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"If you haven’t
any charity in your heart, you have the worst kind of heart trouble" –
BOB HOPE a famous American Actor who died recently.
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In
this article, it is proposed to deal with the subject of Charity and
Charitable Trusts generally and also the relevant provisions of Indian
Trusts Act and Bombay Public Trusts Act. First of all to understand
the significance of word ‘Charitable Trust’ we should appreciate the
two terms involved in it "Charity" and "Trust’". The word ‘Charity’
denotes human feelings of a person to do something good for others
uninfluenced by one’s own advantage or pleasure. In the Law Lexican
the word ‘Charitable Trust’ is explained as follows:–
"Charitable
Trusts are those created for the benefit of an unascertained, uncertain
and sometimes fluctuating body of individuals in which the cestui
que trust may be a portion or class of a public community; as for
example the poor or the children of a particular class or caste or
community town or district."
In
Blacks Law Dictionary it is explained as "One in which property held
by a Trustee must be used for charitable purposes, advancement of
health, religion, etc. It is fiduciary relationship with respect to
a property arising as a result of manifestation of an intention to
create it and subjecting the person by whom the property is held to
equitable duties to deal with the property for a charitable purpose".
It covers all that is usually understood as benevolence, and goodwill.
However mere doing something good for others is not charity as the
person for whom something is done may not need it or care for it.
Doing something must benefit others who are needy and deserving, intention
is to help others generally. A person can build this intention during
his life time without the aid of Trust but then his good doing will
come to an end with him. His objective is ‘his good thing being done
for others’ must continue after his death. For this purpose he must
trust somebody to continue this act and such person must be such in
whom he has utmost confidence; i.e., he must be a person to trust.
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Doing
something good for others is not just talking sweet, which does not
give any material benefit to others. Therefore, there must be some
concrete matter, which creates or produces the required benefit. Now
this concrete matter, a weapon through which intention to do good
to others is carried out is ‘Property’. Without property, whether
movable or immovable, intention to do something good for others cannot
be achieved. Then it becomes merely sweet sermons. Existence of property,
therefore, is essential if intention to do something good for others
generally is to materialize.
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One
may use his own property to achieve his aforesaid intention as long
as he is alive. That property cannot be used by others in their own
right to carry out his benevolent intention. The property, therefore,
is required to be transferred to others, who are trusted to carry
out the intention, persons who are called Trustees. A person who intends
to put his intention into practice for perpetual duration, therefore,
transfers his property to another person called ‘Trustee’, with an
obligation attached to such transfer that fruits of the property are
to be used by the Trustee for certain specified matters being good
things to be done for others.
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If
this procedure is adopted to benefit named person then it would be
a private Trust but if it is for the benefit of people generally then
it would become a public/charitable Trust.
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Ordinarily,
a person who has sufficient means (property) first to meet his own
requirements can think of putting into practice his intention to help
others. Intention to benefit public at large would necessarily involve
valuable property. Generally, therefore, such Charitable Trust are
created either by rich or well to do individuals or public spirited
persons with small beginning. A person who creates such a Trust is
called Settlor. We have seen that the whole concept of Charitable
Trust arises out of human desire to do something good for others.
This is a common instinct noticed in all religions.
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The
legal significance of the terms Charity depends upon the standards
of customary law and common opinion prevalent in the Society to which
the parties belong. Purposes which are not charitable in one country
may be charitable in another. There cannot therefore be an exhaustive
or precise definition of the term Charitable. According to the Bombay
Public Trusts Act 1950 Charitable purposes include relief of poverty
or distress by education and/or medical relief and advancement of
any other object of general public utility barring exclusive purposes
relating to sports and religious teaching or worship. This inclusive
definition is indicative of what purposes can be considered as charitable.
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Indian
Trusts Act which relates to private Trust defines Trust as an obligation
annexed to the ownership of property and arising out of a confidence
reposed in and accepted by the owner, or declared and accepted by
him for the benefit of owner, or of another and the owner.
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Bombay
Public Trusts Act does not define what is a Trust but the concept
is the same. In Halsbury’s Laws of England it is observed ‘A Trust
in the modern and confined sense of the word, is a confidence reposed
in a person with respect to property of which he has possession over
which he can exercise a power to the intent that he may hold the property
or exercise the power for the benefit of some other person or object.
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The
human instinct to help needy is the basic concept of Trust:– That
Concept may be limited by a person to his own family members or to
a comparatively smaller group. Then the benefit is limited and not
extended to public generally. If it is so limited then it would be
a private Trust. If the benefit is extended to public generally then
it becomes a public Trust. The persons who derive benefit are called
beneficiaries. Class and ambit of beneficiaries will be determined
in the context whether a Trust is a private or public. Trust is transfer
of property, by settlor to a trustee, with an obligation annexed to
the property, to use the fruits thereof, for specified charitable
purpose. Persons therefore who will benefit or take fruits thereof
are beneficiaries.
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Any
Trust, therefore, involves
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a
Settlor a person who desires to help needy and deserving.
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Property,
which is required by the Settlor to be transferred, called "Trust
Property"
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a
person, to whom such property is transferred, called "a Trustee"
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the
persons, for whose benefit such transfer is made, called "Beneficiaries"
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purposes,
for which the Trust property is transferred and which have to
be carried out by the Trustee, whether it be medical relief or
education or any other public utility called "Objects of the Trust"
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Instrument,
which creates rights, obligation and duties of Settlor Trustees
and Beneficiaries, called "Trust Deed".
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As
hereinabove observed, Indian Trusts Act, 1882 is a legislation concerning
private Trusts while Bombay Public Trusts Act, 1950 (BPT) is a law
relating or governing Public Trusts which includes expression ‘Charitable
Trust’. While Indian Trust Act has all India application; BPT has
application to the State of Maharashtra only. Most of the States in
India have passed their own separate Acts applicable to their own
States only. Although Indian Trust Act does not as such apply to Public
Trusts, wherever BPT Act is silent, the principles laid down under
the Indian Trust Act will be considered and applied by Courts where
required.
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Under
the Constitution of India "Trust and Trustees" is a subject in the
concurrent list; that is on this subject both Parliament and State
Legislatures are competent to enact legislation. Each State is therefore
entitled to legislate. As stated above in the State of Maharashtra
the legislation governing Public Trust is Bombay Public Trusts Act,
1950.
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Ordinarily
rights, obligations and duties of Settlor, Trustees and Beneficiaries
would be governed by the instrument creating the Trust; i.e., transfer
of property with obligations attached thereto as executed by Settlor
in favour of the Trustee. The scope of State intervening in the administration/management
of Trust is at present limited but with passage of time, it is apprehended
that states interference will grow under various pretexts. In fact,
some Public Trusts are now governed by Special Legislation made for
them. One such example is that of Siddhi Vinayak at Prabhadevi, in
Mumbai.
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However,
in the case of Public Trust where interest of general public is involved
it is one of the functions of the State to ensure that such Public
Trusts are properly administered/managed and with that end in view,
various States have enacted local legislations as stated above to
deal with Public Trusts.
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| a. |
Who
can be a Settlor? |
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Any
person competent to contract and having property who is desirous
of helping others can be Settlor. This means that a minor
or a lunatic cannot be a Settlor. There is no law preventing
or prohibiting a foreigner or a Non-Resident Indian (NRI)
to be a Settlor. |
| b. |
What
can be a Trust property? |
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Subject
matter of Trust can be any property moveable or immoveable,
capable of transfer and capable of producing recurring income
or being used to carry out the objects for which a Trust is
formed. |
| c. |
Who
can be a Trustee? |
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Firstly,
he must necessarily be a person in whom Settlor has confidence
and must be competent to contract. In fact, there are some
limited companies established and in existence to perform
the functions of a trustee like Central Bank Executor and
Trustee Co. Ltd. There is no restriction imposed on a foreigner
or an NRI from being a Trustee in any law in Foreign Exchange
Management Act (FEMA) but such a Trustee would still be governed
by the restrictions put by any law on a foreigner or NRI on
any transaction – money or otherwise. Therefore when choosing
a foreigner or NRI as a Trustee care should be taken that
he is not prevented by such restrictions from functioning
as a Trustee. He may be a natural person or a legal entity.
As a Trustee represents the Trust he necessarily must be a
person capable of holding property and of entering into contract.
Therefore, a minor or a lunatic cannot be a Trustee. Beyond
this, there is no further qualification required. But, as
an office of Trustee involves confidence and duty to discharge
his obligation in a prudent manner, he may after his appointment
incur disqualification to continue to act as Trustee. Under
the Bombay Public Trust Act the Court can remove a trustee
from his office if
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he
makes persistent defaults in submitting of account, report
or return.
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he
is wilfully disobeying lawful orders issued by the Charity
Commissioner under the said Act.
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he
continuously neglects his duty and commits any malfeasance
or misfeasance or breach of trust in respect of the Trust.
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he
misappropriates or deals improperly with property of the
Trust.
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he
accepts any position in relation to the Trust which is
inconsistent with his position as a Trustee.
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he
is convicted of any offence involving moral turpitude.
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Bombay
Public Trust Act, 1950
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Having
considered the background of Charitable Trust, let us have a look
at the legislation on the subject in the State of Maharashtra
namely the Bombay Public Trust Act, 1950 (BPT). Similar legislation
by the same name prevails in the neighbouring State of Gujarat
also. The reason is that the Act was legislated when Maharashtra
and Gujarat were one. Gujarat State has after its formation made
some variations according to their requirements but it can be
said that both the States have more or less the similar provisions.
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Indian
Legal System generally follows the English pattern particularly
in drafting legislations and other documentations. A Public Trust
is not statutorily defined in England but Judges have explained
the expression as "means and include" a Trust for the relief of
poverty and for the advancement of education or advancement of
religious or any other purpose beneficial to community not falling
under any of the prohibited objects and this undefined meaning
was followed in India.
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For
the first time in this country, the Bombay Public Trusts Act, 1950
statutorily defines "Public Trust" section 2 (13) of the Act defines
‘Public Trust’, as meaning an express or constructive Trust for either
public or charitable purpose or both and includes a temple, a math,
a wakf, church, synagogue, agiary or any other religious or charitable
endowment and a society formed either for religious or charitable
purpose or both and registered under the Societies Registration Act,
1860. The expression charitable purpose has been separately defined
in Section 9 of the said Act which is an inclusive definition. Charitable
purposes includes
- relief of
poverty or distress
- education
- 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 p ublic
benefit, and
- the advancement
of any other object of general public utility, but does not include
a purpose which relates exclusively to religious teaching or worship.
The
requirement of this section 9 that the facilities are provided in
the interest of social welfare shall not be treated as satisfied,
unless:–
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the
facilities are provided with the object of improving the conditions
of life of the persons for whom the facilities are primarily intended
and
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either
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those
persons have need of such facilities as aforesaid by reason
of their youth, age, infirmity or disablement, poverty or
social and economic circumstances or
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the
facilities are to be available to the members of the public
at large.
Subject
to the said requirements, sub-section (1) of this section applies
in particular to the provisions for facilities of village halls, community
centres and women institutes and also to the provisions for and maintenance
of grounds and buildings to be used for purposes of recreation and
leisure time occupation; it also extends to the provisions for facilities
to be provided for those purposes by the organisers of any such activity.
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In
any Trust, whether private or public, the object is to benefit beneficiaries.
In a Private Trust beneficiaries are private persons and public at
large is not involved. As a State is more concerned with public than
rights of private individuals, State tries to ensure that Public Trusts
are managed and administered in an orderly fashion. This involves
regulations by the Central and/or the State Government. The Preamble
to the Bombay Public Trust Act states that it is an Act to regulate
and make better provisions for administration of public and religious
and charitable Trust in the State .
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Under
the said Act registration of a Public Trust is made compulsory so
that public interest in that Trust can have basic information of that
Trust made available to them as a matter of right. The office of the
Charity Commissioner is created with large powers of supervision,
regulation and control of Public Trusts, the underlying idea being
that no Public Trust shall fail for want of proper administration
and management or improper exercise of duties by Trustees. The said
Act ensures that no Public Trust fails on the ground of uncertainty
or can be declared void for non-charitable purposes or on the ground
of absence of obligation or on account of failure of specific object.
It will therefore be seen that revolutionary changes have been introduced
in the basic concepts of a Trust which were envisaged in earlier period
of time.
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Section
10 provides that a Public Trust shall not be void on the ground that
the persons or objects for the benefit of whom or which, it is created
are unascertained or unascertainable.
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Section
11 provides that a Public Trust created for the purposes, some of
which are Charitable or Religious and some are not, shall not be deemed
to be void in respect of charitable or religious purposes only on
the ground that it is void with respect to the non charitable or non
religious purposes. Similarly, section 12 provides that any disposition
of property for a religious or charitable purpose shall not be deemed
to be void on the ground that no obligation is annexed with such disposition
requiring the person in whose favour it is made to hold it for the
benefit of religious or charitable object.
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Section
13 of the said Act provides that such public Trust shall not be deemed
to be void only on the ground:–
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That
the performance of the specific object for which the Trust was
created has become impossible, impracticable or
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the
Society or institution does not exist or has ceased to exist.
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Section
55 of the Bombay Public Trust Act, 1950 deals with ‘Doctrine of Cy
Pres’. According to this doctrine whenever Trust money or income thereof
or any surplus cannot be applied for or used for the specified objects
of the Trust, because it is not possible or impracticable to do so,
then the same can be used for some such other purposes. For example,
a Settlor has made a Trust for establishing a medical college in his
village. The village is small. There is not even a school there. There
is not even a hospital there. In such circumstances, it is not at
all possible to establish a medical college. Then the funds can be
applied for other purposes. The basic concept in this Trust was education.
It is, therefore, possible to use the fund for establishing a school
or running a school. The diversion of funds for other types of education
is done under the Doctrine of Cy Pres.
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For
this purpose an application has to be made to the Charity Commissioner
for giving directions or frame schemes regarding the other similar
objects upon which the Trust money can be utilised. The Charity Commissioner
has powers to give sanction for diversion of Trust fund to go to Court
and obtain Court’s sanction when the Charity Commissioner is of the
opinion that:
- the original
object for which the Public Trust was created has failed or
- the income
or any surplus balance of any Public Trust has not been utilized
or is not likely to be utilized or
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in case the Public
Trust is not for religious purpose, when it seems that to carry out
the object of the Trust and utilizing the funds for that object would
not be in public interest or practical and can be applied for some
other charitable or religious object.
The
word Cy Pres itself means as near as possible and in case of Trust
it is understood as "following as nearly as possible the intention
of the donor".
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The
doctrine was evolved also because sometimes the settlor creating the
Trust may not be able to foresee circumstances in which carrying out
the object for which the Trust is created may become impractical or
the income arising from the Trust may grow and thus a surplus income
may remain unutilised as the same is not required for being spent
on the objects of the Trust which have been already taken care off.
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In
such cases the Court can direct and frame schemes for utilization
of the Trust funds or surplus income for some other charities as nearly
as possible resembling the original Trust.
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While
doing so the Court cannot sanction any deviation from the original
intentions expressed by the Settlor on ground of expediency. The two
main conditions requisite before the doctrine can be applied are:–
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it
must be impossible or at least highly impracticable to carry out
the donor’s original intentions literally and
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the
donor must have manifested paramount intention of charity.
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The
doctrine is generally more useful when the testator has died after
creating a Trust by Will and is not naturally available to know his
wishes but even if a charity is made and settlor is alive, the doctrine
can be applied if general charitable purposes are disclosed or ascertainable.
In short charity never fails and should not fail. "
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Elaborate
provisions are made in BPT Act regarding registration of Public Trust
after making due inquiries and where immovable properties are involved,
Charity Commissioner insists on giving of Public Notice being published
in local newspapers in circulation in the concerned area. Wherever
changes occur in the provisions of the Trust, Trustees, funds of the
Trust, etc. they are required to be notified to the office of the
Charity Commissioner in prescribed forms within prescribed times so
as to keep the records of and information on the Trust up to date
and public can see them if they so desire.
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Ordinarily,
powers of the Trustees are given in the Trust Deed itself and it is
desirable to provide for them in detail so as to guide the Trustee
and to enable him to effectively carry out his functions. Majority
of the Trustees are not lawyers and are not knowing the Trust law
in detail. This ignorance of law on their part does not exempt them
if they commit breaches. It will therefore be wise to set out at great
length their powers, duties and obligations so that at least the Trustee
comes to know of the same on reading the Trust Deed. The Act, however,
puts restrictions as regards certain powers. As for example, even
if the Trust Deed entitles the Trustee to sell Trust property, he
cannot do so unless he obtains the consent of the Charity Commissioner
(vide section 36). Conversely, even if no power of sale is given in
the Trust Deed, a Trust can sell after obtaining the permission of
the Charity Commissioner under section 36.
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of a Public Trust can borrow money for the purposes of the Trust except
with the previous sanction of the Charity Commissioner with such conditions
and limitations as the Charity Commissioner may impose (vide Section
38).
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There
is no time limit for taking legal actions in a court of law for recovering
a trust property from the hands of a person who has illegally or unauthorizedly
obtained the same.
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A
Public Charitable Trust, although mainly is created by executing a
document called Trust Deed it can also be created by a Will, but then
such Trust can come into operation only when the Will becomes operative.
It is obligatory on the Executor of the Will which creates a Public
Trust to forward a copy thereof to the Deputy/Asst. Charity Commissioner
(vide Section 53 of the Bombay Public Trust Act) and if the same is
not complied with no Probate to such a Will will be granted by the
Court unless it is satisfied that a copy of the Will has been forwarded
to the Charity Commissioner. The idea underlying this provision is
that no Trust created by a Will should escape registration and supervision
and control thereon of the Charity Commissioner.
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As
the Trustees are responsible for proper administration of a Public
Trust in accordance with the instrument of Trust and the applicable
law governing the same, they face problems and difficulties in the
course of administration. Trustees are to be prudent people with common
sense but are not expected to be experts to appreciate the legal problems
or intricacies that may arise and which they have to face in the course
of administration of a Trust. The Bombay Public Trust Act therefore
makes provision that Trustees of a Public Trust may apply to the Court
for opinion, advice or directions of the Court on any question affecting
the management or administration of the Trust property and income
thereof and the Court shall on such application give its opinion,
advice or direction as the case may be (vide section 56A of the said
Act). However, Court may decline to give such opinion, advice or direction
on any question which it considers to be a question not proper for
summary disposal. While considering the application, the Court has
to give reasonable opportunity of being heard to all persons concerned
and appearing before it in that connection. Trustees stating in good
faith facts of any matter relating to the Trust in such application
and acting upon the opinion, advice and direction of the Court given
thereon shall be deemed to have discharged their duty as a Trustee
in respect of which such application is made. No appeal lies from
any such opinion, advice and direction.
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As
a general safeguard in any suit or legal proceedings in which any
question affecting a public Religious or Charitable Trust is involved,
the Court is required to give notice to the Charity Commissioner to
enable him to consider whether he would like to join in such suit
or legal proceedings and make his submissions.
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The
said Act also makes special provisions in respect of Religious and
Charitable Institution and Endowment which vest in or the management
of which vest in the State Government.
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As
the responsibility of administration of the Trusts is entrusted to
Charity Commissioner, the Act also provides for creation of a fund
for the purpose. A fund called Public Trust Administration Fund is
created inter alia by collecting fees leviable under the Act
as contribution by Public Trusts, sums received from private persons,
sums allotted by State Government or local authority. Every Public
Trust is required to pay to the Funds annually such contribution at
the rate not exceeding 5% of the gross annual income as may be notified
by the Government from time to time. At present the rate is 2%.
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All
Charitable Trusts are Public Trusts. Trustees appointed under the
Trust are the persons who receive income of the Trust. For income
tax purpose the Trustees are representative assessees and are liable
to be assessed to tax in their representative capacity as such Trustees,
in respect of the income of the Trust. Trust or Trustees are not a
legal entity like a limited company under the Companies Act. It is
a body of persons collectively called "Trustees". However, a Public
Trust is separately assessed as such. It has to pay income tax and
other taxes like any other person unless specifically exempted by
any law. Generally speaking all Charitable Trusts formed for the benefit
of public at large without distinction of any caste, creed, community
or sex are exempt from payment of income tax but then such a Certificate
has to be applied for by the Trustees. Income Tax authorities do generally
grant exemption from payment of income tax provided their requirements
are complied with. Exemption u/s. 10 of the Income-tax Act, 1961 is
granted for a certain period only. After the expiry of the prescribed
period, the Trustees have to apply for renewal thereof from time to
time. Such renewals are generally granted if no breaches are committed.
A public religious trust is eligible for exemption. In case of Religious
Trusts with objects of purely religious teachings, or formed for a
particular community, such exemptions are not granted as a matter
of public policy and India being a secular state. A public charitable
trust for the benefit of a religious community or a cast is liable
to be taxed in view of section 13(1)(b) of the Income-tax Act, 1961.
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Income-tax
also defines the expression charitable purposes which is an inclusive
definition. Charitable purpose includes relief to the poor, educational,
medical relief and advancement of any other object of general public
utility. The definition is almost similar to the one under the Bombay
Public Trust Act. Ordinarily, the income of an assessee Trust is non-exempt
if it exceeds maximum non-taxable limit set for each year and accordingly,
it is liable to pay income tax on such income. For a Charitable Trust,
a special exemption is given by sections 11 and 12 of the Income-tax
Act, if the main object of such Trust is to apply income on charitable
objects. Under section 4, charging section of the Income-tax Act,
tax is leviable in respect of total income of the previous year. Section
10 of the said Act enumerates certain class of income which is not
to be included in total income. Consequently, they do not form part
of total income and therefore no tax is leviable. If certain income
is not to be included in total income then for that income provisions
of Income-tax Act do not apply.
Concluding
remarks
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As
the human instinct to help others is universal and common to all religions
and so need for existence of Charitable Trust/Institution will always
remain. With growth of civilisation and advancement of scientific
research and technology, the concept of "Public utility" has changed
and got wider but so long as any activity would be regarded as public
utility, it will be an object of Charitable Trusts. All Charitable
Trusts or charities will continue to exist perpetually with advanced
concept of public utility with passage of time. However, as far as
India is concerned having regard to its economic, social and political
conditions need to provide shelter, food and clothing to needy is
still of paramount importance and the said need considerably can be
met by Charitable Trust only.
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Once
a Charitable Trust is created, it is perpetual and everlasting unless
its corpus and income are wiped out or destroyed or it is dissolved
or merged with other Trust of similar objects. In the last case, the
spirit of Trust will still survive in the other Trust in which it
is merged. For dissolution of a Trust, permission of the Charity Commissioner
is required. If he does not give permission then the remedy lies with
the Court. A Trust can become defunct also by non-functioning and
Charity Commissioner can look into it and issue directions.
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Hence,
one should pray long live the spirit of Charity and Charitable Trusts
preserving it.
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