S.12AB Registration Cannot Be Denied Due to Absence of Irrevocability Clause in Trust Deed: Bombay HC in Chamber of Tax Consultants Case [Read Order]
The High Court held that Section 12AB registration or renewal cannot be denied merely due to absence of an explicit irrevocability clause in the trust deed.
In a recent ruling, the Bombay High Court held that Section 12AB registration or renewal cannot be denied due to absence of an explicit irrevocability clause in the trust deed in the case of Chamber of Tax Consultants.
The issue before the Court was whether the absence of a specific clause stating that a trust is “irrevocable” can be a valid ground to reject registration or renewal under Section 12AB of the Income-tax Act, 1961. The revenue authorities had taken the view that such a clause is mandatory and rejected applications where the trust deeds were silent on this aspect.
The Division Bench comprising Justices B.P. Colabawalla and Firdosh P. Pooniwalla observed that Section 12AB requires the authority to be satisfied about the objects of the trust, genuineness of its activities, and compliance with other applicable laws. It explained that the provision does not mandate the presence of an explicit irrevocability clause, and such a condition cannot be read into the statute.
The court further observed that under the scheme of the Income-tax Act, a trust is treated as irrevocable unless there is an express provision which allows the settlor to revoke the trust or re-assume control over its assets. It explained that the definition of a “revocable transfer” under Section 63 requires a clear clause permitting re-transfer or control and mere absence of an irrevocability clause does not satisfy this requirement.
The court also pointed out that interpreting silence in a trust deed as revocability would be incorrect in law. Instead, absence of a revocation clause means the trust continues to be irrevocable. It explained that the revenue’s approach effectively reverses the legal position by presuming revocability where none exists.
In view of these findings, the court held that denial of registration or renewal solely on the ground that the trust deed does not contain an explicit irrevocability clause is not valid. The court made it clear that such a requirement has no basis in the statute and cannot be imposed by administrative interpretation.
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