GEETA INSTITUTE OF LAW

SESSION – 2022-2023

Indian Trusts Act - Objectives & Registration

SUBMITTED TO: SUBMITTED BY:

I would like to express my special thanks of gratitude to our Assistant Professor, MS. Manvi
Kundu for contributing her valuable time and efforts in helping me out with this assignment as
well as our Dean ,Dr. Dharmender Patial for providing us the golden opportunity to do this
wonderful project of topic study on Indian Trusts Act - Objectives & Registration and their
constant encouragement throughout the course of this project helped me a lot in completion of
this study within the limited time frame.

10.11.2022

Vaibhav Jamwal

(Signature)

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Contents
Serial number Topic Page number

1.

Introduction : 3
2. Definitions In Indian Trusts Act 4
3. Objectives of a Trust 5
4. Section 4 in The Indian Trusts Act, 1882 5
5. Registration of a Trust 6
6. Registration of a Society 7
7. Ethics Formation-of Trust and Society 7
8. Case law 8
8.1 Ashok Kumar Kapur & Others v Ashok Khanna & Other 8
8.2 Introduction: 8
8.3 Judgment: 9

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Introduction :

The constitution of India, has guaranteed to all her citizens besides freedom of speech, freedom
to profess any religion, freedom to form associations are societies. A group of persons with
common purpose and with intention to further their vision and mission are allowed to form trusts
and societies. These are formed normally for the purpose of welfare of the people or for
furtherance of arts and cultures. In modern times, the concept of 'trusts' has gained greater
significance mainly due to various tax exemptions attached to these institutions, A trust is a
separate tax entity and a charitable or religious trust enjoys almost 100% exemption on its
income, subject to certain

There is a major notion among many that it is only the elite sector of the society who can create
trusts. However, that is not true! A trust can be created by not just the high –net worth
individuals but even by ordinary men and women. The provisions of the Indian Trust Act, 1882
(referred to as “The Act” in this article) governs only private trusts.

Public Trusts are usually governed by state-specific legislation. E.g.: The Maharashtra Public
Trust Act, 1950. The Indian Trust Act extends to the whole of India except the state of Jammu
and Kashmir and Andaman and Nicobar Islands. Further, this act is not applicable to the Waqf,
religious or charitable endowments and to a few others.

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Definitions In Indian Trusts Act

As per the Indian trusts act 1882, section 3 trust gets defined as:

“An obligation annexed to the 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 “.

A trustor or donor of a property is also known as the author of trust property. An author of trust
property is also called a settlor of property.

A trustee gets conferred with property rights and is responsible for distributing or dividing the on
completion of the trust’s purpose, the trust gets dissolved.

The term trustee gets defined under this act as the person who accepts the confidence is called
the “trustee” who enjoys the benefits of the property or the particular asset.

The beneficiary is the person for whose benefit the trustee holds the property or assets so that
beneficiary gets benefited from it in the future. A beneficiary can be an individual or group of
individuals.

The “beneficial interest” or “interest” is his right against the trustee as owner of the trust
property.

An instrument by which the trust gets declared is called the “instrument of trust.” 1

1
Indian Institute of Development Studies Research & Paining, 1996, Chemsi, Manoharan. T.N, 2007. "Student b
Hand Book on Income Tax Low ", snow white Publishers, New Delhi.

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Objectives of a Trust

The main objective is that the trust should be created for a lawful purpose. For example, if Mr X
had stolen money from a bank and given it to Mr Y with the intention of giving the money to
poor children then, in this case the trust itself is void as the very main purpose is unlawful.

So how do we understand as to whether the purpose is lawful or unlawful? The answer to it lies
in Section 4 of the Act. As per Section 4, all purposes are said to be lawful unless it:

 Is forbidden by law

 Defeats the provisions of law

 Is fraudulent

 Involves injury to another person or his property

 Immoral or against to public policy2

Section 4 in The Indian Trusts Act, 1882

Lawful purpose. —A trust may be created for any lawful purpose. The purpose of a trust is
lawful unless it is
(a) forbidden by law, or (b) is of such a nature that, if permitted, it would defeat the provisions of
any law, or (c) is fraudulent, or (d) involves or implies injury to the person or property of
another, or (e) the Court regards it as immoral or opposed to public policy. Every trust of which
the purpose is unlawful is void. And where a trust is created for two purposes, of which one is
lawful and the other unlawful, and the two purposes cannot be separated, the whole trust is void.
Explanation. —In this section, the expression “law” includes, where the trust property is
immovable and situate in a foreign country, the law of such country.
Illustrations
(a) A conveys property to B in trust to apply the profits to the nurture of female founding’s to be
trained up as prostitutes. The trust is void.

2
Renuka Prasad H.S., 2003. Guidelines for Registration of Society, Nyaaya Sahitya Prakashana, Bangalore.

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(b) A bequeaths property to B in trust to employ it in carrying on a smuggling business and out
of the profits thereof to support A’s children. The trust is void.
(c) A, while in insolvent circumstances, transfers property to B in trust for A during his life, and
after his death for B. A is declared an insolvent. The trust for A is invalid against his creditors.
Comments It is well settled that the mere fact that a debtor chooses to prefer one creditor to the
other either because of the priority of the debt or otherwise, by itself cannot lead to the
irresistible inference that the intention was to defeat the other creditors; Chogmal Bhandari v.
Dy. Commercial Tax Officer, AIR 1976 SC 656.

Registration of a Trust
A trust can be registered on the following ways:

Registration under the Indian Registration Act;

Registration under Public Trusts Act;

Registration under Societies Registration Act.

Registration under the Company's Act;

Registration under the income-tax Act;

Registration under the Foreign contribution (Regulation Act).

Registration under the Indian Registration Act. It is the Trust Deed or the will is registered. This
deed or will need to be registered with the sub registrar of the registration department of the state
government.

In certain states, the government has passed public trust acts. In those states the trust deed has to
be registered under public trust acts. 3

A charitable society trust also can be registered under section 25 of Companies Act. The
application should be made in form 1-A and the guidelines issued in this regard should be
followed.

3
https://getlegalindia.com/indian-trusts-act/

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Charitable religious trusts and societies, claiming exemption under sections 11 and 12 of the
Income-tax Act are required to obtain registration under the Act. The application for registration
should be made to the Commissioner, within a period of one year from the date of creation of the
trust/institution in Form, No. lOA along with the relevant documents. -

In order to obtain registration under the Foreign Contribution Regulation Act, the applicant trust
or society must submit Form FC-8 to the Home Ministry at New Delhi.

Registration of a Society

With the Memorandum of Association and the Rules & Regulations framed, the desirous persons
should approach the Registrar of Societies, of the State where they intend to function, purchase
properties, Operate bank accounts, etc. In some States along with the Society registration, a
registration with Charity Commissioner is also required e.g., Maharashtra and Gujarat. The legal
obligations to the Charity Commissioner are many and they need to be follo\ved very strictly.
The charity commissioner may impose penalties on the Society on violations and has suo-motto
powers.4

Ethics Formation-of Trust and Society

The trustees and the members of the society should be above board in their actions on behalf of
the society. They should get involved and take interest in the welfare of the people for whom
they have formed these institutions. It is enough that they attend only annual meetings and
remain as passive members. They should maintain high ethical standards and not draw any
benefits from these intuitions which are not provided in the statutes. The trustees and members
should always be conscious of the Aims and Objects for which they have come together to form
these institutions.

4
https://cleartax.in/s/indian-trusts-act/

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Case law

Ashok Kumar Kapur & Others v Ashok Khanna & Others

Introduction:

interpretation of Section 34 of the Indian Trusts Act, 1882 (for short, 'the Act') is involved in this
appeal which arises out of a judgment and order dated 06.02.2006 passed by a Division Bench of
the Calcutta High Court in APOT No. 584 of 2005, affirming a judgment and order of a learned
Single Judge of the said Court.5

Facts:

M/s Dunlop India Ltd. (for short, 'the Company') is an existing company within the meaning of
Section 3(1)(ii) of the Companies Act, 1956. The Company floated a Fund known as 'Dunlop
Executive Staff Pension Fund' for providing pension and annuities to the members of the
executive management staff of the Company. Clause (3) of the said deed reads as under:

"These presents shall constitute a trust upon and subject to the Rules and to the law for the time
being in force in India relating to Pension Funds which trust irrevocable and no moneys
belonging to the Fund in hand of the trustees shall be recoverable by the Company or shall the
Company have any lien or charge of any description on the same."

Part I of the said deed provides for the 'Rules of Dunlop Executive Staff Pension Fund.

The entire funds of the Trust were admittedly provided by the Dunlop India Limited (hereinafter
referred to as the 'Company'). It is further admitted that all the beneficiaries under the Trust have
been paid off and hence the purpose has been completely fulfilled and executed without
exhaustion of the funds of the Trust, except to the extent of Rs. 3,88,55,682.00, which amount
after onetime payment has been transferred to the Life Insurance Corporation of India
(hereinafter referred to as 'LIC'). Consequently, the Trust has now no further
liability/responsibility towards any of its beneficiaries. The balance sum remaining with the
Trust fund being Rs. 20,83,95,690.00 has, in my opinion, therefore, to be returned to the
Company in view of Section 83 of the Indian Trust Act (hereinafter referred to as the 'Act').
5
https://indiankanoon.org/doc/668002/#:~:text=Ashok%20Kumar%20Kapur%20%26%20Others%20vs%20Ashok
%20Khanna

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After all, the entire money donated to the Trust fund was donated by the Company and hence it
has to be returned to the Company

Judgment:

Section 83 of the Indian Trust Act states:

" Trust incapable of execution or executed without exhausting trust property. - Where a trust is
incapable of being executed, or where the trust is completely executed without exhausting the
trust property, the trustee, in the absence of a direction to the contrary, must hold the trust
property, or so much thereof as is unexhausted, for the benefit of the author of the trust or his
legal representative."

Hence, in view of Section 83, the money lying with the Trust fund should be returned to the
Company.

Three persons who filed Suit No. 551/2001 retired between 1994-97 and as on date are getting
their pension from the LIC. Thus, the interest of every beneficiary under the Trust has been taken
care of and annuities have been purchased by the Trust in the names of the beneficiaries as per
the valuation carried out by the LIC and in terms of the pensionary benefits to be received by the
concerned beneficiary. Therefore, there is no employee/beneficiary left who is entitled to get any
pension out of the Trust in issue, which material fact has been ignored by the courts below.

In view of the above, in my opinion, the appeal deserves to be allowed and the money lying with
the Trust fund should be directed to be returned to the Company forthwith. The impugned
judgments of the courts below are set aside. There shall be no order as to costs.6

6
https://www.scconline.com/Members/SearchResult.aspx