Registration under Section 12AB cannot be denied for lack of explicit irrevocability or dissolution clauses.

In brief

The question

1. Whether the absence of an explicit "irrevocability clause" in a trust deed constitutes a valid ground for rejecting registration or renewal under Section 12AB of the Act

The court held

The High Court allowed the Writ Petition and quashed the rejection orders. The court held that a public charitable trust is deemed irrevocable by operation of law unless the deed expressly provides for revocation, and the absence of an explicit irrevocability clause is not a ground for rejecting registration

It also directed

The court directed: (i) Respondents to refrain from rejecting applications solely on these grounds

(ii) the Revenue to amend Form 10A/10AB to allow correct declarations

(iii) all similar rejection orders under Section 12AB and consequential rejections under Section 80G be set aside

(iv) Respondent No. 1 to decide the applications afresh within six weeks

01Facts

The Petitioners, comprising tax practitioner associations and various public charitable trusts registered under the Maharashtra Public Trusts Act, 1950 ("MPT Act"), challenged the rejection of their applications for renewal of registration under Section 12AB of the Income-tax Act, 1961 ("the Act")

p. 3

The Commissioner of Income Tax (Exemptions) (Respondent No. 1) rejected the applications on two primary grounds: first, that the trust deeds lacked an explicit "irrevocability" clause; and second, that the trusts provided "false information" by answering "Yes" to Row 6 of online Form 10AB regarding the existence of such a clause

p. 4

It was established that the Income Tax Department's online portal prevented the submission of Form 10AB unless "Yes" was selected for Row 6, effectively compelling the declaration

p. 8, 43

02Issues

i.1. Whether the absence of an explicit "irrevocability clause" in a trust deed constitutes a valid ground for rejecting registration or renewal under Section 12AB of the Act

p. 15, para 10

ii.2. Whether the compulsion to select "Yes" in Row 6 of Form 10AB due to technical constraints of the Department's portal can be treated as furnishing "false or incorrect information" amounting to a "specified violation" under Section 12AB(4)

pp. 43-44, para 44

03Law Applied

The court primarily interpreted Section 12AB of the Act, which mandates the Commissioner to satisfy himself regarding the objects and genuineness of activities for registration

p. 15

It applied Section 63(a) of the Act, which defines a "revocable transfer" as one containing an express provision for re-transfer or re-assumption of power by the transferor; silence in a deed implies irrevocability

pp. 16-17

The court relied on Sections 22(3A), 22(3B), and 55 of the MPT Act, which ensure that assets of a public trust in Maharashtra can never revert to the settlor and must be transferred to the Public Trusts Administration Fund or applied cy-pres

pp. 20-23

It further followed the precedent in CIT v. Tara Educational & Charitable Trust, which held that the absence of a dissolution clause is not an impediment to registration

p. 33

Provisions in the judgment · 8 · Linked ones open on LawLens

Indian Trust Act, 1882 Section 1 Section 78

Maharashtra Public Trusts Act. Section 22 Section 33 Section 34 Section 54 Section 55 Section 57

04Reasoning

The court reasoned that Section 12AB does not statutorily require an explicit irrevocability clause for registration

p. 15

Under Section 63, a transfer is only "revocable" if the instrument contains a positive provision for re-transfer; therefore, the Revenue's presumption that silence equals revocability was legally flawed

pp. 16-17

The court observed that by operation of the MPT Act, public charitable trusts are inherently irrevocable as their assets cannot revert to the settlor even upon revocation or dissolution

pp. 21-22

The court noted that the Ministry of Finance had previously admitted to the Public Accounts Committee that such clauses are "neither necessary nor legal" in states like Maharashtra

p. 25

Regarding the "false information" charge, the court found it "high-handed and arbitrary" to penalize assessees for a declaration forced upon them by the Department’s own flawed digital utility

p. 9, 44