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Summary- Philanthropy is one of the basic human traits. It is presumed that compassion was one of the human traits that helped in development of civilization. The compassion is reflected not only in the human behavior but in the animal world also. It is reflected in the religious belief, art and literature as well. So it entered the coded laws. Trust is an instrument widely used for carrying on charitable activities beyond the life of author of such trust. Various legal, historical and philosophical issues have been discussed in detail, related to charitable activities.

The dictionary meaning of the word ‘Philanthropy’ is-‘the desire to promote the welfare of others, especially by the generous donation of money to good causes’. The word ‘Philanthropy’ first appeared in a Greek drama, ‘Promotheus Bound’, an ancient drama around 430 BC by Aeschykus, the Greek tragedian. It depicts the myth of ‘Prometheus’, a Titan, who defies the gods and gives fire to mankind, which he stole from Mount Olympus and was punished for it. Goddess Athena gave away the olive tree, symbol of peace and prosperity, and the city of Athens was so named.

Philanthropy is one of the basic human traits. Allowing others to consume the excess food collected was perhaps the first philanthropy.  Anthropologist Margret Mead, recently observed that a 15,000-year-old healed human femur was evidence that someone showed a compassionate response to another human being. Moses ben Maimon[1], authored a book about one thousand years ago, called ‘Misneh Torah’, describing eight levels of charity in the increasing order[2]. In the year 1601, the ‘Charitable Uses Act’ was passed by British Parliament, defining the charitable purpose for the first time.

THE GREEK SYSTEM OF LITURGY- NEED FOR ITS REVIVAL

The intelligent Greeks solved the jeopardy of forgoing taxes by linking taxation to ethics. The system should be appreciated, not so much for the way that it taxed, but the way that it didn’t. There was no tax on income or wealth of the rich. Instead, this was achieved by a voluntary alternative initiative called liturgy. The word liturgy comes from the ancient Greek ‘leitourgia’ – means ‘public service’ or ‘work of the people’. The great philosopher Aristotle developed the theme of liturgy in his book-‘The Nicomachean Ethics’.

Contributions for public purposes were not enforced by any law or authority, but by tradition and public sentiment. While in early ancient Greece only warriors could become ‘heroes’. Later, liturgists could earn heroic status by acting in the public interest by the welfare activities. The result was that many gave more than was expected, a far cry from today’s culture of paying as little tax as legally possible.

The Greek System of Liturgy- Need For Its Revival

The ‘Panathenaic Games’, which inspired the modern Olympics, were held every four years in Ancient Greece from 566 BC to the 3rd century AD. It needed big sponsorships, same as the present time. Apart from the game, Dionysia was celebrated as festival in ancient Athens in honor of the god Dionysus. The central event of it was the theatrical performances of dramatic tragedies. In later years, comedies were also performed. These were funded by the rich by their donations. To sponsor any such event was a great honor. Many of the buildings of ancient Greece were also constructed by benefactors competing for such honour. The rich avoiding public welfare risked social scorn. But there were also exemptions for previous services rendered to the city. A liturgist could argue that another citizen was wealthier for liturgy. Such a person had three choices: to accept the liturgy; to submit to a trial in which a jury would determine who was wealthier; or to swap assets with another.

The beauty of the liturgy system was that public works were funded and managed by people with relevant expertise, rather than by some less accountable bureaucrats. Thus both personal wealth as well as expertise was shared for the benefit of the community, without state’s involvement. As the liturgist’s reputation was at stake, he involved himself completely. In this age of the super-rich donors, perhaps it’s time to revive liturgy. It worked for Athenians, and perhaps it could work as well for us.

RELIGIOUS DICTATES ON CHARITY

All religions hail giving away of personal wealth in charity. Tithing[3] is an Old Testament command that was for the Jews and was in reality their “taxation” system. The tithe consisted of the Temple tax, the Land Sabbath Tax, and the Special Profit-Sharing Tax (leaving the corners un-harvested, for the poor). The required giving for the Jew was approximately 25 percent per year. Today, tithes are normally voluntary and paid in cash, whereas historically tithes were required and paid in kind, such as agricultural products.  The only reference in the New Testament to tithing is to Jews and their requirement to support their religious system of government.

Zakāt or “alms giving” is one of the ‘Five Pillars’ of Islam. It encourages the giving away of a small percentage of one’s assets to charity. It serves principally as the welfare contribution to poor and deprived Muslims. It is the duty of an Islamic state not just to collect zakat but to distribute it fairly as well. In Sikhism, Daswandh or Dasvandh, is the one tenth part of one’s income that should be donated in the name of the God, according to principles laid down by Gurus.

Great emphasis has been placed on ‘Dana’/‘Dakshina’ in Hinduism. Several hymns in Rig-veda and Upanishads put stress on charity and mark it as a virtue that every man should have. Bhagwat Gita goes a step ahead and classifies right and wrong forms of ‘dana’. The Adi Parva of the Hindu Epic Mahabharata, in Chapter 91, states that a person must first acquire wealth by honest means, then embark on charity; be hospitable to those who come to him; never inflict pain on any living being; and share a portion with others whatever he consumes. Tirukkuṛaḷ  or Kural, a Tamil classic on ethics and morality, written by Valluvar,  suggests charity as essential for a virtuous life and happiness. Al-Biruni[4], the Persian historian, who visited and lived in India for 16 years from 1017, mentions the practice of almsgiving as widespread among Hindus. In Buddhist philosophy, it has the effect of purifying and transforming the mind of the giver. Four types of Dana[5] are discussed in the texts of Jainism. It may be mentioned that there is very high awareness towards eye/organ donation among the Jain.

PHILANTHROPY BY STATE

Rulers had to take relief majors, whenever there was a famine or a natural calamity. The relief majors included suspension of tax collection and free food. Philanthropic works of Emperor Ashoka (268-232 BC) has been found recorded on various rock edicts. Gautama Buddha, Mahavir, who were from royal families, gave up their personal comforts to alleviate the sufferings of the poor and the downtrodden.

Charity by State in the past has been responsible for creation of some great historical structures. Awadh was struck by a famine around 1784. Nawab Asaf-ud-Daula decided to do something for the poor. Instead of free food distribution, he commissioned the construction of Bara Imambara. The famine as well as construction lasted for almost a decade. It is said that in the morning the laborers used to build the structures and at night the noblemen used to bring it down; so that the laborers were never out of work. Nawab had employed almost 20000 people for the construction of the impressive Imambara.

In Patna, a peculiar 90 feet tall half egg-shaped building, called ‘Gol ghar’ by locals, with a spiral stair was in fact, a granary. It formed a “part of a general plan for the perpetual prevention of famine in these provinces”. It was ordered in 1784 by Warren Hastings, the then Governor-General of India. The beehive-shaped structure was designed by Captain John Garstin of the Bengal Engineers, part of the East India Company’s Bengal Army. Its construction was completed on the 20th July 1786.

Shri B M Bhatia, a social scientist, in his book-‘Famines in India’ has noted that most of the famines in British period were manmade rather than natural[6]. Bhatia writes-“From about the beginning of the eleventh century to the end of the eighteenth there were fourteen major famines in India. Under East India Company regime there occurred 16 major famines, a rate eight times higher than what had been before. This large scale massacre remained, more or less, equivalent up to the independence of India”.

British Government was reluctant to forego tax during famines. In fact for some famine affected years, revenue collection was more than previous years. Sometimes tax was imposed for the famine relief, but it was mostly spent on wars rather than relief majors. As Sir Dinsha E Wacha said[7]-‘We have only to substitute war for famine.’ The present scheme of ‘Mahatma Gandhi National Rural Employment Guaruntee Act, popularly known as MNREGA, is probably a rural employment welfare scheme balancing employment and charity.

WHERE IS MY FREE LUNCH

It will be relevant to mention here a book written by Nobel Prize winner American Economist, Milton Friedman titled- ‘There Is No Such Thing As a Free Lunch’, communicating the idea that it is impossible to get something for nothing. For every penny donated to an eligible charity, a taxpayer gets some relief on his tax burden. The government has to account for this ‘tax forgone’ by increasing the burden somewhere else. Thus, like all tax benefits, the charitable tax credit raises the overall tax burden. Whenever government adjusts taxation rules to offer a deduction or credit, economists call this “tax expenditure”, distinguishing it from the direct expenditure. Just like any public spending, the taxpayer has to finance such tax expenditures. The more generous the relief granted for charitable donations, the more onerous becomes the tax burden. With due apology to Friedman, it seems that free lunches are being liberally provided, while someone else is being charged double for the dinner.

The big temples in India, having tax free lands and receiving huge donations, attracted the attention of British tax Collectors. The Kalighat temple in Calcutta (now Kolkata) had large land holding. Mr. H L Dampier, (officiating Secretary to the) Board of Revenue. Government of Bengal had conducted an inquiry into its taxability in 1860.

In the report, vide [No-99], H L Dampier- Esq. Officiating Secretary to the Board of Revenue to the officiating Secretary, Government of Bengal [No-665 dated the 18th Aug 1860], followed by No-101 from Rivers Thompson Esq. Junior Secretary to Government of Bengal, (to the Officiating Secretary to the) Board of Revenue, Lower Provinces- (No. 64A, dated the 16th Jan 1861), it was mentioned that-

“I AM directed to acknowledge the request of your letter number 665 dated the 18th ultimo and to state that in reply that, under the circumstances therein set forth, the Lieutenant Governor authorizes the abandonment of the proceedings for the assessment of lands in Punchannongram measuring 565 beegahs cottah 4 chattauk 7, which have been held rent free by the Brahmins of the Kalighat temple and the proceeds of which are devoted to the religious purposes”.

Lieutenant Governor authorizes the abandonment of the proceedings

It is said that after (Lokmanya) Tilak visited Sai Baba (1915-17) in Shirdi, English Officers of Indian Income tax department directed subordinates to examine the income of Shirdi temple. Some officers were sent and they kept a watch over the income. They first wanted to tax Sai Baba. But as Baba kept practically nothing to himself, they taxed some big donors[8].

INSTRUMENT OF PHILANTHROPY- THE TRUST

Charitable institutions play a vital role in shaping and in implementation of participatory democracy, working as supplements to the efforts of the Government. Internationally, charitable institutions, apart from providing certain tax deductions to the contributors to such institutions, have largely been exempted from tax on income earned by them and property held by them.

Trusts are one of the most innovative legal instruments ever devised. Trusts historically expanded property rights and circumvented onerous prohibitions and confiscations by the state. At its most basic, a trust is simply an agreement between two people. It describes ownership, the benefits and the management of property or wealth perpetually.

However, the concept of trust is even older and was already noticed in Roman and Greek law. The Romans used the word Fiducia. The adoption of the trust law in ancient Rome resulted from cases where wealthy Romans trusted their friends to manage their property in favour of the principal’s wife and heirs after their death. Under the Roman law, foreigners could not inherit assets there. Roman citizens were prohibited from transferring property at death to unmarried persons, childless couples, slaves, or foreigners. To bypass these rules, “fideicommissum” (a trust) was invented. These agreements were often oral/secret to keep authorities at bay.

Philanthropy, Trusts and Their Taxation- A Glance Back

In England, trust history goes as far back as Norman Conquest of England in 1066. King William decreed that he, as King, owned all the land. From time to time he gave control to others to administer his lands – that ownership was known as ‘tenure’ – this is where our common term, tenant, originated. Tenures were granted in exchange for a variety of goods or services such as knight services, farming services or maintenance of hunting grounds. A tenured resident could pass on his interest to an eldest son, but the King was entitled to an estate tax – the birth of our estate tax system. When knights went to war and left their property at the disposal of other persons, it was necessary to implement the will of the initial owner (knight), whilst at the same time enabling the empowered person to manage this property effectively.

The Magna Carta, (Great Charter) which was adopted by England in 1215 AD, further laid the foundation for Trust Law as we know it today. Again, it provided for an estate tax upon inheritance. If an heir was under age at the time his father died, a guardian of the land of an heir was appointed until “he became of age”.

In the early 1800’s, at the dawn of the industrial revolution, the U.S. Supreme Court confirmed that businesses could formally organize as trusts. There were advantages for these businesses to utilize trusts.  The U.S. government pushed back with the Sherman “Anti-trust” Act of 1890. The objective of which was the promotion of free competition. These laws were designed to end the abusive monopoly practices of early capitalists.

LEGAL STATUS OF THE TRUST IN COLONIAL INDIA

In pre-colonial India, judicial system was based on multiple layers governing various communities and different aspects of life. The personals laws of Hindus and Muslims were followed in family affairs. Business and commercial transactions were governed by customary practices as well as personal laws. The British replaced this system with a uniform Judiciary which applied new laws based on the English legal principles along with the personal laws of different communities. The classification of waqf into either public or private is a product of the British period. A waqf was often a mixture of public and private interests.

The Indian Trusts Act 1882 was a code that embraced a purportedly distinct model of trust, one that was ‘obligational’ in nature and had no division between legal and equitable ownership. Trusts formed by English were essentially English trusts and were regulated in India by the English law.  The courts in India applied native and personal/religious laws about Indian trusts. Disputes were resolved in accordance with Hindu/Islamic law or on the basis of ‘justice, equity and good conscience.’

In Krishnaramani Dasi v. Ananda Krishna Bose[9], Justice Markby of Calcutta High Court (1866), held that a Hindu could not create a trust by will or otherwise. Court held that under Hindu law, there could be no ‘double’ ownership (in a HUF). However on further appeal in the same case, Justice Macpherson stated that there is nothing in Hindu law which is inconsistent with the idea of trust. It signaled a change of course.

In this way, Courts allowed natives to create trusts in an Anglicized form, which were governed in theory by native law, but in practice by the English Law.

WAQF- RELIGIOUS AND SOCIAL ISSUES

The history of ‘Waqf’ dates back to the time of dawn of Islam. The wordWaqf’ originates from the word ‘waqafa’, which means to stop or halt. Waqf is regarded as the practice of dedicating buildings, lands or other assets for the use or benefit of the people. Waqif is the person who makes waqf and Mutawalli stands for the person appointed by Waqif for managing or administering a waqf. In Islam, a property from a waqif (donor) will be endowed from the beginning to the end, in the name of God.

The history of ‘Auqaf’ (plural of Waqf) in Delhi began in 12th century during the rule of Qutubdin Aibak. Sultan Muhammad bin Tuqlaq had appointed Ibn Batuta, the famous Arab traveller, as the trustee of the waqf created for the maintenance of the tomb of Sultan Qutbuddin. After recovering from the shock of 1857, Muslims again started dedicating their properties as waqf and a very large number of auqaf were created. The declaration of invalidity of family auqaf by the Privy Council in 1894 was one of the most vital developments in waqf law under the English legal system. It had far reaching legal and political ramifications. The Privy Council in Abul Fata[10] case (1894), where three Indian judges, Amir Ali, Shadi Lal and D F Mulla were appointed as Councilors for the first time, held that in order to constitute a valid waqf, substantial dedication of the property to charitable use at some period of time or other should be made and it must not be made inalienable for the purpose of aggrandizement of family.

There was immediate reaction to the Privy Council decision in Abul Fata case. In fact, before its confirmation by the Privy Council in this case, Nawab Ahsanullah Khan, a prominent landlord of Bengal expressed his concerns to the Viceroy of India regarding the Calcutta High Court decisions on family auqaf. He requested the government to allow the creation of a permanent endowment for the maintenance of the dignity of his family and his titles. For enacting a piece of legislation to validate family auqaf, Muslim elites persuaded various sections of society to mount pressure on the government.

In 1910, M A Jinnah, a reputed lawyer of Bombay High Court, became a member on the sixty-member Imperial Legislative Council. The committee was instrumental in the passing of the law relating to Muslim Waqf Religious endowments. In 1911 Mohammad Ali Jinnah and some other Muslim leaders introduced the ‘Mussalman Wakf Validating Bill’. The bill had only one purpose and that was to eliminate the ground on which the High Courts and Privy Council refused to recognize family auqaf. The Legislative Council on three separate occasions, formally discussed Jinnah’s bill. The Bill was unanimously passed on 17 February 1913. It was a clear departure from the standards of accepted English norms. However, with their bad experience of interfering in the religious matters of common people, the English rulers gave way to it.

TYPES OF TRUSTS

Trusts can be classified as ‘Revocable’ and ‘Irrevocable’. A revocable trust can be changed or cancelled at any time by the creator, who often acts as the trustee. The assets in the trust are still owned by the trustee and, therefore, any revenue generated by the trust must be reported for taxes. An irrevocable trust cannot be modified or revoked by the grantor without the permission of its beneficiaries. Once an irrevocable trust is established, the grantor relinquishes ownership and control of the assets listed in the trust, which are then transferred out of their personal estate. Revocable trusts become irrevocable when the trustor dies. A testamentary trust, sometimes called a “trust under will”, is created by a will after the grantor dies.

Thus trusts which are for the benefit of certain people or family members will have some assets and income to run it. However, when a trust is created for the general welfare of certain sections of society or for the mankind or for all creatures in general would require regular contribution from the society. It may be in the form of charity.

CHARITY UNDER INCOME-TAX ACT-INDIAN PERSPECTIVE

With the introduction of Direct taxes, a problem arose as to claim of exemption on such contribution. After some initial hesitations, all Governments collecting direct taxes had to allow exemption on it. Legal discussion commenced on the true nature of ‘public charitable purposes’ immediately after enactment of the Income tax Act 1886.

For instance, the Charitable Endowments Act, implemented in 1890, described public charitable purposes as something that ‘includes relief of the poor, education, medical relief and the advancement of any other object of general public utility, but does not include a purpose which relates exclusively to religious teaching or Worship. The Act furthermore defined a legal entity that fulfilled the general public utility to be a public trust or a charitable society that was approved by the Colonial Government. From 1890, on the other hand, the legal discussion on public charitable purposes shifted its focus to the distinction between the public and the private within the religious gift-giving rather than the ‘secular’ charities. In 1922, the Income Tax Act was revised once again and included the provision that ‘“charitable purposes” includes relief of the poor, education, medical relief and the advancement of any other object of public utility’. The history of exemption provided to charitable institutions as regards the voluntary contributions received by them can be summarized as:

Law Legal Provisions
Income Tax Act 1860 Income from the property solely employed for religious or public charitable proposes” was exempt from the tax.
Income Tax Act 1886 The Income-tax Act, 1886, Section 5 exempted ‘any income derived from property solely employed for religious or public charitable purposes’.
Income Tax Act 1918 Section 3(2)(ii) of the 1918 Act exempted voluntary contributions (towards corpus or otherwise) from being treated as income.

There is no explanation as how ‘voluntary contributions’ were held exempt, when the definition of income was not expanded to include such contribution as income.

Income Tax Act 1922 Income as defined in Section 2(6C) of the 1922 Act did not include voluntary contribution received by a charitable institution. Section 4(3)(ii) of the 1922 Act exempted voluntary contribution (towards corpus/ otherwise) from being treated as income.
Income Tax Act 1961 A Trust created after 1st April, 1962 partly for religious and partly for non-religious purposes was not be eligible for exemption under the Income-tax Act. Section 12 of the 1961 Act exempted voluntary contribution (towards corpus or otherwise) from being treated as income. Income as defined in Section 2(24) of the 1961 Act did not include voluntary contribution received by a charitable institution as its income.

Post 1987, under the 1961 Act- Section 2(24)(iia) of the 1961 Act treated all voluntary contributions (general donation as well as corpus donation) as income. However, Section 11(1)(d) of the IT Act exempted corpus donation from being treated as income.

Also, u/s 80G deduction on donation to eligible charitable institutions subject to the conditions prescribed and u/s 80G(b)(2) to renowned religious places of historic, archaeological or artistic importance in State.

Altruism is the noblest of human attributes, though selfishness is the prime driver of human actions. Direct Taxes Enquiry Committee, in its report published in December 1971, observed that there is no good cause which human ingenuity cannot defile and experience has shown that even in our country, these altruistic media have been abused with impunity for selfish personal ends.

Lyricist Javed Anwar and singer Manna Dey have described this spirit in the song- “Apane liye jiye to kyaa jiye, tuu jii, ai dil, zamaane ke liye”- a song in film Badal  (year 1966). Sheldon S. Cohen, an Attorney, has described the whole interconnection in one sentence as follows-“Taxation, in reality, is life. If you know the position a person takes on taxes, you can tell their whole philosophy. The tax code, once you get to know it, embodies all the essence of life: greed, politics, power, goodness, charity”.

DISCLAIMER- The views expressed in the article are the personal views of the author and should not be held as the official views.

(CHANDRA PRAKASH BHATIA), IRS
Additional Commissioner of Income Tax, Kolkata.

[1] A Jewish philosopher also known as Rambam, (AD 1135-1204)

[2] The minimum level is when donations are given grudgingly, next-giving less but cheerfully, next- giving directly upon being asked, next-to give directly without being asked, next-giving when recipient knows donor but not the vice-versa, next-giving when donor knows recipient but not vice-versa, next-when giver and recipient are unknown to each other. But the greatest being giving a gift or loan or giving a job to strengthen recipient’s hand until he no longer needs to ask others for help.

[3] A tithe is a one-tenth part of something, paid as a contribution to a religious organization or compulsory tax to government

[4] Was Iranian scholar (973-1050 AD), first scholar of Comparative Religion.

[5] These are donation of – food (ahara-daan), medical care (aushadha-daan), spiritual knowledge (Gnan daan) and non-violence (abhayadaan).

[6] Based on Famine Commission’s Report 1880, showing surplus food in every province

[7] Delivered Presidential speech to INC in 1901 at Calcutta where M K Gandhi appeared for the first time.

[8] The Immortal Fakir of Shirdi, By Dr. S. P. Ruhela, 1994.

[9] 4 B.L.R. O.C. 231

[10] Abul Fata Md, Ishak and others v. V Russomoy Dhur Choyduryi (Fort William, Bengal) dated 15th Dec 1894

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