High Court Says Trust Registrations Cannot be Rejected Over Lack of “Irrevocability Clause”

The case arose from multiple trusts being denied registration under Section 12AB on a rather technical ground that is the absence of an explicit clause stating that the trust was “irrevocable” or detailing its dissolution process. The tax authorities treated this omission as a defect serious enough to reject the applications.

Adding to the issue, the online filing system forced applicants to select “Yes” to a question on irrevocability just to complete the form. Ironically, this compelled response was later used against them, with the authorities alleging that the trusts had furnished incorrect information and treating it as a violation.

Central Issue: Whether the absence of an irrevocability clause justifies rejection of trust registration.

HC’s Decision: The Hon’ble High Court set aside the rejection orders and ruled in favour of the trusts. It clarified that the law does not require an express irrevocability clause in the trust deed, as trusts are generally considered irrevocable unless stated otherwise.

The Court also strongly criticised the approach of the tax authorities, noting that applicants cannot be penalised for limitations or design flaws in the department’s own online system. It held that treating such compelled disclosures as “false information” was arbitrary and directed that the applications be reconsidered in accordance with law.

To Read Full Judgment, Download PDF Given Below