INTERNSHIP PROGRAMME PRESENTATION
TOPIC- SOCIETIES AND THE TRUST
PRAMOD KUMAR DWIVEDI
LLOYD LAW COLLEGE
3RD YEAR BALLB
STRUCTURE OF A NON PROFIT ORGANIZATION IN
In India non profit organizations can be registered as:
Trusts Societies Section 25 Companies
The Income Tax Act gives all categories equal treatment, in terms of
exempting their income and granting 80G certificates, whereby donors to non-
profit organizations may claim a rebate against donations made. Foreign
contributions to non-profits are governed by FC(R)A regulations and the
MEANING OF ‘TRUST’
A trust is a relationship in which :
a person or entity (the trustee) holds legal title
to certain property (the trust property or trust corpus), but is bound by a
fiduciary duty to exercise that legal control
for the benefit of one or more individuals or organizations (the
beneficiary), who hold ‘beneficial’ or ‘equitable’ title.
The trust is governed by the terms of the (usually) written trust agreement
and local law.
The entity (one or more individuals, a partnership or a corporation) that
creates the trust is called the settlor.
HOW TO FORM A TRUST - LAW & PROCEDURE
Essentials of a Trust
Who can form a trust ?
Capacity to create a Trust.
Who can be a trustee ?
Who can be a beneficiary ?
Instrument of Trust.
ESSENTIALS OF A TRUST
The existence of the author/settlor of the trust or someone at whose
instance the trust comes into existence.
Clear intention of the author/settlor to create a trust.
Purpose of the Trust.
The Trust property
Beneficiaries of the Trust.
There must be divesting of the ownership by the author / settlor of the
trust in favour of the beneficiary or the trustee.
Unless all these requisites are fulfilled a trust cannot be said to have
come into existence.
WHO CAN FORM A TRUST ?
As per section 7 of the Indian Trusts Act, a trust can be formed –
by every person competent to contract, and
by or on behalf of a minor, with the permission of a principal civil court of
Besides individuals, a body of individuals or an artificial person such as an
association of persons, an institution, a limited company, a Hindu undivided
family through it's karta, can also form a trust.
It may, however, be noted that the Indian Trusts Act does not apply to public
trusts which can be formed by any person under general law. Under the Hindu
Law, any Hindu can create a Hindu endowment and under the Muslim law, any
Muslim can create a public wakf. Public Trusts are essentially of charitable or
religious nature, and can be constituted by any person.
CAPACITY TO CREATE A TRUST
As a general rule, any person, who has power of disposition over a property, has
capacity to create a trust of such property. According to section 7 of the Transfer
of Property Act, 1882, a person who is competent to contract and entitled to
transfer the property or authorized to dispose of transferable property not his
own, either wholly or in part and either absolutely or conditionally, has 'power
of disposition of property'.
Thus, two basic things are required for being capable of forming a trust
power of disposition over property; and
competence to contract.
WHO CAN BE A TRUSTEE ?
Every person capable of holding property can become a trustee. However,
where the trust involves the exercise of discretion, he can accept or act as a
trustee only if he is competent to contract.
No one is bound to accept trusteeship. Any number of persons may be
appointed as trustees.
However, no trust is defeated for want of a trustee. Where there is no trustee in
existence, an official trustee may be appointed by the court and the trust can be
administered. An executor of a Will may become a trustee by his dealing with
the assets under the provisions of the Will.
WHO CAN BE A BENEFICIARY ?
In a private trust the beneficiaries are one or more
In a public trust the beneficiaries are a body of
uncertain or fluctuating individuals and may
consist of a class of the public or the whole
SUBJECT MATTER OF TRUST
Any property capable of being transferred can be a subject
matter of a trust.
Section 8 of the Indian Trust Act, however, provides that
mere beneficial interest under a subsisting trust cannot be
made the subject matter of another trust.
In the case of J.K. Trust vs. CIT (1957) 32 ITR 535 (S.C.),
the Supreme Court had held that the word " property"
under the Trusts Act is of the widest import and a business
undertaking will undoubtedly be a property so that a
running business can be made a subject matter of trust.
This view has been followed in the case of in CIT vs. P.
Krishna Warriar (1964) 53 ITR 176 (SC).
INSTRUMENT OF TRUST
The instrument by which the trust is declared is called instrument of Trust, and is generally known as
It is well settled that no formal document is necessary to create a Trust as held in Radha Soami Satsung
vs. CIT- (1992) 193 ITR 321 (SC). But for many practical purposes a written instrument becomes
necessary under following cases –
When the trust is created by a will irrespective of whether
the trust is public or private or it relates to movable or
immovable property. This is because as per Indian
Succession Act, a will has to be in writing
When the trust is created in relation to an immovable
property of the value of Rs.100 and upwards, in case of a
private trust. In case of public trusts, a written trust deed is
not mandatory, even in respect of immovable property, but
Where the trust/association is being formed as a society or company, the instrument of trust; i.e., the
memorandum of association, and Rules and Regulations has to be in writing.
PROCEDURE FOR REGISTRATION:
The following documents are required to be filed for
registration of a Trust:
1. Covering Letter
2. Application Form in Form –Schedule II under rule 6
3. Court fee stamp of Rs. 2/- to be affixed on
4. Certified copy of the Trust Deed
5. Consent letter of Trustees.
INSTRUMENT OF TRUST
A written trust-deed is always desirable, even if not required statutorily, due to
following benefits :
a written trust deed is a prima facie evidence of existence of a trust ;
it facilitates devolution of trust property to the trust;
it clearly specifies the trust-objectives which enables one to ascertain
whether the trust is charitable or otherwise;
it is essential for registration of conveyance of immovable property in
name of the Trust;
it is essential for obtaining registration under the Income-tax Act and
claiming exemption from tax;
it helps to control, regulate and manage the working and operations of
it lays down the procedure for appointment and removal of the
trustee(s), his/their powers, rights and duties; and
it prescribes the course of action to be followed under any eventuality
including dissolution of the trust. 14
TYPES OF INSTRUMENT OF TRUST
Trust deed, where a trust is declared intervivos; i.e., by
settling property under Trust.
A will, where a trust is declared under a will;
A memorandum of association along with rules and
regulations, when the association/institution is being formed
as a society under the Societies Registration Act, 1860.
A memorandum and articles of association where the
association /institution is desired to be formed as a Company.
ESSENTIALS OF A VALID CHARITABLE
OR RELIGIOUS TRUST
There are four essential elements of a valid charitable or religious trust
Charitable or Religious Object : The object or purpose of the trust
must be a valid religious or charitable purpose according to law ;
Capacity to create Trust : The founder or settlor should be capable of
creating a trust and dedicating his property to that trust;
Certainty of Object and Dedication thereto : The settlor should
indicate precisely the object of the trust and the property in respect of
which it is made. The property should be dedicated to the trust and the
owner must divest himself of the ownership of that property.
Concurrence with the law : The trust or its objects must not be
opposed to the provisions of any law for the time being in force.
INFORMATION TO BE SUBMITTED FOR 80G
As per Form No. 10G, the following information needs to
Legal status of the institution/ fund
Objects and geographical area of activities
Name & Address of trustees
Status of approval under 12A / 10(23)
Status of last approval under 80G
Change in objects if any since last approval
Details of assessments, arrear taxes, accumulations
Details of investments, business income, violations of section
Notes on activities for last 3 years alongwith accounts.
Meaning of Society:
A society may be defined as a
company or an association of persons (generally
unincorporated) united together by mutual
consent to deliberate, determine and act jointly
for same common purpose. As per the Societies
Registration Act, 1860, (see Annexure 2, VI), a
society can be formed by minimum seven (or
more) persons, eligible to enter into a contract.
PURPOSE OF FORMING SOCIETY
1. Grant of Charitable assistance;
2. Creation of military orphan funds;
3. Promotion of science, literature or the fine arts;
4. Instruction and diffusion of useful knowledge,
diffusion of political education,
5. Foundation or maintenance of libraries or reading
rooms for general use of the members or the public,
public museums and galleries of paintings and other
work of art, collections of natural history, mechanical
and philosophical inventions, instruments or designs
Besides, the State Governments are empowered to
add more objects to the above list.
DOCUMENTS OF SOCIETY
1. Memorandum of Association:
It is the charter of a society. MOA depicts
and describes the objects of a society’s existence and its operation.
2. Rules and Regulations:
The rules and regulations of a society are framed to
guide members of the governing body and to regulate the
functions of the society and its internal management.
PROCESS OF REGISTRATION OF SOCIETY
Society is required to be registered under the
Societies Registration Act, 1860.
1. Place of Registration.
2. Signing of Memorandum of Association.
3. Signature on Rules & Regulations.
4. Payment of Registration Fees.
5. Registration Certificate.
The Foreign Contribution (Regulation) Act,
1976 (FCRA) requires all Indian NGOs that
receive foreign contributions to receive clearance
from the Ministry of Home Affairs, in the form of
either permanent FCRA registration or prior
permission on a case-to-case basis.
THE STATUTORY PROVISION OF FCRA
Under Section 6 of FCRA, it is clearly provided
that any organisation having a definite cultural/
social/ educational/ religious/ economic object
shall only accept foreign contribution after
satisfying two conditions :
(i) It must register itself with the Central
(ii) It must agree to receive foreign contribution
only through one specific bank account.
Section 25(1)(a) and (b) of the Indian Companies Act, 1956 are
formed for the sole purpose of promoting commerce, art,
science, religion, charity
any other useful object .
that have been granted a license by the central government
recognizing them as such.
PURPOSE OF SEC-25 COMPANY
Its objects should be only to promote commerce, art,
science, religion, charity or any other useful object.
It should intend to apply its profits or other incomes
only in promoting its objects.
Central government should have granted a license to
such a company recognizing them as such.
WHY SEC 25 COMPANY
Section 25 companies have the most reliable, strongest
Indian Trusts have no central law.
Indian Societies have different legal and institutional
frameworks from state to state.
Indian Companies (incl. Sec 25 companies), have one
uniform law across the country - Companies Act 1956.
COMPARISON AMONG TRUST, SOCIETY & SECTION 25
Points of Differences Trust Society Section 25 Company
Statute / Legislation Relevant State Trust Act or
Indian Trust Act, 1882
Societies Registration Act, 1860 Indian Companies Act, 1956
Jurisdiction Deputy Registrar/Charity
Registrar of societies (charity
commissioner in Maharashtra).
Registrar of companies
Registration As trust As Society
In Maharashtra, both as a society and as a
As a company u/s 25 of the Indian
Registration Document Trust deed Memorandum of association and rules and
Memorandum and articles of
association. and regulations
Stamp Duty Trust deed to be executed on
non-judicial stamp paper, vary
from state to state
No stamp paper required for memorandum
of association and rules and regulations.
No stamp paper required for
memorandum and articles of
Members Required Minimum – two trustees. No
Minimum – seven managing committee
members. No upper limit.
Minimum three .No upper limit.
Board of Management Trustees / Board of Trustees Governing body or council/managing or
Board of directors/ Managing
Mode of Succession on Board of
Appointment or Election Appointment or Election by members of
the general body
Election by members of the general