Trust is an obligation annexed to the ownership of property and arising “lit of a confidence reposed in and accepted by the owner, or declared and accepted by him for the benefit of another or of another and owner:
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Trustee :
The trustee is the legal owner of the trust property and the property vests in him as such. He, no doubt holds the trust properly for the benefit of the beneficiaries but he does not hold it on their behalf. ‘The expressions, ‘for the benefit of and ‘on behalf of are not synonymous with each other. They convey different meanings. While the former connotes a benefit which is enjoyed by another, thus bringing in a relationship as between any trust and beneficiary or ccstui que trust, the latter connotes an agency which brings about a relationship as amongst the parties one of whom is acting on behalf of the others.
Waqf :
Waqf means a permanent dedication by a person professing Islam of any movable or immovable property for any purpose recognised by the Muslim law as pious, religious or charitable.
Hindu Endowment:
ADVERTISEMENTS:
A Hindu Endowment means setting apart of wealth in the form of movable or immovable property for any object or purpose. In case the object or purpose is religious it is known to be a religious endowmcnt.
Creation of Trust :
Creation of a trust: U/s 6 of the Indian Trusts Act, a trust is created when the author of the trust indicates with reasonable certainty by words or acts the following:
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an intention on his part to create thereby a trust;
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the purpose of the trust;
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the beneficiary;
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the trust property; and
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transfer of the trust property to the trustee.
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If there is no legal obligation to apply the profits or income of the trust to any particular purpose, the trust will not hold good for income-tax purposes. If a trust satisfies the conditions laid down in section 13 of the Transfer of Property Act, 1882, the trust may be created even in favour of an unborn person. The tax authorities, therefore, have to treat the trust as a separate entity and not add such income with that of the settlor who created the trust.4 So long as the trust deed gives the description of the person to be benefitted, the beneficiary cannot be said to be uncertain.
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In the case of a dedication to a public trust, what is essential is that there must be an unambiguous expression of intention to divest and an actual divestment of the interest of the donor for the benefit of charity. Such divestiture can be proved by a written document or by other evidence. An entry in the trustee’s accounts would evidence a completed trust by the author of the trust, the fund remaining in the hands of the author in his capacity as trustee, and it presupposes a transfer of the property by the author of the. trust to the trustee with the intention of creating a trust,5
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It has been held that a trust can be created for a sum higher than that possessed by the settler at the time of creation of the trust. The interest paid on the loans was held to be deductible as business expenditure.
Types of trusts :
A trust may be a private trust or public trust. A private family trust is a trust created for the benefit of the settlers’ family or any specified individuals. On the other hand a public trust is created for the benefit of the public in general.
1. Private Family Trust :
Private family trust may be a specific trust or a discretionary trust. A trust may be said to be specific where the beneficiaries and their shares are known. Where the beneficiaries and/or their shares are indeterminate and are left to the discretion of the trustees, the trust will be known as discretionary trust.
2. Public Trust :
ADVERTISEMENTS:
Public trusts are charitable trusts formed to benefit the public in general. There is no bar to any community or religion etc. Educational trusts can be cited as good examples of charitable trusts.
• Trusts created for the welfare and benefit of particular community or religion were considered to be charitable trusts before the commencement of the Act on 1.4.1962. They continue to be so even now. The bar is not applicable to those trusts which were created before the commencement of the Act, CIT v Maheswari, Agrawal, Marwari Panchyat [1982] 136 ITR 556 (MP). However, any trust created for the benefit of any community etc, will not be a charitable trust now. Trust created for the benefit of scheduled castes will be a charitable trust in the eyes of law even today.
3. Charitable Trust :
Charitable purposes [2(15)] : Charitable purposes include (i) relief of the poor, (ii) education, (iii) medical relief, and advancement of any other object of general public utility.
• The term “relief of the poor” refers not to relief to a body of private individuals, but to one which has a public character. Thus, a trust for the relief of poverty of poor relatives of the settler was not for a charitable purpose since no element of public benefit was involved. Even where the trustees had the authority to give money to those whom they considered deserving, it could not be held that the trust was for a charitable purpose. However, if the dominant object of the trust is to grant relief to the indigent by way of making payments or contribution towards their subpart, the fact that the trust deed directs giving of preference to the poor relations of the settler, the trust would still be one for charitable purposes.
ADVERTISEMENTS:
• The term “education” connotes the process of training and developing the knowledge, skill, mind and character of students by normal schooling.10 Education, to be charitable, must relate to the public and a trust created for the education of the members of a family or the descendants of a particular individual cannot be for a charitable purpose. Advancement of education indirectly, for instance, through newspapers, does not come under the head “education”.
• The expression “object of general public utility” in section 2(15) is not restricted to objects beneficial to the whole of mankind. An object beneficial to a section of the public is an object of general public utility. To serve a charitable purpose it is not necessary that the object should be to benefit the whole of mankind or even all persons living in a particular country or province. It is sufficient if the intention was to benefit a section of the public as distinguished from specified individuals. Where a charitable trust was established for the benefit of members of the police and their families, it was held, that the beneficiaries of such trust would constitute a section of the public and the income of the trust would be entitled to exemption u/s 11. CIT v Andhra Pradesh Police Welfare Society [1984] 148 ITR 287 (AP).