The Indian Trust Act, 1882

    What is a Trust?

    Trust is a form of an organization by obligation attached to the ownership of the property and arising out of confidence. Putting it in simple words, trust is a transfer of property by the owner to some other person on which the owner has trust and which is for the benefit of a third party.

    The property does not have to be in the form of an immovable property it can also be in the form of cash, shares, or any valuable asset that has value.

    An example of Trust could be:

    Mr. Ram wants to pass his property to Mr. Shyam for the benefit of his minor granddaughter (Sita). Mr. Ram passes his property to Shyam because he reposes confidence in Mr. Shyam. This is nothing but the nature of trust.

    Parties to a Trust

    Author/Settlor/Trustor/Donor (Mr. Ram): The person who is willing to transfer his property and entrusts his confidence to another person for the creation of the trust.

    Trustee (Mr. Shyam): The person who is willing to accept the confidence for the creation of the trust.

    Beneficiary (Sita): The person who will receive the benefit from the trust in the foreseeable future.

    In addition, the subject matter of the trust is called ‘trust property’ and the ‘beneficial interest’ that the beneficiary is entitled to be ‘his right against the trustee as owner of the trust property and the instrument, if any, by which the trust is declared is called ‘instrument of trust’.

    There are two kinds of trust, which are:

    • Private Trust – the kind of trust where the objective is for the benefit of an individual or for a pre-determined set of people who are in a near dear relationship.
    • Public trust- the kind of trust where the property is used of ‘Public’ or community at large then that kind of trust becomes a Public trust. 

    Definition

    Section 3 of The Indian Trusts Act, 1882, defines trust as an obligation attached to the ownership of the property, and arising out of confidence entrusted in and accepted by the owner, or stated and accepted by him, for the behalf of some other person, or of another and the owner.’ 

    A trust, which has been created for the improvement of education, promotion of public health, relief from poverty, etc. is regarded as charitable in law, is a public charitable trust. The public charitable trust must be created for the benefit of the public or for a community at large.

    What is a charitable purpose?

    To understand the concept of Public trust we need to know what is a charitable purpose because public trusts foundation stone is charitable purpose so for that, we need to delve into what is a charitable purpose, so the Income Tax Act provides for the definition of charitable purpose under Section 2(15) which includes relief for the poor, education for the underprivileged, medical relief and the advancement of any other object for the societal benefit. The previously mentioned definition is not exhaustive and therefore, anything, which benefits the community at large, would come under the purview of charitable purpose.

    Laws applicable to Public Charitable Trust 

    The Indian Trust Act, 1882 deals with all the matters pertaining to the Scope of Public charitable trust, both the center and the state have been given powers to legislate matters in the regard to trust as it has been placed in the concurrent list. 

    The public charitable trust is formed by registering a trust and by executing a trust deed.

    There are various state laws that are applicable to charitable organizations and trusts and supposedly if public charitable trust is in the state of Maharashtra, or even for that matter in the State of Gujarat then it is regulated by the Bombay Public Trust Act, 1950 whereas a public charitable trust in Bihar is governed by the Bihar Hindu Religious Trusts Act, 1950 and in states where there is no public trust Act, in those cases the Indian Trust Act, 1882 comes into play for instance in Delhi there is no provision for public trust Act of the state/UT so Delhi will be governed by the Indian Public Trust Act, 1882. 

    How are Public Trust and Income Tax interlinked?

    These Public Charitable trusts are exempted from the purview of tax. Sections 11, 12, and 13 of the Income-tax Act deal with the tax exemptions given to these charitable trusts and Section 80G of the Income-tax Act deals with the benefits to the donors to these charitable trusts. 

    All trusts have to file annual reports, which are to be reviewed annually, and the annual returns of income of the whole year should be filed with the authorities having jurisdiction of the state where it is registered which is the Commissioner. The income of the author of trust can be taxed as personal income under Section 60 to Section 63 of the Income Tax Act, 1961 if the trust deed has a provision for revocation of the trust.

    Under Section 80G the donor to these trusts are given certain privileges in the form of deduction of tax and to get this benefit the charitable trust has to provide a certificate and for the certificate, the trust has to produce an application with the form 10G along with the instrument of trust to the respective Income tax office. The basic requirement to obtain the certificate is that the income gained from the property of the trust should only be used for charitable purposes. The income tax has certain tax benefits for the donor. To obtain the certificate certain requirements are to be fulfilled which are as follows:

    • The trust should be a public charitable trust.
    • The trust should be registered under relevant laws and with the income tax department.
    • Maintenance of accounts and audits should be done timely.
    • Timely filing of income tax returns.
    • The bylaws and objectives should be for a charitable purpose only.

    Conclusion 

    Though the center has an act, which governs how the public charitable trust works, there are even some states that have their own State Acts, which govern the public trusts under their jurisdiction.