The Income-tax Department has now begun issuing detailed and comprehensive requirement lists in respect of re-registration applications filed on or before 30 September 2025. These notices are no longer limited to basic verification; instead, they seek exhaustive information covering constitutional documents, objects, activities, financials, and statutory compliances.
As discussed in the earlier article “Consequences of Cancellation of Re-registration under Section 12AB – Why Charitable Trusts Cannot Afford to Ignore It”, it has become imperative for trusts and institutions to submit well-structured, accurate, and legally robust replies to such notices. Any lapse at this stage can result in cancellation or rejection of registration, exposing the trust to serious and irreversible tax consequences.
In proceedings for grant or re-registration under section 12AB, the response to notices issued by the Commissioner of Income-tax (Exemptions) assumes decisive importance. Certain deficiencies—particularly those relating to the trust deed or other constitutional documents—are treated as threshold defects and can lead to summary rejection of the application, irrespective of the genuineness of activities or the extent of charitable expenditure.
Accordingly, every hearing notice must be examined line by line, and replies should be prepared in a point-wise, precise, and document-supported manner. Generic explanations or incomplete responses are no longer sufficient in the section 12AB regime.
The following points merit special attention while replying to such notices:
Page Contents
1. Irrevocability Clause – A Non-Negotiable Requirement
The trust deed or MoA must unequivocally provide that the trust is irrevocable. Absence of an irrevocability clause, or existence of powers enabling trustees to revoke the trust at will, is viewed as fundamentally inconsistent with the concept of a charitable institution.
- The clause should clearly state that the trust is irrevocable.
- Any power permitting revocation, reversion of assets, or discretionary dissolution by trustees is treated as a fatal defect.
2. Dissolution / Winding-Up Clause
The dissolution clause is closely scrutinised to ensure that charitable assets are permanently locked into the charitable sector.
The deed must provide that upon dissolution:
- assets shall be transferred to another trust or institution;
- having similar charitable objects; and
- Which is registered under section 12AB / 12A / 12AA (or otherwise eligible).
Clauses permitting distribution of assets among trustees, members, or contributors, or leaving the matter to trustee discretion, invariably result in rejection.
3. Objects Restricted to a Particular Community, Caste or Religion
If the objects clause restricts benefits exclusively to a particular religious community or caste, the application is liable to rejection due to violation of section 13(1)(b).
Common problematic phrases include:
- “for the benefit of members of ___ community only”
- “for persons belonging to ___ caste”
Even if actual activities are charitable in nature, the objects clause prevails.
4. Application of Funds Outside India
Trust deeds are examined to verify whether they permit application of income or funds outside India.
- If the deed allows foreign application of funds, it is considered contrary to section 11(1)(a).
- Even if no such expenditure has been incurred, the existence of such enabling power itself is sufficient ground for rejection.
A standard restrictive clause limiting application of funds to India (except as permitted under the Act) is essential.
5. Importance of Trust Deed Scrutiny Over Activities
In practice, scrutiny under section 12AB follows a clear hierarchy:
1. Trust deed / MoA compliance
2. Objects vis-à-vis section 2(15)
3. Activities and financials along with supporting documents If the trust deed fails at the first level, the application is often rejected without examining activities or accounts. Accordingly, constitutional compliance must be addressed before substantive explanations on charitable activities.
The guidance note in recent notices explicitly treats incomplete or inaccurate replies as a “specified violation” under section 12AB(4)(g), which may have future consequences, including cancellation and exposure to tax under section 115TD.
6. Practical Approach
If any of the clauses discussed above are absent, defective, or require modification, the trust deed must be amended without delay. In States such as Maharashtra and Gujarat, where the Charity Commissioner exercises supervisory jurisdiction over public trusts, the amended trust deed must be supported by filing a Change Report before the Charity Commissioner.
In practice, a mere statement in the reply that the trust proposes to amend the deed at a later stage is generally not accepted by the Commissioner of Income-tax (Exemptions). The authorities are conscious of the fact that disposal of Change Reports by the Charity Commissioner takes considerable time. However, filing of the application for change itself is treated as sufficient compliance at the section 12AB stage, provided it is supported by documentary evidence.
Accordingly, trusts should ensure that:
- the amended trust deed is executed promptly;
- a Change Report is filed at the earliest opportunity; and
- acknowledgment of filing is enclosed with the reply to the hearing notice, along with an undertaking to submit the final order once passed.
This approach has now emerged as the accepted and pragmatic standard in re-registration proceedings.
7. Concluding Advisory
Proceedings under section 12AB are no longer routine or procedural in nature. They involve a substantive evaluation of governance standards, drafting discipline, and ongoing legal compliance. Trusts and institutions are now expected to proactively review their constitutional documents, identify vulnerabilities, and rectify deficiencies well before adverse action is initiated.
In the section 12AB regime, the trust deed is no longer a background or historical document — it has become the primary instrument of scrutiny. Even institutions carrying out genuine charitable activities risk rejection or cancellation if foundational clauses are defective or inconsistent with statutory requirements.
Preventive compliance at the re-registration stage is therefore far more effective than post-rejection litigation. Timely redrafting, proper filings before statutory authorities, and precise, document-backed replies to departmental notices are indispensable for safeguarding charitable status and avoiding irreversible tax consequences.
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