Willing rights

Can a public trust created by a will be registered if the author of the trust and all the executors "die or become incapable of executing the trust?” This issue was raised in the Philanthropy newsletter of the Centre for Advancement of Philanthropy, May-June 2013 issue in an article entitled "Inheritability of the right to register a trust.”
Lawyer Parinaz Madan cites the case of Jehangir Bomanji Boman Behram, an affluent Parsi solicitor who bequeathed "his property to various people and expressed a wish in the will to establish a residuary trust fund by sale of properties … to be utilized for certain charitable objects. However, before the executors could consolidate the residuary trust fund they died one after the other and for a considerable amount of time no one applied for being appointed as administrator of the probate of the will.
"Banoo (the widow of one of the executors) made an application to the High Court for getting herself appointed as the administrator of the probate and during the pendency of such application executed a deed of settlement of the public trust.” After the registration of the deed of settlement, she made an application to the Assistant Charity Commissioner (ACC) for registration of the public trust. The ACC registered the trust. Thereafter relatives of the deceased challenged the correctness of the registration before the Joint Charity Commissioner (JCC). The JCC dismissed the application. The City Civil Court did likewise. An appeal was filed before the Bombay High Court (BHC).
"On February 13, 2012 the BHC in Kavas Khurshad Nariman vs Cyrus Behram Irani and Ors delivered a landmark judgment on the point of the legal right to file an application for the registration of trusts under the act,” writes Madan. "In a nutshell, the BHC in its judgment laid down as follows: "‘The widow of the executor has no legal right to file an application for the registration of the trust as after the death of the executor of the will, his status as an executor comes to an end since rights of an executor are not inheritable.
"‘In the instant case it is only the executors and in the event of their death, the administrators appointed by the court who would have the right to make an application for the registration of the trust and the widow of the executor being neither an executor nor the administrator had no such right.’”

Do’s and don’ts
The Philanthropy issue also has some interesting dos and don’ts for trusts wanting to avail of exemption of income tax.
Some do’s:
The trust must be a public charitable or public religious trust and not a private trust; income claimed to be exempt must be derived from property held under trust; the trust must be wholly for charitable or religious purposes.
Activities of the trust must be carried out in India. Eighty-five percent or more of the income for the year must be applied to (i.e. put to use) for charitable or religious purposes, and the balance (i.e. 15 percent or less) must be accumulated or set apart for future application for charitable or religious purposes. If 85 percent of the income is not applied to charitable or religious purposes during the year, the same must be accumulated or set apart for future application for definite and specified purposes.
If income of the trust or institution includes any income from business, such business must be incidental to the objectives of the trust, and separate accounts must be maintained for such business.
Capital gains, if any during the year (whether short or long term), must be reinvested in a new capital asset in order to be deemed to have been applied to charitable purposes.

Some don’ts
Property must not be held under trust for private religious purposes but for the benefit of public.
The trust or institution must not have been created or established for the benefit of a particular religious community or caste (other than Schedule Caste/Schedule Tribe/Backward Classes, women and children).
Under the terms of the trust or rules of the institution, no part of its income must directly or indirectly be for the benefit of the author/founder/trustee/manager or other such interested person.
No part of the income or property of the trust or institution must actually be used or applied during the previous year either directly or indirectly for the benefit of any such person. Anonymous donations are taxable at the rate of 30 percent.

Trustee drawing salary
In the Reader’s Forum section of Philanthropy a query is raised: "Can a foreign passport holder with OCI (Overseas Citizen of India) or PIO (Person of Indian Origin) status donate in Indian rupees? How does one treat this donation? [FCRA (Foreign Contribution’s Regulation Act) or local funds]?”
Philanthropy answers: "Since the donor is holding a foreign passport he is deemed under FCRA 2010 to be a ‘foreign source’ and as such even if he donates in Indian rupees it must be deposited in your FCRA account.
A second question is raised regarding a salary being drawn by a trustee: "Can I be appointed as a trustee of our family managed public charitable trust? Can I draw a salary?”
Answer: "As long as you or your family members or any of the trustees are not seen to be drawing any personal ‘benefit’ there should not be any problem with your being appointed as a trustee. As a trustee you may draw a ‘reasonable salary’ and that would be allowed and not construed as benefit.”