Trust Formation in India
Public charitable trusts, as distinguished from private trusts, are designed to benefit members of an uncertain and fluctuating class. In determining whether a trust is public or private, the key question is whether the class to be benefited constitutes a substantial segment of the public. There is no central law governing public charitable trusts, although most states have 'Public Trusts Acts'. Typically, a public charitable trust must register with the office of the Charity Commissioner having jurisdiction over the trust (generally the Charity Commissioner of the state in which the trustees register the trust) in order to be eligible to apply for tax-exemption.
In general, trusts may register for one or more of the following purposes:
- Relief of Poverty or Distress
- Medical Relief
- Provision for facilities for recreation or other leisure -time occupation (including assistance for such provision), if the facilities are provided in the interest of social welfare and public benefit and
- The advancement of any other object of general public utility, excluding purposes which relate exclusively to religious teaching or worship.
- At least two trustees are required to register a public charitable trust.
- Legal title of the property of a public charitable trust vests with the trustees. Trustees of a public charitable trust may not, however, in any way use trust property or their position for their own interest or private advantage.
- Trustees may not enter into agreements in which they may have a personal interest that conflicts or may possibly conflict with the interests of the beneficiaries of the trust (whose interests the trustees are bound to protect).
- Trustees may not delegate any of their duties, functions or powers to a co-trustee or any other person, except that trustees may delegate ministerial acts. In essence, trustees may not delegate authority with respect to duties requiring the exercise of discretion.
- Trustees of religious or charitable trusts are charged with discharging their duties with the degree of care that an ordinarily prudent person would exercise with respect to his personal property.
- Indian public charitable trusts are generally irrevocable. If a trust becomes inactive due to the negligence of its trustees, the Charity Commissioner may take steps to revive the trust.
- If it becomes too difficult to carry out the objects of a trust, the doctrine of cy pres, meaning 'as near as possible', may be applied to change the objects of the trust.
- Thus, it appears that grantors can feel fairly secure that the charitable nature of a trust will be honored, even if the original, specific purposes of the trust cannot be carried out.
The application for registration should be made to the Charity Commissioner having jurisdiction over the region in which the trust is sought to be registered.
After providing details (in the form) regarding designation by which the public trust shall be known, names of trustees, mode of succession, etc., the applicant has to affix a court fee stamp of Rs.2/- to the form and pay a very nominal registration fee which may range from Rs.3/- to Rs.25/- depending on the value of the trust property.
The application form should be signed by the applicant before the regional officer or superintendent of the regional office of the charity commissioner or a notary. The application form should be submitted, together with a copy of the trust deed, affidavit and consent letter.