The trust can either be created for charitable purpose or for religious purpose and for charitable and religious purpose. The public or private trust created with the charitable purpose is called “charitable trust”. The term “charitable purpose” has been defined under section 2(15) to include-
(a) relief of the poor
(b) education
(c) yoga
(d) medical relief
(e) preservation of environment(including watersheds, forests and wildlife)
(f) preservation of monuments or places or objects of artistic or historic interest, and
(g) the advancement of any other object of general public utility
The determining factors for establishing whether a trust’s purpose is charitable are the inherent objectives of the trust and the extent of its benefit to the public. Purposes that exclude private gains, focus on public benefit, and are motivated by a desire to contribute positively to the public are considered charitable.
The conventional definition of the term “purpose” refers to what one aims to achieve or attain—an intention, aim, object, plan, or project. The purpose should be interpreted as a genuine one, not merely as it appears outwardly. It is essential to distinguish the real purpose of the trust from its ostensible purpose.
Many court rulings directed that the following objects will also be considered as “advancement of any other object of general public utility” :
(1)Establishments of research stations, (2)Establishment and maintenance of dharamshala and sadavrats, (3)Trust for relief of refugees, (4)promotion of home industries, arts and craft, (5)Promotion of unity and brotherhood amongst members of the community, (6)establishment running and maintaining gaushalas, panjarapoles and other similar institutions, (7)Promotion of agriculture or horticulture,(8) supply of fodder to animals and cattle,(9)Promoting social and physical well being of persons to enable them to participate in sports and games,(10) Construction of hall for social and cultural activities, library reading rooms, garden, children’s park, museum, guest houses, shops, offices, playground, (11) To organise seminars, conference and workshops to educate people on various laws
Charitable trusts may be subject to various Acts of legislation, as there is no single piece of legislation in the country which broadly regulates these organisations. As per the Constitution of India, both the Central and State governments have the authority to enact and oversee charitable organizations. Public charitable trusts are subject to the regulations of the Public Trust Act in the respective state. In the absence of a Public Trust Act in the relevant state, these trusts are governed by the Indian Trust Act of 1882. Additionally, all public trusts in India are subject to the provisions of the Income Tax Act of 1961, the Foreign Contribution (Regulation) Act of 2010, and the Religious Trust Act of 1920.
Amount received by educational institutions in excess of fees
Several trusts overseeing educational institutions impose fees on students beyond the committee-fixed rates. These educational entities accept such fees in the form of donations for admissions, treating them as corpus funds. Numerous court decisions emphasize that collecting fees from affluent students or generating funds for commendable educational purposes, which are inherently a state function, through donations does not compromise the “charitable” nature of the activity. Regardless, deeming such activity as commercial is not justified.
Even if the donation is made during admission, it remains “voluntary” and falls within the scope of section 11(1)(d) or section 12(1) of the Income Tax Act. However, if these donations are obtained from students’ relatives post-admission, they may be deemed non-voluntary, as students are at the institution’s mercy. Judicial rulings assert that “education” is inherently “charitable,” and considering it a business activity can lead to the forfeiture of exemptions under section 11. If a trust charges fees from its members but provides free education, including sports, recreational activities, and classes in various fields, it is still considered an educational purpose and falls under the charitable umbrella.
Object of setting up hospital for general public
In some instances, trusts are established with the primary aim of establishing hospitals for the general public. Such an objective falls under the category of “medical relief” and is thus deemed a charitable purpose. The proviso to section 2(15), concerning commercial activities, is only relevant to the advancement of other objects of general public utility. Therefore, when a trust or institution is dedicated to the relief of the poor, education, and medical relief, it qualifies as a charitable purpose. The proviso to section 2(15), pertaining to 2(15), is specifically applicable to the advancement of any other object of general public utility. Consequently, if the purpose of a trust or institution involves the relief of the poor, education, and medical relief, it is considered a charitable purpose, even if it incidentally engages in commercial activities.
Activities even if charitable not mentioned in the objects in the trust deed
In certain instances, a trust may engage in activities that are inherently charitable and ancillary to the main objectives of the trust, even if these activities are not explicitly mentioned in the trust deed’s object clause. Numerous judicial rulings emphasize that when certain activities, though not explicitly stated in the trust’s aims and objectives, are crucial and inseparable from the incidental activities essential for achieving the trust’s objectives, such activities are considered charitable in nature and qualify for tax exemption.
However, it is crucial to highlight that if a charitable trust, seeking exemption under section 11, does not carry out any activity aligned with its stated objectives and is solely involved in commercial activities not covered by its objects, the exemption under section 11 may be denied to such a trust or institution.
Business Trusts
Business trusts are structured as Special Purpose Vehicles (SPVs) and have been accorded pass-through status. These entities, which amalgamate features of both companies and trusts, do not possess independent legal status. They function as business enterprises, engaging in sectors and asset investments, with the trustees serving as the legal owners of trust properties. The trustees are responsible for managing these assets on behalf of the trust, ultimately benefiting the unit holders.
This category of business trusts encompasses innovative investment vehicles, namely Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). To qualify, these investment vehicles must fulfill specific prerequisites, including the establishment of a trust, approval from the Securities and Exchange Board of India (SEBI), and mandatory listing on a recognized stock exchange in India. SEBI has formulated regulations for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). Additionally, section 115JA has been incorporated into the Income Tax Act to determine the taxation of income for business trusts.
Non-Governmental Organisations(NGOs)
Non-governmental organizations (NGOs) are typically established as associations, clubs, societies, or non-governmental institutions. These entities play a crucial role in fostering the development and upliftment of society. NGOs actively contribute to addressing a diverse range of social needs through various channels. They operate in areas that involve providing relief and assistance to individuals during times of war, natural or man-made disasters, and catastrophes. NGOs extend support by offering essential provisions such as food, shelter, medical aid, and other fundamental necessities to those in need. NGOs formed as societies are regulated by the Societies Registration Act, 1860. NGOs with 12A Registration can claim a full exemption from the Income Tax department. NGOs with 80G Certification attract more donors for donating funds to the organization.
Conclusion
The legal landscape surrounding charitable and religious trusts in India is intricate, necessitating compliance with various legislations. The expansive definition of “charitable purpose” encompasses diverse areas, from relieving the poor and education to yoga, medical relief, environmental preservation, and the advancement of general public utility. The determination of a trust’s charitable nature hinges on its intrinsic objectives and the extent of public benefit it offers.
Practices such as fees exceeding committee-fixed rates do not undermine the inherently charitable nature of the activity, as affirmed by court rulings. Furthermore, trusts involved in inherently charitable activities, even if not expressly stated in the trust deed’s object clause, maintain eligibility for tax exemption, provided these activities are integral to realizing the trust’s objectives.
The rising prominence of Business Trusts, exemplified by entities like Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), underscores their role as Special Purpose Vehicles (SPVs) seamlessly blending characteristics of companies and trusts. Governed by SEBI, these trusts, with trustees holding legal ownership, navigate tax implications through section 115JA of the Income Tax Act.
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