Income Tax Department to Challenge Bombay HC Order on Charitable Trust Registration in SC

A significant legal dispute involving charitable and religious trusts and the Income Tax Department is now expected to reach the Supreme Court of India, following a landmark ruling by the Bombay High Court on trust registration requirements.

The controversy revolves around the Income Tax Department’s insistence that trust deeds must expressly state that the trust is “irrevocable” in order to qualify for tax benefits under the Income-tax law. Tax authorities have maintained that such a provision is necessary to prevent potential misuse, particularly in situations where founders or persons managing a trust may attempt to reclaim or transfer trust assets for non-charitable purposes.

Based on this interpretation, several charitable and religious organizations were denied renewal of their registrations because their trust deeds did not contain a specific irrevocability clause. These registrations are crucial, as they allow eligible organizations to claim tax exemptions available under the law.

The issue was challenged before the Bombay High Court by six charitable trusts along with two prominent professional bodies. In its judgment delivered on March 9, 2026, the High Court ruled that the absence of an explicit irrevocability clause or dissolution clause in a trust deed cannot, by itself, be a valid reason for rejecting or cancelling registration under Section 12AB of the Income-tax Act, 1961.

The court observed that a public charitable trust is generally presumed to be irrevocable, unless the trust deed specifically grants the settlor or founder the authority to revoke it. Accordingly, the High Court set aside the orders passed by the Income Tax authorities that had denied registration solely on this ground.

Following the judgment, the Income Tax Department resumed the process of renewing registrations for several trusts. However, in many cases, the approvals were granted with a condition stating that the registration would remain subject to the outcome of a proposed Special Leave Petition (SLP) before the Supreme Court.

According to senior tax officials, the department has already initiated steps to challenge the High Court’s ruling. Officials have indicated that the department is not prepared to accept the legal interpretation adopted by the High Court and intends to seek clarity from the country’s highest court.

Tax professionals note that while the trusts that approached the High Court have received relief, the department appears to be taking the position that the judgment does not automatically extend similar benefits to every charitable trust across the country.

Adding another dimension to the dispute, the new Income-tax Act, which came into force on April 1, 2026, specifically requires charitable trusts to be irrevocable. Trust representatives, however, argue that incorporating such clauses into decades-old trust deeds is often legally and administratively difficult.

Experts point out that in states such as Maharashtra, where dedicated trust regulations already exist, transfer or disposal of trust assets is heavily regulated and generally requires approval from the office of the Commissioner of Charities. As a result, many trust administrators believe the risk of misuse is already adequately addressed under existing laws.

With the department determined to pursue the matter through the judicial process, charitable institutions may eventually need to explore practical solutions, including amendments to trust deeds or alternative safeguards such as indemnity declarations affirming the irrevocable nature of the trust.

The outcome of the proposed Supreme Court proceedings is expected to have a far-reaching impact on charitable trusts, NGOs, and Section 8 companies that rely on tax-exempt status under Section 12AB. These entities currently enjoy exemption from income tax on donations, grants, and income derived from property, provided that at least 85% of their funds are applied toward charitable or religious purposes.

Short Summary

The Income Tax Department is preparing to move the Supreme Court against a Bombay High Court ruling that held charitable trusts cannot be denied registration merely because their trust deeds lack an explicit irrevocability clause. The case could significantly impact the tax-exempt status and registration requirements of charitable trusts, NGOs, and Section 8 companies across India.