When “Irrevocable” Becomes a New Roadblock for charitable trust: An Unnecessary Hurdle for Charitable Trusts
Charitable trusts across the country are facing an unexpected and avoidable difficulty while applying for renewal of registration under section 12A of the Income-tax Act. The issue arises not from any amendment in the law, but from a rigid interpretation of Form 10AB, which requires trusts to declare whether their trust deed contains an “irrevocable clause.” Many long-standing public charitable trusts, created decades ago, do not contain an express clause stating that the trust is irrevocable. Yet, in law, these trusts are irrevocable by their very nature. Despite this settled legal position, authorities are insisting that such trusts amend their deeds to insert an irrevocability clause, failing which renewal is being questioned. This insistence has triggered widespread concern and has rightly drawn representation to the CBDT.
To understand the problem, one must first appreciate the structure of the law. Registration under section 12A is concerned with the charitable nature of the objects and the genuineness of activities. The question of whether income is exempt under sections 11 and 12 arises only at the stage of assessment, subject to sections 61 to 63 dealing with revocable transfers. These provisions do not govern the grant or renewal of registration. Therefore, importing the concept of revocability into the registration stage itself is legally misplaced.
The real complication stems from the design of Form 10AB. Item 6 of the form asks whether the trust deed contains a clause declaring the trust to be irrevocable, with only a “Yes” or “No” option. Many older trusts do not have such a clause because, at the time of their creation, the law never required one. In several States, particularly where public trust legislation exists, trusts are irrevocable by operation of law. However, answering “No” in the form practically blocks further filing, compelling trusts to select “Yes” even when the clause is absent, and then face objections during scrutiny.
On scrutiny, some Commissioners of Income Tax (Exemptions) have directed trusts to amend their trust deeds to insert an irrevocable clause. This approach ignores long-standing judicial principles. The Supreme Court, as early as 1965, clarified that what matters is the presence of a power to revoke, not the absence of an express statement of irrevocability. If the trust deed does not reserve a right of revocation or retransfer, the trust cannot be treated as revocable. In fact, in the case of public charitable trusts, courts have gone further to hold that even if a power of revocation is purportedly reserved, such a clause is legally ineffective once the dedication to charity is complete.
High Courts across the country have consistently held that the absence of a dissolution or irrevocability clause cannot be a ground for denying registration. Judgments from Bombay, Gujarat, Rajasthan, Punjab and Haryana have reiterated that public charitable trusts cannot distribute assets back to founders or members and that assets must always be applied to charitable purposes. These rulings leave little room for doubt, yet the problem persists due to administrative rigidity.
An additional dimension is State trust law. Under the Maharashtra Public Trusts Act, for example, if the original objects of a trust become impossible, the Charity Commissioner may apply the doctrine of cy-pres, redirecting assets to similar charitable objects. There is no concept of revocation or reversion of assets to the settlor. Similar principles apply in other States through local legislation or general trust law. Under the Indian Trusts Act as well, revocation requires consent of beneficiaries, which is practically impossible in a public charitable trust where beneficiaries are the general public.
The insistence on amendment of trust deeds also ignores practical realities. Amending a trust deed is not a simple administrative exercise. It often requires court approval. If thousands of charitable trusts are compelled to approach courts merely to insert a declaratory clause that adds nothing in substance, it will place an enormous and unnecessary burden on the judicial system. More importantly, it will disrupt the functioning of well-established charities engaged in education, healthcare, social welfare, and religious activities.
Another troubling aspect is inconsistency. At the time of original registration and even during earlier renewals, no such requirement was imposed. Trust deeds that have remained unchanged for decades are now suddenly considered deficient. This retroactive rigidity creates uncertainty and fuels avoidable litigation, which benefits neither the tax administration nor the charitable sector.
The representation rightly points out that the correct approach is not to mechanically look for a specific clause, but to examine the trust deed as a whole. The authority should verify whether the deed contains any provision permitting revocation, retransfer, or resumption of property. If it does not, the trust must be treated as irrevocable in law, irrespective of whether the word “irrevocable” appears in black and white.
The issue ultimately highlights a broader concern in tax administration: the danger of forms overtaking the law. When digital forms are designed without sufficient sensitivity to historical legal realities, they risk converting procedural requirements into substantive hurdles. Charitable trusts, which are already under enhanced compliance pressure post re-registration regime, should not be made victims of such avoidable technicalities.
A simple clarification or general instruction from the CBDT can resolve this issue nationwide. Directing officers to assess irrevocability based on legal substance rather than literal wording will prevent unnecessary rejections, reduce litigation, and uphold the intent of the law. After all, compliance should be about ensuring genuine charitable activity, not about forcing cosmetic amendments that change nothing on the ground.
If charitable trusts are to focus on serving society, the law must avoid placing needless administrative stones in their path. The insistence on an express irrevocable clause, where irrevocability already exists in law, is one such stone that deserves immediate removal.
