2026 (3) TMI 1124 - HC - Income Tax

Irrevocability of Public Trusts - absence of an express clause does not bar 12AB registration; compelled form entry not false.

Whether absence of an express irrevocability or dissolution clause precludes registration under section 12AB was addressed by applying the statutory ... Rejection of renewal of registration u/s 12AB - trust deed or instrument constituting the concerned entities does not contain an explicit clause stating that the trust is “irrevocable” and/or providing for the manner of dissolution and the applicants, in their online Form 10AB did not answered the question in 'Yes' “Whether the trust deed contains clause that the trust is irrevocable?” Public charitable trust irrevocability - construction of section 63 revocable transfer - whether the absence of an explicit “irrevocability clause” in a trust deed renders a public charitable trust “revocable” in law, thereby justifying the rejection of its registration?- HELD THAT: - The Court held that section 12AB prescribes an objective satisfaction regarding objects, genuineness of activities and compliance with material laws and contains no requirement that a trust deed must expressly state that the trust is irrevocable. Section 63 creates a fiction of a 'revocable transfer' only where the instrument contains a positive provision for re-transfer or a right to re-assume power; silence in the deed does not convert a trust into a revocable one. The statutory framework of the MPT Act, judicial precedents and principles of trust law confirm that once property is dedicated to a public charitable purpose the settlor is divested of ownership unless a specific power of revocation is reserved, and hence mere absence of an irrevocability clause cannot be equated with revocability. [Paras 25, 27, 30, 31, 45] A public charitable trust is deemed irrevocable by operation of law absent an express power of revocation in the instrument; absence of an explicit irrevocability clause is not a valid ground for rejection or non-renewal under section 12AB. Furnishing false information in registration form - administrative utility coerce false declaration - HELD THAT: - The Court observed that the online Form 10AB forced applicants to select 'Yes' to upload the form and that using this forced response as a basis to treat the applicant as having furnished false information is arbitrary. The verification at the end of the form cannot validate a system design that compels an incorrect declaration, and therefore respondents must not treat such compelled answers as specified violations or grounds for rejection. The respondents were directed to amend the utility so applicants can state their position correctly and to modify the relevant question for clarity. [Paras 44, 46] Row 6 responses compelled by the departmental utility shall not be treated as furnishing false information; the respondents must not reject applications on that basis and must amend the utility and the question wording Final Conclusion: The writ petition is allowed: rejections of renewal under section 12AB solely for absence of an explicit irrevocability or dissolution clause are quashed; compelled 'Yes' answers in Form 10AB shall not be treated as furnishing false information; the departmental utility and the form's question shall be amended; and respondents are directed to decide the affected applications afresh in accordance with the Court's reasoning. Issues: Whether the absence of an explicit irrevocability or dissolution clause in the trust deed/instrument is a valid ground for rejecting an application for registration or renewal under section 12AB of the Income-tax Act, 1961, and whether answering 'Yes' to Row 6 of Form 10AB (regarding an irrevocability clause) in the absence of such an explicit clause can be treated as furnishing false or incorrect information constituting a specified violation under the Explanation below section 12AB(4).Analysis: Section 12AB requires the Commissioner to be satisfied about the objects, genuineness of activities and compliance with other material laws; it does not expressly require an irrevocability clause in the instrument. The definition of 'revocable transfer' in section 63(a) of the Income-tax Act, 1961, creates a statutory fiction and requires a positive provision for re-transfer or a specific right to re-assume power for a transfer to be revocable. Silence in the deed does not itself create a revocable transfer. The Maharashtra Public Trusts Act, 1950 (sections 22(3A), 22(3B) and 55) and the cy-pres mechanism prevent assets of a public charitable trust from reverting to the settlor on revocation or dissolution, and thus reinforce that public charitable trusts under the MPT Act are not revocable merely because the deed lacks an explicit irrevocability clause. Established judicial precedent and the Ministry of Finance's interpretation confirm that absence of a dissolution or irrevocability clause is not a ground for denying registration. The departmental online utility that forces a 'Yes' response in Row 6 or prevents filing on 'No' creates a procedural compulsion and cannot be used to treat a subsequently filed 'Yes' as false information for the purposes of clause (g) of the Explanation below section 12AB(4). The Commissioner is required to examine the trust deed and form a satisfaction under section 12AB(1)(b); administrative convenience does not permit reading into the statute a condition that is absent.Conclusion: The absence of an explicit irrevocability or dissolution clause in a trust deed is not a valid ground to reject registration or renewal under section 12AB of the Income-tax Act, 1961; a public charitable trust is deemed irrevocable by operation of law unless the instrument expressly reserves a power of revocation. Further, an applicant's affirmative response to Row 6 of Form 10AB, given under compulsion of the departmental utility in the absence of an explicit clause, shall not be treated as furnishing false or incorrect information constituting a specified violation under the Explanation below section 12AB(4), and shall not be used as a ground to deny registration.Ratio Decidendi: A trust is not rendered revocable by the mere absence of an express irrevocability clause; for a transfer to be revocable under sections 60-63 of the Income-tax Act, 1961 the instrument must contain a positive provision enabling re-transfer or re-assumption of power, and administrative utilities forcing incorrect declarations cannot be used to penalise applicants under section 12AB.