Scoffing at a seemingly absurd demand from the tax office, India’s public charitable trusts have moved the court.
They are challenging the Income Tax (I-T) department’s demand that trust deeds must unambiguously state that the trust is ‘irrevocable’ – which cannot be changed or reversed. Tax authorities fear that in the absence of an explicit irrevocability clause, there is no statutory safeguard to ensure that assets are not taken back by the settlor – the individual or entity which creates a trust.
But trusts, some running for decades, call it an irrational fear. Insisting on a specific clause is illogical, even illegal, they say. Some of the best-known corporate trusts owning leading companies, a foundation backed by a large state-owned bank, and several other trusts have refused to give in to the taxman’s demand.
Professional bodies like the Chamber of Tax Consultants and Bombay Chartered Accountants’ Association of India, along with some charitable trusts filed a writ petition on February 27 before the Bombay High Court.
Compliance contested
Multiple persons ET spoke said tax officials have no business to ask for it as public trusts are always irrevocable, and the law requires no declaration.
Senior chartered accountant Gautam Nayak said, “The Income Tax law on revocability is clear. Unless the trust’s settlor retains a specific power of revocation, the transfer is irrevocable. No separate clause is needed. In fact, what should be seen is whether there is a clause permitting revocation.”
Once constituted, a trust or a Section 8 company (a non-profit under the Companies Act) must be registered under Sec 12A of the I-T law to claim tax exemption. The I-T office has refused to renew the registration of trusts having no irrevocable clause.
“Rejecting registration applications on a wrong interpretation of the law and the trust deed is unjustified. Amending the trust deed is a long, expensive, and complex process, requiring the approvals of the Charity Commissioner and the court. Why must trusts go through this without any legal justification?” said Nayak.
Practical hurdles
The new Income Tax Act, coming into effect on April 1, 2026, states that charitable trusts must be irrevocable. “However, since the I-T Act, 1961 does not require a specific clause on irrevocability, it cannot be insisted on by interpretation merely because the new law has it,” said Ashish Karundia, founder of the CA firm Ashish Karundia & Co.
Besides, there are practical hurdles: revocation requires the consent of beneficiaries or the settlor, but what if the beneficiaries are the public at large and the settlor is dead; even if deemed revocable, the distribution would be taxed in the settlor’s hands – a legal absurdity if the settlor is dead. Where the settlor is no more, trustees may lack the power to amend the deed.
Instead, it’s felt, the I-T office should accept indemnity bonds from trusts declaring they are irrevocable. “Several old trusts whose deeds are not very clearly worded, can consider approaching the charity commissioner’s office with a scheme in terms of the applicable law and then intimating the tax department to the effect that the final scheme order will be intimated to them. But timely action is critical so that the tax exemption is not jeopardised,” said Raghav Kumar Bajaj, partner at the law firm Khaitan & Co.
So long a charitable or religious trust uses funds for the purposes it is formed, it is spared of income tax. “It is undeniable that the deeds/ memorandum/ byelaws of public trusts unequivocally mandate that the trust property be applied exclusively for charitable purposes. In such circumstances, the ratio laid down by the Privy Council in All India Spinners Association and subsequently relied upon by the Supreme Court in Radhasoami Satsang would squarely apply. The registration, therefore, should be allowed to the applicants, provided the property is subject to a binding legal obligation to be deployed solely for charitable purposes,” said Karundia.
