1. Purpose Behind Formation of Trusts
Commonly Charitable institutions / trusts ate formed to create and maintain the following establishments in public interest.
- Hospitals and other health-care institutions
- Spirituality centres like yoga centres, meditation centres etc
- Orphanages and destitute homes
- Schools. colleges & other educational institutions, libraries, leading rooms. etc.
2. Forms of Charitable and Religious Institutions:
Main forms of charitable and religious institutions are Public Cluiritable, Societies, Non-Profit Companies, Research Institutes, and Cultural Associations. These are constituted in any one of the following forms;
An association may be registered under Section 25 of the Companies Act. 1 *)56 if the Central Government is satisfied that it is about to be formed as a limited company for promoting commerce. art. science, religion, charity or any other useful object and it intends to apply its profits. if any, or other income in promoting its objects and to prohibit the payment of any dividend to its members. In such cases the Central Government may . by license, direct that the association may be registered as a company with limited liability without the addition to its name of the word “Limited” or the words “Private Limited”.
Section 20 of the Societies Registration Act. 1860 lavs down that charitable societies and societies established for the promotion of science, literature or the fine arts may be registered under that Act. A society registered under the said Act is a legal entity apart from its members and under Section 6 of the said Act. it may sue or be sued in the name of its President. Chairman or members of the governing body. Secretary or Trustees. In Secretary of Slate India v. Radha Swami Satsangh it was held by the Bombay High Court that the registration of a charity under the Societies Registration Act, 1860 was prima facie evidence of valid dedication of property for charitable purposes.
Public Charitable Trusts:
Public Trust is a trust for public, religious or charitable purposes and includes a temple, mosque, church and a society for a religious or charitable purpose. Society may have religious and charitable object but if it is not a trust then it will not be ’public trust’.
Trusts under the Mohammedan Law are called Wakfs. Wakf signifies dedication of property either in express terms or by necessary implication for any charitable or religious object or to secure any benefit to human being. Section 2 of the Musalman Wakf Validation Act defines Wakf as dedication by person professing Islam or the Musalman faith, or any property for any purposes recognized by the Musalman Law as religious, pious or charitable. The settlor or the author of the Wakf is called Wakf and the trustee is called Mutwalli or Sajjadanashin. But the Mutwalli is not a trustee in the English sense. He is merely curator or a manager. As soon as the Wakf is declared, all rights of property vest in the Almighty. In the words of Amir Ali, under Mohammedan Law, the moment the Wakf is created, all rights of property go out of the Wakf and vest in God, the Almighty.
3. What is ‘Charitable Purpose’ for Income Tax Purposes ? [ Section 2(15)]
It is defined to include relief to the poor, education, (with effect from the assessment year 2016-17) yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility.
Sports or Games –
Promotion of sports and games is considered to be a charitable purpose within the meaning of section 2(15). Therefore, an association or institution engaged in the promotion of sports and games can claim exemption under section 11 even if it is not approved under section 10(23) —
Advancement of any other Object of general Public Utility –
From the assessment year 2009-10, “advancement of any other object of general public utility” shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration.
This restriction is, however, not applicable if the total receipts from any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business does not exceed the limits given below –
|From the assessment year 2016-17 onwards||20 % of total receipts of the relevant previous year of the trust undertaking such activities.|
The above benefit (from the assessment year 2016-17) is available only if such activity is undertaken in the course of actual carrying out of such advancement or any other object of general public utility, regardless of nature of use or application, or retention, of the income from such activity.
4. Laws Applicable to Charitable Institutions / Trusts
- Indian Trusts Act, 1882
- Charitable & Religious Act, 1920
- Sikh Gurudwara Act, 1925
- Indian Trustees Act, 1866
- Religious Endowment Act, 1863
- Trustees’ & Mortgagees’ Powers Act, 1866
- Society Registration Act, 1860
- Companies Act, 1956, for trusts registered as companies u/s. 25 oftheAct
- Transfer of Property Act, 1882
- Indian Registration Act, 1908
- Income Tax Act, 1961
- Foreign Contribution (Regulation) Act, 1976
5. Provisions Relating to Anonymous Donations & Gifts [ Section 115BBC ]
A new section 115BBC has been inserted in the Income-tax Act, 1961 by the Finance Act, 2006 so as to provide that any income by way of anonymous donations received by a trust, fund, institution, etc. referred to in that section shall be included in the total income of the assessee, being the person in receipt of such income on behalf of the trust, fund, institution, etc. and shall be chargeable to tax at maximum marginal rate.
For the purposes of this section, ‘anonymous donation’ means any voluntary contribution referred to in section 2(24)(iia), where a person receiving such contribution does not maintain a record of the identity indicating the name and address of the person making such contribution and such other particulars as may be prescribed. [Section 11 5BBC(3)]
The Taxation Laws (Amendment) Act, 2006 amended provisions of section 56 where gifts above specified limits received from specified persons are exempted. Further provision have been inserted to enlarge the scope of exemption. The exempted categories of gifts will include a local authority as defined in the Explanation to clause (20) of section 10; a fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23 C) of section 10; or from a trust or institution registered under section 1 2AA.The amount of exempted gift was increased from Rs. 25000 to Rs. 50000 with effect from the 1st day of April, 2006