Stubbornness of the Income tax department regarding “irrevocability clause” causing Registered Non-profit Organizations loss of funding opportunities.
As it is fundraising is a challenging task for most ‘Registered Non-Profit Organizations’ (the term now used for tax exempt charitable trusts and institutions under the new Income tax Act 2025) in India. To add to their fundraising woes, the Income tax department has issued ‘conditional’ tax exemption certificates to Registered NPOs which are ‘public charitable trusts’ stating: “the applicant Trust, doner entities and other stakeholders are hereby informed, by way of abundant caution, that the applicability and consequential tax-benefits of this registration/approval w.e.f. 01.04.2026 onwards, remain subject to outcome of the decision of Hon’ble Supreme Court.” This has put several corporate and other grant-making foundations on alert and many funders as a policy are not funding trusts which do not have a specific “irrevocability clause” in their trust deed.
This means despite having a renewed tax exemption certificate donor are not ready to risk funding public charitable trusts which do not have this clause, at least till such time as the trust feels compelled to amend it’s trust deed to include this clause or the Income tax department decides to challenge the order of the Bombay High Court in the Supreme Court of India and the Apex court resolves this needlessly contentious matter, one way or the other.
Bombay High Court’s verdict
The Bombay High Court ruled in March 2026 that public charitable trusts are inherently deemed irrevocable by law, making an explicit “irrevocability clause” unnecessary for tax registration under Section 12AB of the Income Tax Act.
The Order of the Bombay High Court can be read or downloaded at:
The Order of the Bombay High Court was thanks to Writ Petition (L)NO.7587 OF 2026 filed by The Chamber of Tax Consultants (CTC) alongside the Bombay Chartered Accountants’ Society (BCAS) and others. Prior to this Order of the High Court, the Income Tax authorities (CIT-Exemptions) had been rejecting or denying renewals of Section 12AB registrations for trusts whose deeds lacked an express “irrevocability” clause.
The Division Bench comprising Justices B.P. Colabawalla and Firdosh P. Pooniwalla struck down the Income Tax departmental practice, calling it arbitrary and baseless. The Court emphasized that silence in a trust deed implies irrevocability, not revocability. Under the Indian Trusts Act and general transfer principles, a trust is irrevocable unless the creator expressly retains a right to take back the assets.
The Court also clarified that Section 12AB only requires authorities to review the charitable objects, genuineness of activities, and compliance with material laws and not to search for a specific irrevocability clause.
Following the Bombay High Court’s directive, the Income tax authorities were ordered to stop rejecting applications for the want of an express clause and which they did. However, the renewal certificates came with a caveat or warning.
Caveat in the renewed tax exemption certificates
The registration u/s 12AB is granted subject to the following conditions:
Condition No. 15: In this case, the instrument of trust does not contain any explicit clause affirming that the transfer of property under trust is an irrevocable transfer for all times. Section 332(2)(b) of the Income Tax Act, 2025 inter-alia lays down that a public trust is eligible for registration, only if the trust properties are held for the benefit of the general public under an irrevocable trust. The date of commencement of Income Tax Act, 2025 is 1st April 2026 i.e., the same date from which renewal of registration/approval has been sought by the applicant. Therefore, the eligibility conditions prescribed in the Statute for registration/approval are not satisfied in this case. However, Hon’ble Bombay High Court in the Writ Petition(L) No.7587 of 2026 in the case of The Chamber of Tax Consultants & Ors Vs The CIT(E) has held that a public charitable trust is deemed irrevocable by operation of law unless the instrument of trust expressly provides a power of revocation and directed the Department to refrain from rejecting applications for registration/renewal under section 12AB solely on the ground of the absence of an explicit irrevocability clause in the Trust Deed/instrument. Revenue is preferring to move a Special Leave Petition before the Hon’ble Supreme Court against the said order. In the background of these facts, this renewal of registration/approval is being granted in respectful compliance to the binding judicial directions of Hon’ble Bombay High Court. However, the applicant Trust, doner entities and other stakeholders are hereby informed, by way of abundant caution, that the applicability and consequential tax-benefits of this registration/approval w.e.f. 01.04.2026 onwards, remain subject to outcome of the decision of Hon’ble Supreme Court.