TaxTMI 
TaxTMI 
2026 (3) TMI 1124
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....tion is taken up for final disposal at this stage itself. 2. The Petitioners before us represent a cross-section of charitable trusts and bodies representing the tax-practising community. Petitioner No. 1, i.e., The Chamber of Tax Consultants, is a society established in 1926. It is one of the oldest voluntary non-profit organisations of tax practitioners, and its members are advocates, chartered accountants and tax practitioners. It is formed with the object of spreading education in tax laws and making representations to authorities on issues of public interest. Petitioner No. 2, i.e., the Bombay Chartered Accountants' Society, was established in 1949, and is a voluntary organisation of Chartered Accountants with over 11,500 members. It is actively involved in the dissemination of knowledge and regularly makes representations on public interest issues concerning tax laws. Petitioner Nos. 3 to 8 are public charitable trusts registered under the Maharashtra Public Trusts Act, 1950 ("MPT Act"). These trusts have been enjoying registration under sections 12A and 12AB of the Income-tax Act, 1961 ("the Act") for several years and are the aggrieved parties whose applications for ....
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....f any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects. The presence of a clause relating to the dissolution or irrevocability is not a condition precedent for grant of registration. By insisting on such a clause, Respondent No. 1 is acting without jurisdiction and imposing a condition not found in the statute, which action is impermissible in law. b. The trusts were initially granted registration under the earlier regime, i.e., (sections 12A/12AA) inspite of such clauses not being present. The conditions for grant of registration have not materially changed in section 12AB, and hence, initially in 2021 the trusts were also granted registration under section 12AB in similar circumstances. There is no change in facts or law to warrant this new interpretation adopted by Respondent No. 1. c. Reliance by Respondent No. 1 on sections 60 to 63 in support of his conclusion is misplaced. These sections are anti-avoidance provisions and provide for the inclusion of income in the hands of the transferor in a case of a "revocable transfer." These sections do not apply for the purpose of registration bu....
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....ked in response to the query in Row no. 6, Respondent No. 1 has considered this as a ground to deny registration. Respondent No. 1 has considered the reply "Yes" as furnishing "false or incorrect information," which constitutes a "specified violation" in terms of clause (g) of the Explanation below section 12AB(4) of the Act. This is a high-handed and arbitrary approach, penalising assessees for a flaw in the department's own system. h. This Court in CIT vs. Tara Educational & Charitable Trust (Income Tax Appeal No. 247 of 2015) vide its judgment dated 31.07.2017 has held that the absence of a dissolution clause is not a ground for rejecting registration. In fact, the Ministry of Finance, in its reply to the Public Accounts Committee regarding a Comptroller and Auditor General of India ('CAG') Report, had itself stated that in States like Maharashtra and Gujarat, where specific legislation bars reversion of assets, the inclusion of a dissolution clause is "neither necessary nor legal." Thus, neither the existence of a dissolution clause nor the irrevocability clause are necessary ingredients for grant of registration. i. The Act already contains adequate safeg....
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....lity clauses in their trust deeds. Hence, there can be nothing arbitrary if only the law is being upheld by virtue of row number 6 in Form No. 10AB. d. Section 332 of the Income-tax Act, 2025 provides that an exemption will be available only to an irrevocable trust which means that only an irrevocable trust can be considered for the purposes of registration of a public trust. e. Once the MPT Act envisages revocability of a public trust, and the Act also makes the exemption under section 11 subject to sections 60 to 63, there is every possibility, in view of these statutory provisions, that public trusts may contain revocable clauses in their trust deeds. To obviate such a situation, row number 6 of Form No. 10AB requires every public charity to have an express irrevocability clause. Therefore, there is nothing arbitrary with this requirement. In fact, it seeks to cure the mischief of not allowing revocability clauses in public trust deeds for grant of registration and exemption. f. Several trusts have already submitted applications to the Charity Commissioner for amendment of their trust deeds to insert irrevocability clauses therein. Registration has bee....
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....ring the registration proceedings, the applicants have falsely specifically stated before Respondent No. 1 that their trust deeds contain a specific irrevocability clause, whereas the deeds are silent on this issue. 9. He, accordingly, submitted that the Petition is without merit and ought to be dismissed. 10. We have heard the learned counsel for the parties and have perused the papers and proceedings. The entire controversy in the present Petition hinges on 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. 11. At the outset, a plain reading of section 12AB of the Act reveals that the conditions for grant of registration are an objective satisfaction on the part of the Principal Commissioner regarding (i) the objects of the trust, (ii) the genuineness of its activities, and (iii) compliance with other material laws. The section does not contain any condition that the trust deed must have an explicit clause stating that it is irrevocable before registration is granted, and in our view, such a condition cannot be implied also. Respondent No. 1....
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....revocability clause can be construed as giving the transferor a right to reassume power over the assets or income. Even section 63(a)(ii) contemplates a specific provision which gives the transferor a right to re-assume such power. 14. Our interpretation is further fortified by the provisions of the MPT Act, under which the Petitioner trusts are registered. It is a fundamental principle of public trust law that once property is dedicated to a public charitable purpose, the dedication is complete and the settlor is divested of the property. The assets can never revert to the settlor. It is regard, it is relevant to note a judgement of this Court in Controller of Estate Duty, Vidarbha vs. Smt. Mangala [(1983) 143 ITR 491 (Bom)], wherein a Division Bench of this Court held as follows:- "There is thus unanimity in the view that in the case of a charitable endowment or trust once the dedication is completed there is no power of revocation left with the settlors. Even though in a given case the settlor has reserved the power to revoke the trust, in our view such a reservation would be wholly invalid and the power cannot be invoked so as to undo the settlement." 15. A later....
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....that once a property is dedicated to a public charitable purpose, the settlor is divested of the property and such property can never revert back to the settlor. 17. It is now pertinent to note two provisions of the MPT Act. First of all, reference may be made to sections 22(3A) and 22(3B) of the MPT Act which are reproduced hereunder: "(3A) The Deputy or Assistant Charity Commissioner may, after such detailed and impartial inquiry and following such procedure as may be prescribed, de-register the trust on the following grounds:- (a) when its purpose is completely fulfilled ; or (b) when its purpose becomes unlawful ; or (c) when the fulfillment of its purpose becomes impossible by destruction of the trust-property or otherwise ; or (d) when the trust, being revocable, is expressly revoked ; or (e) when the trustees are found not doing any act for fulfilling object of the trust: Provided that, no trust shall be de-registered under clause (e) unless its trustees have committed default in reporting the change under sub-section (1), in submission of the audited accounts as prescribed by sub-section (2) of section 33 or ....
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....ministration Fund established under Section 57 of the MPT Act. Thus, the assets of a trust, which is registered under the MPT Act, would never come back to the settlor. They are sold on revocation and the funds are deposited in the Public Trusts Administration Fund. Once that is the case, then such trusts can never be termed as revocable trusts in terms of section 63(a) of the Act. Section 63(a) of the Act provides that a trust is revocable if the Trust Deed has a provision for re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor, or where such provision in any way, gives the transferor a right to re-assume power directly or indirectly over the whole or any part of the income or assets. The same is impossible in case of a trust registered under the MPT Act. This is for the simple reason that in the case of a revocable trust, if the same is revoked, then the assets or proceeds from sale would never go the settlor. Thus, the reasoning of Respondent No. 1 is completely baseless and unfounded. 19. It is also pertinent to refer to section 55 of the MPT Act which provides for the application of the doctrine of cy-pres. Section 55 of the....
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....clear that on the occurrence of the events specified in section 55(1) of the MPT Act, where the Trust assets/ properties cannot be used for the objects specified in the Trust Deed, then, the Office of the Charity Commissioner, by following the process laid down in section 55 of the MPT Act, can pass an order directing the property or income of the public trust or any portion thereof to be applied cypres to any other charitable or religious object. This, therefore, also further strengthens the proposition that once an asset is settled for charitable purposes, such an asset can either be used for the purposes for which it is settled or for other similar purposes in terms of section 55 of the MPT Act, but such assets and properties can never revert back to the settlor of the trust. 21. Not only are the provisions of the MPT Act clear, but the interpretation placed by the Ministry of Finance in this regard is also germane. It would be pertinent to bring out the reply of the Ministry of Finance to the CAG and to the Public Accounts Committee of the Lok Sabha as brought out in the 27th Report which was presented to the Lok Sabha and laid before the Rajya Sabha on 16.12.2015 with regar....
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....e endowments, but nevertheless, the provisions of section 78 codify a well settled principle in law that would equally apply to a public charitable or religious trust absent any provision contrary thereto in the MPT Act. Section 78, in so far as it is relevant for the present purpose, provides that a trust created otherwise than by way of a will can be revoked only, inter alia, by the consent of all beneficiaries who are competent to contract or in exercise of a power of revocation expressly reserved to the author of the trust. In so far as a public charitable trust is concerned, the first condition can never be fulfilled because there is no question of obtaining the unanimous approval of all members of the public. The second condition is analogous to what is provided for in section 22(3A) of the MPT Act, viz., that there has to be a specific power of revocation expressly reserved in the author of the trust and a specific exercise of such power. Absent the aforesaid circumstances, a trust is clearly irrevocable. In other words, it is virtually impossible to say that a charitable trust can be revocable because it does not contain an irrevocability clause. 26. At this stage, it wo....
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....evious sanction of the Charity Commissioner, and subject to such conditions and limitations as may be imposed by him in the interest or protection of the trust. Provided that, the Charity Commissioner or the Joint Charity Commissioner, as the case may be, shall decide the application for borrowing money from the Bank or Financial Institution forthwith and preferably within a period of fifteen days, if the Bank or the Financial Institution has provisionally sanctioned the loan. (3A) Notwithstanding anything contained in sub-section (3), in exceptional and extraordinary situations where the absence of previous sanction contemplated under sub-section (3) result in hardship to the trust, beneficiary or bona fide third party, the Charity Commissioner may grant ex-post-facto sanction to borrow moneys from any nationalized bank or the Scheduled Bank, by the trustees. (4) No trustee shall borrow money for his own use from any property of the public trust of which he is a trustee : Provided that, in the case of a trustee who makes a gift of debentures or any deposit in his business or industry the trustee shall not be deemed to have borrowed from the trus....
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....n 12AB(1)(a) of the Act (new regime as well), there is no reason forthcoming to take a different stand when an application is made for renewal of registration. It may be pertinent to note that there are various trusts who are more than 20-30 years old and some also 50 years old. They were, with the same Trust Deed and same set of activities, granted registration earlier. There is no logic, when the conditions for renewal remain the same in section 12AB as compared to the earlier provisions i.e., section 12AA, then, why different criteria are applied today to deny registration. On this ground of the Petitioner as raised in the petition, nothing has been commented in the reply affidavit. However, in his argument, Mr. Gupta contended that there is no estoppel in law. Such an argument cannot be countenanced. There being no change in the requirements for grant of registration, a completely new condition cannot be invoked to put at naught the entire provisions dealing with grant of exemption to charitable trusts at the threshold by denying registration, leave aside the grant of exemption. This is also one of the reasons to interfere with the orders passed by Respondent No. 1. 32. It w....
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....can be dissolved and there is no bar on the assets reverting to the founder account. In the absence of any specific provision in Income Tax Act with respect to dissolution clause, rejection of application for registration on this account is neither enforceable nor legally sustainable. Further the judicial decisions too are not in favour of the Department on this issue. Some of these cases are as under: Tara Educational and Charitable Trust vs DIT (ITA no 1247/Mum/2013 dated July 18, 2014). Shree Prantij Dash Shrimali Vanik Gyanti Trust vs. DIT (ITA no 407/Ahd/2013 dated June 21, 2013). In this case, the Hon'ble ITAT has relied on the case of Shree Chargam Dash PorwadMahamandal vs. DIT." (emphasis supplied) 35. Thus, the Ministry of Finance has categorically opined, and in no uncertain terms, that in the absence of any specific provision in the Act with respect to the existence of a dissolution clause, rejection of an application for registration on this account is neither enforceable nor legally sustainable. Moreover, while justifying the same, reliance was placed on a decision of the Mumbai Bench of the Income-tax Appellate Tribunal ....
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....rrevocable. Further, absence of any specific clause of revocability makes the trust irrevocable. Thus, we don't find that the conditions of section 332(2) of the Income Tax Act, 2025 would not be fulfilled on account of a mere absence of an irrevocability clause in the Trust Deed. 38. Another pertinent point raised by the Petitioners is that the Act already contains adequate safeguards like section 13(1)(c) which deals with denial of exemption where income or assets are used for benefit of interested persons and section 115TD which provides for exit tax on dissolution on non-fulfillment of certain conditions. To appreciate this contention, it would be appropriate to bring out the relevant provisions of Section 13 hereunder: "13. (1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- ... (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof- (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust o....
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.... a reading of the above referred provisions, it is evident that the intention of the legislature is clear that it is at the time of considering the claim of exemption, that the issue of transfer of any asset to any transferor has to be looked into. In fact, provisions of section 13(1)(c) are very widely worded and a plain reading of the same reveals that it provides for sufficient safeguards to deter any transfer of assets to, or use of trust income for the benefit of, persons specified in section 13(3), which includes the settlor. Even this contention of the Petitioners provides an answer to the apprehension, though unfounded, of Respondent No. 1 regarding reverting of the assets back to the settlors. 40. It is also relevant to note that while granting registration under the new regime, various conditions were imposed in the registration certificate, which prevent any misuse of assets. While granting registration under section 12AB(1)(a) for the first time under the amended regime, specific conditions were imposed towards dissolution and revocation of assets to founder/ settlor. The same can be verified from the conditions of approval in case of Petitioner No. 3 in Form 10AC wh....
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....ettlor, then the trust is deemed to be revocable within the meaning of Sections 60-63 of the Act. In such circumstances, the trust cannot be granted registration since it is hit by Sections 60-63 of the Act read alongwith section 11 of the Act which makes the said sections have overriding effect before any exemption is granted under Section 11. The PCIT cannot examine in each case the nature of the various recitals or whether there is any scope of retransfer of trust assets which is highly litigious and that is why a legal duty is placed upon the trust to contain an express irrevocability clause failing which no registration can be granted. In the absence of a specific and express clause in the instrument of trust affirming the irrevocable nature of the Trust, satisfaction cannot be formed by the authority granting registration." (emphasis supplied) 43. Mr Pardiwalla, the learned Senior Counsel for the Petitioners, was rightly very concerned about the said averment of Respondent No. 1. We find substance in his submission. Section 12AB(1)(b) mandates the Commissioner to, inter alia, call for such documents or information from the trust or institution or make such inquiries as ....
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....artment itself is in violation of all legal principles. A procedural form cannot be used as a tool to coerce applicants into making declarations that are then used to their detriment. Therefore, we are of the view that the Respondents will have to change their system in this regard and the least which can be done is not to use this as a ground to deny registration. The argument of the Respondents that even subsequently, the trusts have asserted that they are irrevocable, which is also false, does not merit any acceptance. First of all, that is not the reason as stated in the impugned order to deny registration. At this stage, such orders cannot be improved upon. Moreover, since the Deed has no revocability clause, and, thus, the trusts have, under a bona fide belief, submitted that the trusts are irrevocable. In fact, their belief is correct and this, therefore, cannot be considered to be false or incorrect information at all. 45. In summary, we hold that a public charitable trust is deemed irrevocable by operation of law unless the instrument of trust expressly provides a power of revocation. The absence of an explicit irrevocability clause is not a ground for rejecting an appl....