Formation of Public Charitable Trust Under The State Trusts Act: Public charitable trusts, as distinguished from private trusts, are designed to benefit members of an uncertain and fluctuating class. In determining whether a trust is public or private, the key question is whether the class to be benefited constitutes a substantial segment of the public. The beneficiary group must be substantially public and if the trust is formed to benefit a select group, then it cannot be classified as ‘public charitable trust’. Similarly, in case of a trust formed for educational purposes should also satisfy the ‘public’ element. While a college or university will fall under the definition of public charitable trust, trusts formed for education of own family will not be considered a public charitable trust. There is no central law governing public charitable trusts, although most states have “Public Trusts Acts.” In the absence of a Trusts Act in any particular state or territory, the general principles of the Indian Trusts Act 1882 are applied.
Typically, a public charitable trust must register with the office of the Charity Commissioner having jurisdiction over the trust (generally the Charity Commissioner of the state in which the trustees register the trust) in order to be eligible to apply for tax-exemption.
Formation of Public Charitable Trust Under The State Trusts Act
Like the private trusts, public trusts may be created inter vivos or by Will. In the case of Hanmantram Ramnath (Bom) it was held that “Although the Indian Trusts Act, 1882 does not specifically apply to public charitable trusts, there are three certainties required to create a charitable trust. They are:
- (i) a declaration of trust which is binding on settlor,
- (ii) setting apart definite property and the settlor depriving himself of the ownership thereof, and
- (iii) a statement of the objects for which the property is thereafter to be held, i.e. the beneficiaries.
It is essential that the transferor of the property viz. the settlor or the author of the trust must be competent to contract. Similarly, the trustees should also be persons who are competent to contract. It is also very essential that the trustees should signify their assent for acting as trustees to make the trust a valid one.
In general, trusts may register for one or more of the following purposes:
- Relief of Poverty or Distress;
- Medical Relief;
- Provision for facilities for recreation or other leisure -time occupation (including assistance for such provision), if the facilities are provided in the interest of social welfare and public benefit; and
- The advancement of any other object of general public utility, excluding purposes which relate exclusively to religious teaching or worship.
When once a valid trust is created and the property is transferred to the trust, it cannot be revoked, If the trust deed contains any provision for revocation of the trust, provisions of sections 60 to 63 of the Income-tax Act, 1961 will come into play and the income of the trust will be taxed in the hands of the settlor as his personal income.
Public trusts can be formed by any person under general law. Under the Hindu Law, any Hindu can create a Hindu endowment and under the Muslim law, any Muslim can create a public wakf. Public Trusts are essentially of charitable or religious nature, and can be constituted by any person.
As a general rule, any person, who has power of disposition over a property, has capacity to create a trust of such property. According to Section 7 of the Transfer of Property Act, 1882, a person who is competent to contract and entitled to transfer the property or authorized to dispose of transferable property not his own, either wholly or in part and either absolutely or conditionally, has ‘power of disposition of property’. Thus, two basic things are required for being capable of forming a trust – power of disposition over property and competence to contract
Who can be a Trustee?
Every person capable of holding property can become a trustee. However, where the trust involves the exercise of discretion, he can accept or act as a trustee only if he is competent to contract. No one is bound to accept trusteeship. Any number of persons may be appointed as trustees. However, no trust is defeated for want of a trustee. Where there is no trustee in existence, an official trustee may be appointed by the court and the trust can be administered. An executor of a Will may become a trustee by his dealing with the assets under the provisions of the Will. When an executor is functus officio to any of the assets and yet retains them, he becomes a trustee in respect of those assets.
Who can be a Beneficiary?
In a private trust the beneficiaries are one or more ascertainable individuals. In a public trust the beneficiaries are a body of uncertain or fluctuating individuals and may consist of a class of the public or the whole public. Generally, a private trust is not a permanent one. But a public trust is of a permanent nature. If properties are dedicated to temples and mosques or gifts are made to religious or charitable institutions they create a trust
The beneficiary has the right to:
- i. Enjoy the rents and profits of the trust property.
- ii. Expect the trustee to transfer the trust property to one or more beneficiary.
- iii. Inspect and take copies of the instrument of trust, the documents relating to trust property and the accounts of the trust property.
- iv. If for any reason the execution of the trust by the trustee becomes impracticable the beneficiary may institute a suit for execution of the trust.
- v. To expect the trustee to properly protect and administer the trust property. vi. To compel the trustee to perform his duty properly.
- vii. To transfer the benefits arising out of the trust to any other person after the beneficiary attains majority.
Requisites of a Trust
- The existence of the author/settler of the trust or someone at whose instance the trust comes into existence.
- Clear intention of the author/settler to create a trust.
- Purpose of the Trust.
- The Trust property
- Beneficiaries of the Trust.
- There must be divesting of the ownership by the author / settlor of the trust in favour of the beneficiary or the trustee.
- The main instrument of any public charitable trust is the trust deed, wherein the aims and objects and mode of management (of the Trust) should be enshrined.
- Unless all these requisites are fulfilled a trust cannot be said to have come into existence.
Important elements of a charitable trust
- The object or purpose of the trust must be a valid religious or charitable purpose according to law.
- The founder or settlor should be capable of creating a trust and dedicating his property to that trust.
- The settlor should indicate precisely the object of the trust and the property in respect of which it is made. The property should be dedicated to the trust and the owner must divest himself of the ownership of that property.
- The trust or its objects must not be opposed to the provisions of any law for the time being in force.
Part 2 – Registration of Public Charitable Trust
- Laws Governing Charitable Organisations In India, List of All Laws 2017
- Characteristics of a Charitable Organisation, Forms of Activities of Charity
- Evolution and Growth of Non Profit Organisations In India
- Meaning of NPO (Non Profit Organisation), Definition of Charitable Purpose
- Taxation of Charitable Trust – Application, Exemption, Returns, Auditing
- Charitable Trust Introduction and Registration
- Registration of Section 8 Company – Charitable Companies
- Corpus Fund – How this fund is created?, Taxability and All Other Details
- List of All Incomes Exempted from Income Tax
Author – Dr. Rajkumar Adukia