Trust means an organisation formed to achieve a lawful objective.
The Indian trusts act 1882 mainly governs the trusts in India, but the legislation only governs private trusts. However, Public trusts are governed and regulated under the Maharashtra Public Trusts Act 1950, priorly known as Bombay public trusts act 1950.
The public trusts are mainly constituted for religious, charitable, healthcare, or other such purposes.
Private trusts are for individuals’ benefits, but public trusts are for the benefit of society at large. The beneficiaries of a public trust consist of a body of the public at large.
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Definition of trusts
Section 3 of the Indian Trusts Act 1882 defines trust as “an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by him for the benefit of another”.
By Section 2(13) Bombay public trusts act, 1950, Trust means an express or constructive trust for either a public religious or charitable purpose or both and incorporates a temple, a wakf, math, church, synagogue, agiary or other places of public religious worship, dharma or any other religious or charitable endowment and a society formed either for a religious or charitable purpose or both and registered under the Society Registration Act, 1860.
A trustee mainly handles trust and is a person who is responsible for managing the property or assets of the trust for the benefit of a third party.
What is the Bombay Public Trust Act?
Bombay public trust act 1950 governs the charitable public trusts within the jurisdiction of the state of Bombay.
The name of Bombay public trust act 1950 was changed to Maharashtra public trust 1950 with retrospective effect by the notification of 1960.
It states the charitable purposes for which a society can get formed and registered.
The act also provides the duties, powers and limitations of trustees. A trustee is a person who has a fiduciary relationship with the beneficiaries of the trust and is entitled to make decisions in their best interest.
In the case of the absence of provisions or any definition, the provisions or definitions having the same meaning under the Indian trusts act 1882 will govern the public trusts.
Laws applicable to public charitable trusts
The public trusts in India are either governed by their state legislations or the Indian Trusts Act 1882(i.e. in the absence of state legislation).
Here take an example of the state of Maharashtra, Public trusts under the state are governed by various statutes like:-
- The Bombay public trusts act, 1950
- The income tax act, 1961
- The Indian Trusts Act, 1882
- Foreign contribution (regulation) act, 2010
The foreign contribution (regulation) act 1961 governs those trusts which receive donations from foreign sources. These trusts are required to be registered under the act while,
Under the income tax act, charitable organisations like a trust or NGOs get exempted from paying tax on the donations received by them.
Public charitable trust and Income Tax Act
The public charitable trusts are also regulated by the Income Tax Act 1961, as an organisation like an NGO, trust, etc., working for charitable purposes have an exemption from paying tax.
In accordance with section 80G of the Income Tax Act 1961, Taxpayers are allowed to claim tax deductions on account of donations made to such public charitable trusts.
For this purpose, trust needs to get registered under the income tax act 1961 by filing an application under section 12A form 10 to the income tax commissioner.
There are a few requirements to meet as per sections 11 and 12 of the income tax act before making such an application:-
- Existence of a legal entity that can be registered
- The written instrument of its creation is mandatory
- The objective of formed trust should be charitable
- All the properties, income and assets of the trust should get utilised for achieving its objective
- Members, directors, founders of trusts are not authorised to claim its income or part of the income
- All the trust assets should get used to meet all liabilities, and in case of dissolution, its founders should not utilise them.
Section 11 of the Income-tax Act states that income or gains from property held under trust shall not get included in total income.
Provisions to the maintenance of records by the Trusts
The provisions related to the maintenance of records get mentioned under sections 32, and 36B of the Bombay public trusts act 1950.
Section 32 rule 17 states the provision related to maintenance of accounts of the public trusts. The trusts are obliged to maintain regular accounts in the prescribed format directed by the charity commissioner.
These trusts have to maintain regular accounts of:-
- All receipts
- All movable and immovable property
- All instruments concerning trust property
- All payments and alienations made on behalf of such public trust
- All other particulars that will facilitate the preparation of Balance Sheet & Income and Expenditure in the prescribed form (i.e. Schedule VIII and IX) and,
- Public trust’s income liable to contribution under Schedule, IX-C
Section 36B of the act specifies the provision for maintenance of register containing details of movable and immovable properties entrusted with a public trust.
The records to be maintained under this section are:-
- The register should be in the prescribed format as per Schedule X-AA
- The maintenance of details of all movable assets with their description, weight and estimated values is a requisite
- The register needs to contain the details of jewellery, utensils and other such movable properties
- Trustees to sign the register after verification
- Changes in the register must be reported to Deputy or Asst Charity Commissioner every year.
What is rule 5A?
Under the new rule, all the existing trusts records in Maharashtra must be converted into digital records by the departments.
Rule 5A also suggests that after the commencement of the Bombay public trusts (second amendment) rules 2019, the records of trusts registered under the act should be made electronic within seven days of its registration.
The applications or proposals should also get accepted through online mode.
The assistant or deputy charity commissioner is responsible for implementing this rule.
Is it compulsory to register a private trust?
Section 5 of the Indian Trusts Act, 1882 states that registration of a private trust is not mandatory in two cases. Let’s discuss
- Immovable property: A private trust needs to get formed under a registered non-testamentary instrument attested by the owner of the trust or the trustee.
If such a non-testamentary instrument is created by a will, then registration of the public trust under such instrument is not necessary.
- Movable property: A private trust involving a movable property is not mandatory to be registered if it is not declared under any registered non-testamentary instrument or by transferring the ownership of the property to the trustee.
Therefore, registration of a private trust is not mandatory.
East India Industries (Madras) Pvt Ltd vs CIT
Whether a trust is entitled to tax deduction benefits if the property of the public trust is associated with the business?
In the case of East India Industries (Madras) Pvt Ltd vs CIT (1967) 65 ITR 611 (SC), The court held that property, as used, includes a business also. Unless the business is exempted from taxation, a donation to such an institution will not be eligible for tax deduction benefits.
Mukund Waman Thatte v. Sudhir Parshuram Chitale
What is the scope of inquiry under section 41(D) of the Bombay public trusts act 1950?
In the case of Mukund Waman Thatte v. Sudhir Parshuram Chitale, 2012 SCC OnLine Bom 392, the court considered the scope of inquiry under section 41(d) of the Bombay Public trusts act 1950.
The court held that if the trustee commits any breach of trust, neglects to perform his duty and commit any act dishonestly in the course of his duty. The charity commissioner is entitled to suo moto dismiss, suspend, or remove the trustee of any public trust.
The Bombay Public Trusts Act 1950 also gave recognition to public trusts registered before introducing this act. The regulation of these charitable trusts was necessary as they received funding both within and outside the Indian jurisdiction. These funds can be misused. That’s why the maintenance of accounts and conducting audits was required.
Even these charitable public trusts significantly impact the upliftment and well-being of the unprivileged or isolated sections of society. It encourages taxpayers to donate more and more for the good cause by claiming tax deductions benefits.
Which section of the Bombay public trusts act 1950 states the provision for registration of public trust?
Every trustee of a trust has to apply for registering a public trust under section 18(1) of the Bombay public trusts act 1950.
Where is the definition of a ‘public trust’ prescribed?
The definition of a ‘public trust’ is given under section 2(13) of the Bombay public trusts act 1950.
Is a trust created for an uncertain objective declared void?
According to section 10 of the Bombay public trusts act, a public trust created for an uncertain or unascertainable purpose should not be declared void.
Who is entitled to audit the accounts of a trust?
A chartered accountant within the meaning of chartered accountants act, 1949 is entitled to audit the accounts of public trust on an annual basis.
Under which chapter of the Bombay public trusts act, 1950, the provision concerning powers, duties and limitations of trustees are prescribed?
Under Chapter V-A of the act of 1950 the provision concerning powers, duties and limitations of trustees are prescribed.