trust deed contains a specific clause stating the trust is irrevocable. Because the digital form often prevents further progress if “No” is selected, many trusts find themselves in a difficult position.
The Push for Amendments
The Office of the Commissioner of Income Tax (Exemptions) has begun directing trusts that lack this specific clause to amend their trust deeds. This regulatory insistence appears to be influenced by a 2013 report from the Comptroller & Auditor-General (CAG) of India, which expressed concern that without explicit dissolution or irrevocable clauses, trust assets could potentially be misused or revert to founders.
Legal and Statutory Precedents
However, the Bombay Chartered Accountants’ Society (BCAS) and various legal precedents suggest that this requirement may be legally unnecessary:
- Judicial Rulings: The Supreme Court has held that if a trust deed lacks a provision to revoke or resume assets, it cannot be considered revocable. Furthermore, the Bombay High Court has ruled that once a charitable dedication is complete, it is inherently irrevocable, and even an explicit reservation of power to revoke by the settlor would be considered invalid.
- State Legislation: In states like Maharashtra and Gujarat, existing laws (such as the Maharashtra Public Trust Act, 1950) already bar the reversion of trust property to founders, making a separate clause in the deed redundant.
- Infeasibility of Revocation: Under the Indian Trusts Act, 1882, revoking a trust requires the consent of all beneficiaries. Since the beneficiary of a charitable trust is the general public, obtaining such consent is practically impossible.
Practical Implications
Beyond the legal arguments, there are significant practical concerns. Requiring thousands of established trusts to add an “irrevocable clause” would necessitate formal amendments to their deeds, which generally requires an application to the Court. If every trust in the country were forced to do this, it would create a massive burden on the judicial system. Additionally, many of these trusts have successfully renewed their registrations for decades without this requirement being raised.
Proposed Solution
The BCAS has requested that the government issue directions stating that an explicit clause is not mandatory for re-registration. Instead, they argue that tax officers should be allowed to examine the trust deed and surrounding documents to determine if the trust is irrevocable in practice. Addressing this issue is seen as vital to preventing unnecessary litigation and ensuring the stability of long-standing charitable institutions.
Representation Letter from BCAS has been attached for reference