A Trust is not defined in the Income Tax Act but they are relatable in the law sphere as an argument that hands over a property to or is vested in a person, to use or dispose it off for the benefit of another person. As per section 3 of the Indian Trust Act, 1882,

“ A trust is an obligation annexed to ownership of property, and arising out 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 the owner.”

To explain it n a simpler way, trust is the transfer of property by the owner to someone else for the benefit of a third person, along with or without himself or a declaration by an owner, to hold the property not for him and another. For charitable welfare activities, the exemption was granted in section 11, 12,and 13of the Income Tax act 1961. The Government of India has made an amendment in the Income Tax Act in 2015 and cleared the ‘ charitable’ purpose. In the amendment the expression “ charitable purpose” has been defined under section 2(15) of the act to include:

(a) Relief of the poor

(b) Education      

(c) Medical Relief and

(d) Advancement of any other object of general public utility.

Wooden blocks with the word Trust

Trusts are classified in two categories:

  • Public
  • Private

Public Trust: Public trust is the one whose beneficiaries include general public at large or a sizeable portion of it. A public trust is further categorized in to :

(a) Public charitable trust

(b) Public religious trust

Public trust is known as non-profit charitable organization or non-governmental organization.

Private trust: A private trust is one whose beneficiaries are individuals or families. A private trust is further categorized in to:

  • Private specified trust: In this case beneficiaries and shares both are determined.
  • Private discretionary trust: Where both or either of the beneficiaries and their shares are indeterminate.

WHAT IS PUBLIC RELIGIOUS TRUST?

The Income Tax Act 1961 makes a distinction between trust for charitable purposes and those for religious purposes, though both are entitle to exemption under section 11 of the Act. Unlike the words ‘ charitable purpose’, the words ‘religious purpose’ have not been defined in the Act but it would include the advancement, support or propagation of a religion and its tenets.

Black law’s dictionary defines ”religion” as:

“ A system of faith and worship usually involving belief in a supreme being and usually containing a moral and ethical code; especially such a system recognized and practiced by a particular church, sect or denomination”

The Supreme Court, in he case of The Commissioner, Hindu Religious Endowment, Madras Vs. Shri Laxmindra Tirtha Swamiar of Shri Shirur Mutt AIR 1954 SC 282 has defined religion as :” Religion means a system of beliefs and doctrines which are regarded by those who profess that religion as conducive to their spiritual well being. A religion is not merely an opinion, doctrine or belief. It has its out word expression in acts as well. Religion may not be theistic.”

Religion therefore is not merely the philosophy, but also the practices of a particular sects. All religions, in a sense, teach the philosophy of life. It is generally accepted that a trust created for imparting teachings on moral and spiritual upliftment and for showing a way of life, would be a charitable trust even if the teachings are based on scriptures of a particular religion.

A charitable trust created after 1st April, 1962 would loose exemption on account of section 13(1)(b), if it is for benefit of any particular religious community or caste. But a religious trust by definition would be for benefit of a given religious community. Thus trusts for the establishment and worship of idols and performance of religious festivals would be exempt under section 11, though they may be for the benefit of a particular religious community or caste. However it may be noted a charitable trust will not lose exemption merely because a discretion is given to the trustees to give preference, other things being equal, to the members of a particular religious community or caste as per principles laid down by supreme court. Further a religious trust may be public or private. Section 13(1)(a) excludes from exemption a private religious trust, which does not ensure for the benefit of public.

Acts to promote unity and brotherhood and bring complete development on all aspect of life of members of a particular community were considered as charitable object. The court also held that economic, physical, intellectual as well as spiritual well-being would be a charitable purpose. It was also held that raising of moral conditions of people is a charitable purpose being the advancement of an object of general public utility.

In the case of CIT Vs. Kusumgar (K.H.) (1988) 169 ITR 370 (Bom), it was held that the object to impart education and promotion of study and practice Jain Religion amongst students of ashrams, gurukuls etc. and also among all persons without distinction of sex, caste, creed, place or religion was not a religious object but a charitable one.

However, one needs to distinguish between a religious activity and an act of charity on a particular religious day. If the act in itself is primarily a charitable one ( e.g. where the charity is performed without regards to caste, creed or religion of the recipient), then it would not become religious merely because it was performed on a particular religious occasion.

It may be noted that the conditions for exemptions of public religious trust under sections 11,12 and 13 are the same as those for public charitable trust and therefore the conditions would apply with equal force to public religious trusts also.

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