Presentation on Trust Deeds A project by Flying Kiwis

Agenda Introduction Governance of Trusts in India Legislations applicable to Trust/ Trust deed Registration procedures Stamp duty implications Other Concepts relating to Trust Deed Frequently observed problems Significant case laws Draft Trust Deed

Introduction Instrument by which a Trust is declared is called a Trust Deed Aims, objects and mode of management are enshrined in a Trust Deed Executed on a Non judicial stamp paper It is a legally enforceable document The Deed should be signed by the settlor(s) and the trustee(s)

Although preferable, a written Trust Deed is not a compulsion Governance of a Trust Trusts Public Trusts Private Trusts Objectives = charitable or non charitable, religious or otherwise, etc. Trust Deed Although preferable, a written Trust Deed is not a compulsion

Is a Formal Trust Deed necessary ? Radha Soami Satsung vs CIT No formal document is necessary However, for practical purposes, written document required when : Trust created by Will Private trust where immovable property exceeds Rs. 100/-

Benefits of a written Trust Deed Prima facie evidence of existence of a trust Facilitates devolution of trust property to the trust Clearly specifies the objectives and duration Registration of conveyance of immovable property in name of the Trust Essential from point of view of claiming benefits under Income tax Act Helps to control, regulate and manage the working and operations of the trust Prescribes course of action during any other eventuality, like dissolution of the trust Objectives = charitable or non charitable, religious or otherwise, etc.

Legislations applicable to Trust/ Trust Deed Bombay Public Trust Act, 1950 Trusts in India Indian Trust Act, 1982 Income Tax Act 1961 Objectives = charitable or non charitable, religious or otherwise, etc. Foreign Contribution Regulation Act, 1976

Legislations applicable to Trust Deeds (contd) Indian Trust Act, 1982 Formation of Trust under section 7 of the Act Individuals, Body of individuals, a limited company or an HUF can also form a trust under this Act. Private Trust are governed by Indian Trust Act, 1982

Legislations applicable to Trust Deeds (contd) Bombay Public Trust Act, 1950 Public Trusts in the state of Maharashtra are governed by this Act. Charity Commissioner has been given the powers of supervision, regulation and control of public trusts.

Legislations applicable to Trust Deeds (contd) The definition of public trust includes a “Society” registered under Societies Registration Act therefore the society also gets the registration under Bombay Public Trust Act. Charity Commissioner is the guardian of the trusts

Legislations applicable to Trust Deeds (contd) Income Tax Act, 1961 A trust can claim exemptions under section 11 of this Act Registration is also required for issuing tax deductible receipts to donors Drafting of Objects of the Trust Deed is crucial to claim tax benefits

Registration Procedure under various legislations Indian Trust Act, 1982 No specific registration process Trust can be formed by any person competent to contract. Objectives = charitable or non charitable, religious or otherwise, etc.

Registration Procedure under various legislations Bombay Public Trust Act, 1950 Trustee to apply for registration to the Charity Commissioner of the region. Application to be made in Form – Schedule II under rule 6 duly notarized along with court fee stamp of Rs. 2/- Application is to be signed by the trustee or his agent Certified copy of Trust Deed must be attached with the application Memorandum in prescribed form relating to immovable properties to be submitted under the Indian Registration Act, 1908 Objectives = charitable or non charitable, religious or otherwise, etc.

Registration Procedure under various legislations Income Tax Act, 1961 Registration u/s 12AA is required for Public trust to claim tax benefits and incentives Application to be made to the Commissioner of Income Tax in the prescribed Form 10A in duplicate List of names , addresses and PAN of trustees Copy of Registration Certificate under BPT Act or Societies Registration Act Objectives = charitable or non charitable, religious or otherwise, etc.

Registration Procedure under various legislations Time limit for grant or refusal of registration is 6 months On refusal Right of Appeal u/s 253(1)(c) of this Act is available within 60 days No order received within prescribed time then application is deemed to have been accepted Objectives = charitable or non charitable, religious or otherwise, etc. No registration for Private Trusts required under Income Tax Act

Registration Procedure under various legislations Foreign Contribution (Regulation) Act, 1976 Registration is required to receive foreign contributions. Non-registration requires the trust to obtain prior permission from Central Government to receive such contribution. Objectives = charitable or non charitable, religious or otherwise, etc. Registration is preferable for receiving foreign contributions

Stamp Duty Implications Trust deeds creating a trust otherwise than by way of will is chargeable to Stamp Duty Under Indian Stamp Act, 1899 or as per State Stamp Act Schedule I, Article 64 of the Indian Stamp Act, 1899 Schedule I, Article 61 of the Bombay Stamp Act, 1958 for state of Maharashtra Objectives = charitable or non charitable, religious or otherwise, etc. No stamp duty implications when Trust created by a Will

Stamp Duty Implications Is there Disposition of Property YES NO Religious or Charitable purpose Other Purpose Objectives = charitable or non charitable, religious or otherwise, etc. 2% of Market value of property or amount settled Rate applicable for executing a conveyance (Article 25) 1% of amount settled or market value subject to maximum of Rs. 200

Other Concepts relating to Trust Deed Extinguishment of Trust Revocation of Trust Sale of Trust Property

Extinguishment of Trust Trust is extinguished when : Purpose of Trust is completed Purpose of Trust becomes unlawful Destruction of trust property When trust is revocable and is expressly revoked On extinguishment of trust the Trust Deed becomes redundant

Revocation of Trust The trust is revoked in the following situations: All beneficiaries competent to contract consent for Express power of revocation of author when exercised Trust is for payment of debts of author of trust but has not been communicated to the creditors

Sale of Trust Property Any sale or transfer of immovable property to be approved by Charity Commissioner (Section 36 of Bombay Public Trust Act) If assets sold on revocation of a Public Trust the money goes to the Revenue Department

Amendment of Trust Deed Amendment can be made by executing a rectification or supplementary deed Amendment can be done if the terms and conditions are mentioned in the original deed Case Law: Sakthi Charities Separate deed to be executed and registered for amendment

Common Problems Disputes may arise as to the very existence of the trust due to non execution and registration of the trust deed. Controversy may be created in respect of devolution of trust property to the trust. Wherein the objectives and duration are not clearly specified it may lead to unnecessary litigation and problems in the management of the trust. Incorrect drafting of the objectives of the trust may lead to denial of tax incentives and benefits.(Sivakasi Case) Inefficient drafting may lead to uncertainties in the course of action to be followed during unforeseen contingencies.

Baba Charan Dass Udhasi v Mahant Basant Das Babaji Chela Baba Laxmandas Udasi Sadhu, AIR 2000 SC 2610 it was held that the mode of managing a religious or charitable institution should be ascertained from the document or instrument by which it had been established.

Case Laws Sakthi Charities vs. CIT (1984) [1984] 149 ITR 624/[1990] 182 ITR 483 (Mad.) Founder or Court cannot delete objects originally spelt out Original objects cannot be deleted even by the founder of trust, even though it is possible to add some other charitable objects without detriment to original objects. CIT v. Sivakasi Hindu Nadars Uravinmurai [1996] 217 ITR 118/86 Taxman 290 (Mad.) Dominant object should be charitable, and not profit-making.

Format Here is a draft of the Trust Deed

References The main sources for the information are: www.karmyog.org www.ngosindia.com www.authortstream.com www.legalsutra.com

Thank You