General discussion under Charitable or Religious Trusts and Institutions [Sections 11 to 13] –
Before considering the provisions of sections 11 to 13 which govern the exemption in respect of income from property held for charitable or religious purposes, let us see briefly what exactly the term trust signi fies, the types of trusts and the manner of their creation. Though this aspect of the topic does not strictly fall within the purview of Income-tax, such a general knowledge would be useful in understanding the provisions of tax laws relating to charitable trusts.
A trust is an obligation annexed to the ownership and arising out of a confidence reposed in and accepted by the owner if declared and accepted by him for the benefit of another or of another and the owner. The person who reposes or declares the confidence is called the ‘author of the trust‘; the person who accepts the confidence is called the trustee; the person for whose benefit the confidence is accepted is called the ‘beneficiary‘; the subject matter of the trust is called the ‘trust property‘; the ‘beneficial interest‘ or ‘interest‘ of the beneficiary is his right against the trustees or owner of the t rust property and the instrument, if any, by which trust is declared is called the ‘instrument of trust‘.
Trusts can be broadly classified into two groups – Public and Private. The distinction between a public and private trust is that, whereas in the former, the beneficiaries are the general public or a class thereof, in the latter they are specific individuals. While in the former the beneficiaries constitute a body which is incapable of ascertainment, in the latter they are per – sons who are ascertained or capable of being ascertained. In some cases, private trusts may ensure for the benefit of the public. Some religious trust may also be in the nature of public – cum-private trust.
Private trusts are governed by the Indian Trust Act, 1882. This Act does n ot apply to the following:
(1) The rules of Mohammedan law as to wakf;
(2) The mutual relations of the members of undivided family as determined by any customary or personal law;
(3) Public or private religious or charitable endowments; and
(4) Trust to distribute prizes taken in war among the captors.
From the above, it will be clear that public charitable trusts are not governed by the Indian Trust Act.
There are three requirements for creation of a public trust. They are (1) a declaration of trust which is binding on the settlor, (2) setting apart definite property and depriving himself of the ownership, and (3) a statement of subjects for which the property is thereafter to be held. In the case of a private trust also, more or less similar requirements exist.
The word ‘trust‘ as used in the context of sections 11 to 13 includes, in addition to the ‘trust‘ as explained above, ‘any other legal obligation‘. This is made clear in Explanation 1 to section 13.
The words ‘any other legal obligation‘ are wide enough to cover Muslim wakfs, Hindu endowments and dedications to deities. It would also cover a case in which the trustees of a settlement are to pay the income to other trustees who in their turn are bound to apply it for purposes which are religious or charitable.