TAXATION OF
CHARITABLE/PRIVATE AND
SOCIETIES &TRUSTS
Verendra Kalra
November 28th 2009
Dehradun
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PRESENTATION ON
TAXATION OF CHARITABLE/PRIVATE
AND SOCIETIES &TRUSTS
ORGANISED BY
ON
November 28, 2009
AT
Presented by:
CA Verendra Kalra
Structure of a Non Profit
Organization in India
In India non profit organizations can be registered as:
Trusts
Societies
Section 25 Companies
• The Income Tax Act gives all categories equal treatment, in terms
of exempting their income and granting 80G certificates, whereby
donors to non-profit organizations may claim a deduction against
donations made. Foreign contributions to non-profits are
governed by FCRA regulations and the Home Ministry
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Comparison among Trust, Society
& Section 25 Company
Points of Differences
Trust
Society
Section 25 Company
Statute / Legislation
Relevant State Trust Act or
Indian Trust Act, 1882
Societies Registration Act, 1860
Indian Companies Act, 1956
Jurisdiction
Deputy Registrar/Charity
commissioner
Registrar of societies (charity
commissioner in Maharashtra).
Registrar of companies
Registration
As trust
As Society
As a company u/s 25 of the Indian
Companies Act.
In Maharashtra, both as a society and as a
trust
Registration Document
Trust deed
Memorandum of association and rules
and regulations
Memorandum and articles of
association. and regulations
Stamp Duty
Trust deed to be executed on
non-judicial stamp paper, vary
from state to state
No stamp paper required for
memorandum of association and rules
and regulations.
No stamp paper required for
memorandum and articles of
association.
Members Required
Minimum – two trustees. No
upper limit.
Minimum – seven managing committee
members. No upper limit.
Minimum three .No upper limit.
Board of Management
Trustees / Board of Trustees
Governing body or council/managing or
executive committee
Board of directors/ Managing
committee
Mode of Succession on Board of
management
Appointment or Election
Appointment or Election by members of
the general body
Election by members of the general
body
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Meaning of ‘Trust’
A trust is a relationship in which :
• a person or entity (the trustee) holds legal title
• to certain property (the trust property or trust corpus), but is
bound by a fiduciary duty to exercise that legal control
• for the benefit of one or more individuals or organizations
(the beneficiary), who hold ‘beneficial’ or ‘equitable’ title.
• The trust is governed by the terms of the (usually) written
trust agreement and local law.
• The entity (one or more individuals, a partnership or a
corporation) that creates the trust is called the settlor.
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Types of Trusts
• Bare Trust
A trust where the beneficiary is absolutely entitled to the assets,
and the trustee is obliged simply to pay them over to the
beneficiary. ‘Resulting’ and ‘Constructive’ trusts are usually bare
trusts. Bare trusts generally do not continue for any length of
time, unless they arise out of protracted litigation, or the
beneficiaries are minors (in which case the bare trust must
continue till they reach majority)
• Constructive Trust
It is imposed by law as an equitable remedy. It generally occurs
due to some wrong doing, where the wrong doer has acquired
legal title to some property and cannot in good conscience be
allowed to benefit from it.
• Resulting Trust
It is a form of implied trust which occurs where a trust fails,
wholly or in part, as a result of which the settlor becomes
entitled to the assets.
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Types of Trusts
•
•
Discretionary Trust
It is an arrangement where the trustee may choose, from time to
time, who (if anyone) among the beneficiaries is to benefit from
the trust, and to what extent, so long as the decision is made
based on the beneficiaries best interests. The purpose of such a
trust is that no individual can claim to be entitled to any specific
interest in the trustee’s assets, which often has tax advantages
or asset protection advantages.
Fixed Trust
the entitlement of the beneficiaries is fixed by the settlor. The
trustee has little or no discretion. E.g.
a trust for a minor (to X if she attains 21)
a life interest (to pay the income to X for her lifetime)
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Types of Trusts
•
•
•
Hybrid Trust
It combines elements of both fixed and discretionary trusts. The
trustee must pay a certain amount of the trust property to each
beneficiary fixed by the settlor. But the trustee has the discretion
as to how any remaining trust property, once these fixed
amounts have been paid out, is to be paid to the beneficiaries.
Express Trust
It arises where a settlor deliberately and consciously decides to
create a trust, over his or her assets, either now or upon his
death. In these case this will be achieved by signing a trust
instrument which will either be a will or a trust deed.
Implied Trust
It is created where some of the legal requirements for an express
trust are not met, but an intention on behalf of the parties to
create a trust can be presumed to exist.
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Types of Trusts
•
Intervivos Trust
A settlor who is living at the time the trust is established
creates an intervivos trust.
•
Testamentary Trust
A trust created in an individual’s will.
•
Irrevocable Trust
It is the one that will not come to an end until the terms of the
trust have been fulfilled.
•
Revocable Trust
A trust of this kind can be revoked (cancelled) by its settlor at
any time.
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Public Trusts
• Like private trusts, public trusts may be created inter-vivos or by
will.
• Public trusts are however governed by general law, though the
principles forming the basis of the Indian Trusts Act can be
applied in the case. It was held in the case of State of UP Vs. Bansi
Dhar, AIR (1974) SC 1084, 1090 that “it is true that Indian Trusts
Act relates only to private trusts, public charitable trust have
been expressly excluded from its ambit. But while provisions of
section 83 of the Trusts Act proprio vigore do not apply, there is a
common area of principles which covers all trusts, private and
public, and merely because they find a place in the trusts Act,
they cannot become untouchable where public trusts are
involved.”
• It is a trust established for charitable purposes; normally must be
for the benefit of public at large or a class of beneficiaries.
• These are entitled to special treatment under the law of taxation.
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Public Trusts
• These are exempt from the rule against perpetuities, which
would otherwise require a trust to come to an end after a
certain period. Charitable trusts may continue indefinitely.
• A formal deed is not necessary to constitute a public trusts,
even where immovable property is dedicated because section 5
of Indian Trusts Act 1882 is not applicable on public Trusts.
• Public trusts are an exception to the well settled rule that there
is no valid trust unless the objects thereof are specified. The
trusts is not allowed to fail for uncertainty .
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Public Trusts
• A charitable trust is synonymous with public trust. There is
nothing called as a private charitable trust.
• Charitable trusts come under the doctrine of cy-pres, under
which if the charitable purposes of the trust cannot be
fulfilled, then they can be replaced by new and more
appropriate charitable purposes.
• Management or Control
may vest in private hands.
In the case of Smt. Ganesha Devi Rami Devi Charity Trust Vs.
CIT (1969) 71 ITR 696, 704 (Cal) it was held that “the
implication, therefore, is that if the trust or fund is controlled
by a body of persons which is not a public body, but if it
enures to the benefit of a public it will still be a charitable
trust or fund
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Private Trusts
• Private trust may be created inter vivos or by will.
• Private trust are governed by the provisions of the Indian Trust
Act 1882
• It has one or more particular individuals as its beneficiary.
• Where immovable properties worth more than Rs. 100 are
transferred, trust will not be operated unless it is registered
(Gostha Behari Gose Vs. University of Calcutta, AIR 1972 Cal 61 )
.Trust created by will does not require any stamp
• Private trusts are void for perpetuity
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Partly Private and Partly Public
Trusts?
• Dedication may be absolute , or it may be partial. Where the
dedication made by a settler in favor of an idol covers the entire
beneficial interest which he had in the property, the debutter is
an absolute or complete debutter. Where, however, some
proprietary or pecuniary right or interest in the property is
either indisposed of or is reserved for the settlor’s family or
relations, a case of partial dedication may arise. ( K.Mukherjea’s
Hindu Law of Religious and Charitable trusts, 4th edition page
174-5)
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