By CA Ved Mittal
Ved & Associates
205 , Jagdamba Tower
13, commercial complex
Delhi-110092
Contact : 011-22456788,42686788
9811011665
cavedmittal@gmai.com
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Trust
Society
Section 8 Company ( Section 8 of New
Company Act 2013 )
Special Licenses ( State Trading corporation) .
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Section 2(15) of income tax Act 1961 defines
the expression “charitable purpose” in an
inclusive manner to include
Relief of the poor
Education
Medical relief
Preservation of Environment(Including Watershed,
forests and wildlife)
◦ Preservation of monuments or places
◦ Preservation of artistic or historic interest
◦ Any other object of general public utility
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The Following Laws or constitutional Articles
of Republics of India are relevant to the NPO
◦ Article 19(1) ( c ) and 30 of the constitution of India
◦ Concurrent List ( List III ) Entry 10 “ Trusts and
Trustee” and Entry 28 “ Charities and charitable
institutions”
◦ Income tax Act 1961
◦ Public Trust Act of Various States and Indian Trust
Act 1882.
◦ Society Registration Act 1860.
◦ Section 8 of Indian companies Act 2013
◦ Foreign Contribution Regulation Act 2010
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There is NO ANY CENTRAL ACT’S in relation to
the charitable trust’s which cover the whole
meanings.
Charitable and Religious Trust Act 1920 is the
one of the central act which governs many
provisions related to Public Trust’s.
First Law of the trust in India came into force
known as Indian Trust Act 1882 but it was
basically for Private Trust’s.
In the state of Maharastra,Rajesthan,Gujrat,
Madhya Pradesh etc have their own State Act’s.
Section 92 of Code of Civil Procedure 1908 also
express the meaning of Public charity.
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The Registration for a Trust , whether in
relation to a movable property or an
immovable property is optional but always
desirable.
A Registered Trust Deed has certain
advantages which are listed below
◦ A registered Trust Deed is an official document
which carries support and force of Law
◦ It effectuates transmutation of Possession
◦ A Conveyance of Trust proper to trustee under a
Registered Deed is generally not open to Challenge.
These trust are registered under the SubRegistrar as per the area of the registered
office of the trust.
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Requirements:(i)
Settler:- Who creates the trust.
(ii)
Trustee:- Who look after the trust.
Minimum 2
(iii) Objectives.
(iv) Initial Corpus Fund / Trust Property.
(v)
Beneficiaries:- Public at Large with any
discrimination as Cast, colour & Religion.
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The Following mentioned Papers need to be
submitted at the Office of Sub- Registrar
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Two copy of the Trust deed with duly signed and
photo of settler and trustees
Address proof of the registered office with NOC
Address proof of Settler and Trustees
A Pay order of Rs. 1100/=
Stamp Duty @ 3% of initial Trust Property value (In
Delhi )
Two witness
All other procedure as same as you purchased the
property and transfer
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Key points to be remembered:◦
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Name of the Trust.
Name of the Settler.
Name of the Trustees.
Initial Corpus Fund.
Main Objective of the Trust.
Ancillary Objective.
General Body.
Executive Committee.
Quorum.
Operating Bank Account.
Dissolution.
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Societies Registration Act 1860 is a Central
Act.
Various State made their on act on the basis
of Societies Registration Act 1860. We can say
this act is the Foundation of all Societies
Registration Act’s.
Minimum 7 Member in State Level and
minimum 9 member with 8 different state’s
at National Level ( in Delhi ).
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Searching the Name of Proposed Society ( Via Link
http://www.delhi.gov.in/wps/wcm/connect/doit_industry/Depar
tment+of+Industries/our+Services1/Society+Name+Search ).
Two copy of the Bye-Laws with duly signed by all initial
Members.
Address proof of the registered office with NOC
Address proof of all initial Members
A Receipt of Rs 50/=
Affidavits by the Presidents/ Secretary.
All the papers has to be notarized.
Submit all the Papers with the office of Sub- Registrar of the
District in Delhi.
After duly verification of all the document a certificate of the
registration of Society has been issued with True Certify copy of
Bye-Law’s of the Society.
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Key point to be remembered
◦ Name of the Society.
◦ Work Scope within state or Whole of India.
◦ Main Objective.
◦ Ancillary Objective.
◦ General Body.
◦ Executive Committee.
◦ Quorum.
◦ Operating Bank Account.
◦ Dissolution Clause.
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Minimum 2 members in a private and 7
members in public company.
2 director in Private Company & 3 Director in
Public Company.
Company may or may not have Share Capital.
Main objective of the company should be
promote commerce, art, science, Religion,
charity or other useful objectives.
Apply its profit for promoting its objects and
prohibit payments of dividends to its
member’s.
Registration Procedure:(i)
Availability of name :- in form no INC-1
applies with the ROC as normal name
application for companies.
(ii) Application for License :- After approved
name we file application for License in form
no INC-12 with the following documents.
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1. Draft Memorandum of Association as per form
INC-13.
2. Draft Article of Association
ii.
Application for License ( continued ):3. Declaration in form No INC-14 ( Professional
Declaration ).
4. Declaration in form No INC-15 ( Directors Declaration
).
5. Estimated income & Expenditure for next 3 years
6. Approval/ concurrence/ NOC of the concerned
Authorities
7. Copy of Resolution Passed in General Meeting and
Board Meeting.
8. Assets & Liabilities Statements with their values as per
applicable Rule.
9. List of Proposed Promoters.
10. List of Proposed Directors.
11. List of key managerial personnel.
Registration Procedure ( contin…..)
(iii) After Receiving License we file following
form Form Heading Companies Act Companies Act
1956
2013
Application for
Form – 1
incorporation of
the company (
other than OPC )
Form – INC-7
Notice of
Situation or
change of
situation of
Registered
office
Form- 18
Form-INC-22
Particulars of
appointment of
Directors
Form-32
Form- DIR-12
Differential
factors
Basic Document
Formation
Jurisdiction
Legislation /
Statute
Objects
Authority For
Registration
Controlling
Trust
Society
Company ( Sec 8 )
Memorandum of
Association
Memorandum of
Trust Deed - which
Articles of
Association
contains objects of the Association with rules
Articles of
trust (bye-law)
& regulations.
Association
Very Easy
Easy
Little Hard
Registrar of Societies
For Maharashtra
Deputy Registrar /
Charity
Registrar of
Charity Commissioner
Commissioner
Companies
Relavent state Trust Act
- Bompany Public Trust Societies Registration Indian Companies Act
Act 1950
Act 1860
2013
Social benefits &
Charitable
Social Benefits &
Charitable
Registrar of Society/
Office SDM
Sub- Registrar of Societies
Headquarter.
Monopoly
Democratic
Nonprofit Activities
Registrar of Company
Professional
Differential
factors
Trust
Society
Reammendment
Can be done by
by Members in
or
Trustees but Procedure governing body
Modificatio u/s 92 of code of civil
meeting with
n of Objects procedure be required Special Resolution
Minimum = 2
Minimum = 7
Required
Maximum = No
Maximum = No
Members
limit
limit
As Society with
Society Registrar Both as a society
and a trust in some
As Trust with the
states like
Registration
Registrar.
Maharastra.
Stamp Duty
Name
As per the Stamp duty No stamp paper
Act of relevant State of
required for
Trust property Value Memorandum of
will be executed in non association, and
judicial stamp paper
rules and
with the registrar
regulations.
Very easy to choose
Very easy to
choose
Company ( Sec
8)
Complicated
Legal Procedures
Minimum = 2 /3
Maximum = No
limit
As per Companies
Act
under Section 8
No Stamp paper
required for
Memorandum of
association and
articles of
association.
Prior approval
required from
Registrar of
Companies.
Differential
factors
Management Board
Voting Rights
Succession in
Management
Meetings
Membership
Transfer
Society
Company ( Sec 8
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Trustees
Governing Body
Board of Directors
& Management
committee
Equal rights to all
Trustee
Equal Rights to all
Members
Depand on share
Holding
Trust
By Appointment
Board of Trustee
Meeting
By Nomination
Member Admission
Dissolution or Take
over by State
Possible
Compliance
Filling the Suit by
outsider
Low
Possible
In the name of Trustee
Annual documents to Be
filed
No Such Requirement
By Election
By Appointment
Annual Meeting As
per Law. Governing
Body meeting as per Shareholder / Directors
the rules of Society.
Meeting
Transfer as per
Companies Act.
By Nomination
General Body or
Board Control
Governing Body
through issue of
Control
Capital.
As Per Companies Act
Possible
2013
Medium
In the name of
Governing Body
Annual Audited
Accounts and List of
Governing Body
High
In the name of Company
Annual Return and
audited Accounts
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The Status of NPO will be AOP (Trust)
They all will be get registered in income tax
site www.incometaxindiaeffiling.com as there
respective institution status.
But in case of Section 8 company the status
of institution will be Company.
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There are various query weather institution
will be able to avail the benefit of Basic
Exemption Limit.
Answer will be that we can avail the benefit of
Basic Exemption limit. Ie 200000 RS
currently.
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The ITR – 7 has to be filled under the
following circumstances.
◦ 139 ( 4A ) :- Return of income of charitable trust
and institution.:- the income derived from the
property held under trust or other legal obligation
wholly for or charitable purposes and income by
way of voluntary contribution
 Due Date if we claim benefit of section 11 and 12 then
it will be 30th September otherwise 31st July.
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The Accounts need to be audited by a Chartered
Accountant and audit report to be furnished in Section 12 (
A ) ( b ) of income tax act. As Section 12 ( A ) ( b ) which
says that “ where the total income of the trust or
institution as computed under this act without giving
effect to ( the provisions of section 11 and 12 exceed the
maximum amount which is not chargeable to income tax
in any previous year), the accounts of the trust or
institution for that year have been audited by an
accountant as defined in the Explanation below subsection ( 2) of section 288 and the person in receipt of the
income furnishes along with the return of income for the
relevant assessment year the report of such audit in the
prescribed for duly signed and verified by such accountant
and setting forth such particulars as may be prescribed”.
◦ 139 ( 4 B ):- Return of income of political Party.
◦ 139 ( 4 C ):- Return of income of certain association
and institution.ie institution claiming benefits under
various section 10 clauses as news agencies
research association etc
◦ 139 ( 4 D ):- certain institution claiming benefits
under section 35 ( 1 ).
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Income derived from property under trust subject
to sections 60 to 63
wholly for charitable or religious purposes is
exempt to the extent such income is applied on
the objects of the trust in India, during the
previous year.
The trust must apply at least 85% of such income
on the objects in such cases balance 15% will
deemed to be accumulated for the purpose of
charity and exempt.
For example if our income applied is say 90%
then only 10% will be accumulated not 15%.
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If the amount applied by the trust is less than 85%, the
shortfall in application is not taxable in the following cases
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◦ Income is accumulated up to 5 years and the purpose of
accumulation is specified to the AO in Form No. 10 .
◦ The income accumulated must be applied for the
specified purpose within the period of accumulation as
per application in Form 10. Till the accumulated amount
is applied, it must be invested as specified in Section
11(5).
◦ [2nd proviso to Section 11(3A)] In the case of dissolution
of the trust, the AO may allow the application of income
in the year in which it is dissolved by way of transfer of
the accumulation to other trust registered u/s. 12 AA or
institution referred to in Section 10(23C).
◦ If there is violation of any of the conditions relating to
accumulation of income, such income will be deemed to
be income of the previous year in which the conditions
are violated or the previous year immediately following
the expiry of the period of accumulation.
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Income Not Received during the previous year
◦ Where due to reason that whole or any part of the
income has not been received during the year, the
amount can be applied in the year of receipt or in
the following year. However, intimation in writing
must be sent to AO before the expiry of time
allowed u/s. 139(1) for furnishing the return.
◦ In case the amount is not applied, it will be
deemed to be the income of previous year
immediately following year of receipt.
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The income from the properties held under
trust have to be arrived at in the normal
commercial manner without classification
under the various heads set out in section 14
of the income tax act 1961.
The expression income has to be understood
in the popular or general sense and not in the
sense in which the income is arrived.
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the income should be applied at least 85% of the total
receipt in that financial year.
◦ Capital expenditure on purchase of fixed assets as per the
sc CIT vs Moolchand sharvati devi hospital trust that capital
expenditure on building and infrastructure were basic
necessary and therefore should be treated as expenditure
under section 11(1).
◦ Payment of wealth tax and income tax also an application
of fund as per CIT vs Ganga charity trust fund.
◦ Repayment of the any debt or has been considered as
application as per CIT vs. Maharana of Mewar Charitable
Foundation and circular no 100.
◦ Advance for property with adequate documentation will be
treated as application of fund as per DIT vs Maharaja
agresen Technical Society.
◦ Donation by one charitable trust to another trust from
current income will be treated as application of fund.
A. Section 13(1)(a) — Trust for private religious
purposes.
 B. Section 13(1)(b) — Trust established for the
benefit of any particular religious
community or caste.
 C. Section 13(1)(c) — Income of the trust is
applied directly or indirectly for the
benefit of persons referred to in sub-section (3).
 D. Section 13(1)(d) — Funds are invested
otherwise than in any form or modes
specified in 11(5).
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Interest free loan or loan without security
Use of properties without charging adequate rent.
Excessive payment for services.
Services of trust without adequate remuneration.
Purchase of property for trust for excessive
consideration.
 Sale of trust property for inadequate consideration.
 Diversion of income or property exceeding Rs 1000.
 Investment in substantial interest concerns.
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 According to section 11(1)(d) any voluntary
contribution received by a trust created wholly for
charitable or religious purpose with a specific direction
that they shall form part of the corpus of the trust,
shall not be included in the total income u/s 11.
 A charitable organization lose exemption by virtue of
violation u/s 13 (1) then corpus income will also be
included in the total income.
 To claim a donation as a corpus donation, a written
document with a specific direction from the donor
should be obtain. The recipient organization has no
right to treat a donation as a corpus donation.
 Donation by one charitable organization to another
charitable organization from its current income is
treated as a valid application of funds
 A corpus donation is not required to be spent in a same
year it can be accumulated and form no. 10 is not
required to be submitted in the Income Tax
department.
 Corpus Donation to an inter charity organization to be
given during the year as a part of corpus donation
received by the Trust.
 As per circular no 108 dated 20.03.1973 by CBDT it
cover u/s 12(1) which indicated that such corpus
donation is not the part of income u/s 2(24).
 The corpus donation to be kept in 11(5)
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following are the persons which are covered
under this section.
◦ The author of the trust or the founder of the institution.
◦ Any person who has made a substantial contribution to
the trust or institution that is to say any person whose
total contribution at the end of the relevant previous
year exceeds fifty thousand rupees.
◦ Where such author founder or person is a Hindu
undivided family a member of the family.
◦ Any trustee of the trust or manager ( by whatever name
called ) of the institution.
◦ Any relative of any such author, founder , person,
member, trustee or manager as aforesaid.
◦ Any concern in which any of the persons referred to in
all above clauses has a substantial interest.
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To ensure that only organization engaged in bona fide
charitable or religious activities are allowed to claim
exemption from tax, the law has prescribed a number
of legal and procedural requirements. Taxpayers would
be well-advised to go through the relevant provisions,
particularly sections 11,12,12A, 1 115BBC and 139(4A)
of income tax act and rules 17, 17A, 17B and 17C of
income tax rules. section 11 are summarized as
below:-
 The trust must be public charitable or public religious
trust and not a private trust.
 Income claimed to be exempt must be derived from
property held under trust.
 If the trust or institution has taxable income for the year
before clamming exemption under section 11 and 12, its
accounts must be audited by a chartered accountant and
audit report in the prescribed form must be filed with the
return of income.
 The trust must be registered by commissioner/director of
income tax under section 12AA.
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 Activities of the trust must be carried out in india.
 85% or more of the income for the year must be applied to (
i.e put to use) for charitable or religious purposes and the
balance ( i.e 15 % or less ) ,must be accumulated or set apart
for future application to charitable or religious purposes. OR
If 85% of the income not applied to charitable or religious purposes
during the year the same must be accumulated or set apart for
future application for definite and specified purposes. For this
purpose the Assessee must a give a notice in writing to assessing
officer within the due date of filing of return of income be invest the
money so accumulated or set apart only in specified modes. The
maximum perod for which such income can be accumulated or set
apart is 5 years.
If income of the trust or institution includes any income from
business such business must be incidental to objectives of the trust
and separate accounts must be maintained for such business.
If the trust or institution had taxable income during the year without
giving effect to section 11 and 12 it must be file a return of income.
Capital gains if any during the year ( whether short or long term)
must be reinvested in a new capital asset in order to be deemed to
have been applied to charitable purposes.
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Application of earlier year registration
granted.
No depreciation on Fixed Asset where we
claim as application of Fund.
Cancelation of registration in certain more
cases.
◦ Income does not endure for the benefit of general
public.
◦ For benefit of particular Region or Caste.
◦ Income Applied for specified person.
◦ Fund not Invested as per Section 11(5)