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2018-07-27 16:31:19


Charity is a practice of voluntary giving of help. The term can also be used with organizations, Section 8 companies (non-profit companies under the Companies Act, 2013), societies, trusts, etc. Not all non-profit organizations are charitable organizations. Some charitable organizations may be established as a part of tax planning strategies.

Trust is a form of organization which is formed by obligation annexed to the ownership of the property, and arising out of confidence reposed by owner. The author or will maker transfers the property to be used for a purpose. If the objective is to benefit few individuals, it becomes a private trust and if it uses ‘property’ for common public or for community at large, it is called a public trust.

Person, group, company, etc. on the receiving end of trusts are called beneficiaries. What distinguishes public trust from a private trust is their beneficiary. Private trust beneficiaries are usually a closed group, individuals, company but beneficiaries of public trust is always uncertain, that is public at large. Public trust is a form of organization that is formed with a strong motive of charity to public. Diaspora of beneficiaries actually differentiates public trust and private trust. Charitable trust can be formed by various means and is subject to various Acts or legislation. Under Article 19(1)(c) ‘Charities and charitable institutions, charitable and religious endowments’ are under the Concurrent list of the Seventh Schedule of The Indian Constitution. Here, both the centre and the state are allowed to legislate on Public Charitable Trust.


Under Section 3 of The Indian Trusts Act, 1882, ‘A “trust” is an obligation annexed to the ownership of the property, and arising out of confidence reposed in and accepted by the owner, or declared and accepted by him, for the behalf of another, or of another and the owner.’

The individual who responses or pronounces the confidence is known as the 'author of the trust'. The individual who acknowledges the confidence is called 'trustee'. The person for whose benefit, the confidence is accepted is called the ‘beneficiary’. Also, the topic of the trust is called 'trust property' or 'trust money' and the 'beneficial interest' or 'interest' of the recipient is his privilege 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’.

Trust created for the advancement of education, promotion of public health, relief of poverty, etc regarded as charitable in law is public charitable trust. Though it doesn’t have a definition of its own, public charitable trust must be created for the benefit of the public.

To look into what laws apply to public charitable trusts in India, we need to understand what charitable purpose means. Under Section 2(15) of The Income Tax, Act expression of, charitable purpose is in an inclusive manner. Charitable purpose under Section 2(15) of the Income Tax Act includes relief for the poor, education, medical relief and the advancement of any other object of general public utility. The aforesaid definition is not exhaustive and therefore, purpose similar to the purposes mentioned in the aforesaid definition will also constitute charitable purpose.

According to Section 9(1) of The Bombay Public Trust Act, 1950, “charitable purpose” includes relief from poverty, education, medical relief, the advancement of any other object of general public utility, but does not include a purpose which relates exclusively to religious teaching or worship.

However, there are also public cum private trusts in India. Here, a part of the income of the trust is applied for public charity whereas and the other part of the income is used for private business. The only income which is applied for charitable purposes under public charitable trust is eligible for exemption under Section 11 of the Income Tax Act. These type of trusts now seize to exist.

Laws applicable to public charitable trusts in India

Public charitable trust is governed by the public trust Act of that state and The Indian Trusts Act, 1882. As charity has been placed in the Concurrent list of the Constitution, both the centre and the state the right to legislate over public charitable trusts. A public charitable trust organization can be formed by registering as a trust by executing a trust deed or as a society under the Registrar of Societies. Also, a private non-profit company can be formed under Section 8 of The Companies Act, 2013. A Section 8 company is parallel to that of a Section 25 company under the old Companies Act, 1956.

Apart from the above, various laws are applicable to religious trusts such as The Hindu Religious Institutions and Charitable Endowments Act, 1997, Muslim Wakf Act, 1954. But not all religious charitable trusts enjoy income tax exemptions. Also, various state laws are applicable to charitable organizations, trusts, institutes. If a public charitable trust is in the state of Maharashtra, then it is regulated by the Bombay Public Trust Act, 1950, whereas a public charitable trust in Rajasthan is governed by The Rajasthan Public Trust Act. And in states where there is no public trust Act, public trust is legislated by The Indian Trust Act, 1882. In Delhi where there is no public trust Act of the state/UT, the Indian Trust Act comes into picture.

 Public charitable trust and Income Tax Act

Public charitable trust is exempted from income tax. Section 11, Section 12, and Section 13 of The Income Tax Act talk about tax exemptions given to public charitable trusts. Section 80G deals with privileges given to donors of public charitable trusts.

1.      Section 11 of the Income Tax Act states the means of exemption from income tax to the public charitable trusts.

2.      Section 12 cites contribution of income of the trust

o    Income of trusts from contributions

o    Voluntary contribution received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes.

3.      Section 13 of Income Tax Act deals with forfeiture of exemption of income tax by public charitable trust.

All trusts have to file annual reports. Annual returns of income should be filed with the authorities having jurisdiction of the state where it is registered. 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 trust.

Under Section 80G, an individual is granted deduction if donations are made to such kind of public charitable trusts. For this certificate, it is required to give application with form 10G along with the trust deed to the income tax office. The basic perquisite to obtain this certificate is that the income gained from the property of the trust should only be used in charitable purposes. The income tax has certain tax benefits for the donor. These are certain conditions to be fulfilled by the public charitable trusts to obtain certification:

1.      The trust should not be private trust e. it should be a public charitable trust.

2.      The public charitable trust should be registered under relevant laws and with the income tax department.

3.      Any income or contribution of the trust should not be not applicable for exemption under Section 11, Section 12, Section12A and Section12AA of the Income tax Act. If so, it should maintain separate books of accounts and should not use donations for private business.

4.      The byelaws and objectives should solely be for charitable purpose only.

East India Industries (Madras) Pvt Ltd vs. CIT (1967) 65 ITR 611 (SC) – The honorable court in this case held that property, as used includes business also and unless the business also is exempt, donation to such an institution will not be eligible for concession.

5.      Regular maintenance of accounts and regular audit of the same.

6.      Regular filing of income tax returns.

Landmark Case:

The Assistant Commissioner of……. vs. Thanthi Trust Etc. Etc, 31st January, 2001

On 29th January, 1981 a Division Bench of the High Court dismissed references under the Act in respect of the assessment of the Trust for the Assessment Years 1968-69 and 1969-70 (137 I.T.R. 735). The High Court held :

The founder of the trust clearly evinced an intention to create public charitable trust as seen from the preamble and clause 3(k) of the original trust deed and the charitable objects referred to in the schedule to the decree in C.S. 90 of 1961 have to be fulfilled from and out of the income from the business which is directed to be held under trust or other legal obligation. Those charitable objects fall within the first 2 categories referred to in Section 2(15) viz. Relief of the poor and education. It is to carry out and fulfill those objects the business is carried on. Thus, the primary purpose is to carry out the charitable objects and the business is carried on as a means in the course of the actual carrying out of that primary purpose and not as an end in itself. While the predominant object of the trust is the carrying out of the charitable objects referred to in two of the three categories of charitable purposes referred to in Section 2(15), the carrying on of the business which is actually the property held under trust or other legal obligation is incidental and the profit resulting from the business can be taken to be a by-product.

Dr. Pal, learned counsel for the Trust, drew a distinction between a business that was held under trustand a business that was carried on by a trust. He submitted that there was a difference between income derived from a business that was a property or part of the corpus of a public charitable trust and income derived from a business which was carried on by such a trust but which was not held undertrust; in other words, there was a legal obligation to use the income for the public charitable purpose of the trust in the first case and not in the latter. This Court had noted the distinction in Additional Commissioner of Income-Tax, Gujarat vs. Surat Art Silk Cloth Manufacturers Association (121 I.T.R. 1), Commissioner of Income-Tax, Kerala and Coimbatore vs. P. Krishna Warriar (53 I.T.R.

176), Commissioner of Income-Tax, Kerala vs. Dharmodayam Co. (109 I.T.R. 527). The provisions of Section 13(1)(bb) applied only to a public charitable trust which carried on a business that it did not hold in trust. They did not apply to a public charitable trust, such as the Trust, which held the business in trust.

No judgment of this Court has been pointed out to us in which the provisions of Section 13(1)(bb) have been interpreted. Only passing references thereto are to be found in some of the judgments aforementioned.

A public charitable trust may hold a business as part of its corpus. It may carry on a business which it does not hold as a part of its corpus. But it seems to us that the distinction has no consequence insofar as Section 13(1)(bb) is concerned. Section 13(1)(bb) provides, so far as is relevant to this case, that the provisions of Section 11 shall not operate so as to include in the total income of the previous year of a public charitable trust for the relief of the poor, education or medical relief which carries on any business, any income derived from such business unless the business is carried on in the course of the actual carrying out of a primary purpose of the trust. Section 13(1)(bb), therefore, will apply to apublic charitable trust for the relief of the poor, education or medical relief that carries on a business, regardless of whether or not that business is held by the trust in trust, that is, as a part of its corpus. Even a business that is held by such a trust as a part of its corpus is carried on by the trust and, therefore, Section 13(1)(bb) will apply to such trust.


Public charitable trusts in India are mainly governed by The Indian Trust Act, 1882 and also by various relevant state Acts where the public charitable trust may be registered. Since charities comes under Schedule 7 of the Indian Constitution at entry number 10 in the Concurrent list, the centre and the state both have legislation over the public charitable trusts.

Other laws applicable to public charitable trust are:

·         Registration Act, 1908

·         Indian Stamp Act, 1899

·         Hindu Religious and Charitable Endowments Act, 1951

·         Muslim Wakf Act, 1923

·         The Income Tax Act

·         The Companies Act (for non-profit company)

·         Foreign Contribution regulation Act

·         And other relevant state acts like Bombay Public Trust Act, 1950.

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