In this article, Gupta Shubham pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses Compliance Requirements for Public Charitable Trust in Mumbai.

The Constitution of India in Article 19 grants “Protection of certain rights regarding freedom of speech etc”. Wherein Article 19(1) (c) gives “right to form associations and unions” with some prohibitions attached thereto in this regard. Also, seventh schedule of The Constitution of India finds mention of trusts and trustees in entry 10 and charities, charitable institutions, charitable and religious endowments, religious institution finds mention in entry 28 in the concurrent list making both Centre and state competent to legislate and regulate charitable organizations. So it becomes a constitutional right of the citizens to form associations. Generally, Public Charitable Trusts are governed by Indian Trusts Act, 1882 and the Income tax Act, 1961 in absence of a state enactment in this regard. Section 2(15) of Income Tax Act, 1961, includes relief to poor, education, medical relief and the advancement of any other object of general public utility in “Charitable purposes”.

Finance Act, 2008, limited the definition of “charitable purposes” by stating that if advancement of any other object of general public utility involves undertaking any trade, commerce or business activities or rendering any service for a fee, it will not be considered charitable purpose. Finance Act, 2010, provided relief by exempting the aggregate value of receipts up to one million rupees. Section 3 of the Indian Trusts Act defines a trust as “an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by him for the benefit of another”.

Requirements for Public Trusts as per the Bombay Trusts Act, 1950

In Mumbai, Public Trusts are governed by the state law known as the Bombay Trusts Act,1950. As per Section 2(13) BPT Act, 1950 Trust means an express or constructive trust for either a public religious or charitable purpose or both and includes a temple, math, a wakf, church, synagogue, agiary or other place of public religious worship, a dharmada or any other religious or charitable endowment and a society formed either for a religious or charitable purpose or for both and registered under the Society Registration Act, 1860.

The Definition of Charitable purposes under Bombay Trusts Act includes operations for,

1. Relief of poverty or distress,
2. Education,
3. Medical relief ,
4. The advancement of any other object of general public utility, but does not include a purpose which relates exclusively to religious teachings or worship.

Also Section 9(2) lays down that facilities will be considered to be provided in public interest if:

1. They are provided with object of improving the condition of life of persons concerned,
2. Those concerned persons either need such facilities or the facilities are needed by persons at large.

Public Charitable Trusts in Mumbai have to comply with various Acts and Enactments namely:

• Indian Trusts Act, 1882

• Bombay Public Trusts Act, 1950
• Income Tax Act, 1961
• Foreign Contribution Regulation Act, 2010

The Bombay Public Trusts Act lay down procedures for application in schedule II wherein the proposed name of trust, name of trustees and their addresses, mode of succession to trusteeship, objects of trust, documents creating the trust, details of properties, sources of income of trusts, average gross annual income and expenditure, communication address of trustee, consent letter of trustees have to be made to Regional Deputy or Assistant Charity Commissioner within three months of creation of trust. Memorandum containing details of immovable properties to be filed with the Jurisdictional sub registrar under Indian registration act.

Details about any changes shall be informed to the charity commissioner within 90 days of such change in schedule IIIA where it relates to change in immovable property and in schedule III in all other cases.

The Public Charitable Trusts in Mumbai are required to see prior permissions of Charity Commissioner in case of:

• Further investment in immovable property,
• Sale, exchange, lease, gift for a period exceeding 3 years in case of non-agricultural land and 10 years for agricultural land.
• Lending money to any trustee.

Trusts are required to pay contribution under sec.32 at the rate 2% of gross annual income after deductions to public trust administration fund. Under the BPT Act, public trust having gross annual income of Rs. 25000 or less, those working exclusively for advancement/propagation of secular education/medical relief /veterinary treatment, recognized public libraries, trusts exclusively working towards relief of distress caused by natural calamity are exempted from making contribution to public trust administration fund. They are required to prepare budgets in case annual income exceeds 10,000, in schedule VIIA and submit them to the charity commissioner one month before the commencement of the accounting year.

Accounts are required to be maintained in schedule VII, income and expenditure account in schedule IX. It is mandatory for trusts to get their accounts audited within 6 months of close of accounting year and submit the same with charity commissioner within a fortnight of the audit if their annual income exceeds rupees 15,000. Trusts exempt from audit are required to file details of income in schedule IX-A and details of expenditure in schedule IX-B within three months of close of accounting year.

Requirements for Public Charitable Trusts as per the Income Tax Act, 1961

Under the income tax act 1961, Application under section 12A in form 10 to be made to the principal commissioner or commissioner along with original certified copy of trust deed, two copies of accounts of trust (max. 3 years immediately preceding the year in which application is made) if it has been in existence during any year prior to year of making the application, who shall pass the order within 6 months from end of month in which application is made.

An application in triplicate for registration in 80G to be made in form 10G along with copy of registration granted under 12A, note on activities of trust, copy of accounts during last three years to be made to commissioner who shall within 6 months accept and grant a certificate or reject after an giving an opportunity to be heard.

Points to be considered when making an application:

• There should be legally existent entity, which can be registered.
• Written instrument of its creation it mandatory.
• Objects should be charitable in nature.
• All its properties, income and assets should be utilized towards the object only.
• Members, directors, founders are not authorized to claim any part of its income.
• All the net assets should be used to meet all his liabilities and would not be utilized to by its founders, in case of dissolution.

Trusts and Institutions formed for promotion of scientific research, education, sports, certain profession, khadi and village industries or hospitals or notified charitable institution are entitled for exemption from tax under Section 10 of Income Tax Act, 1961.

Section 11 of ITA, 1961, also lays down that income or gains from property held under trust shall not be included in total income.

Section 11 and 12 of the Income Tax Act, 1961

It lays down certain conditions according to which exemption is to be given, they are:

1. Trusts created wholly for charitable or religious purposes and applying their income to such purposes.
2. Trusts created before 1.4.1962 in part only for charitable or religious purposes and applying income to such purposes.
3. Those created before 1.4.1962 authorized by general or special order of the board.
4. Trusts created on or after 1.4.1952 for charitable purposes of promoting international welfare in which India is interested, authorized by a general or special order of the board.
5. Charitable trusts created for the benefit of scheduled castes, tribes, backward classes or women or children.

Requirements for Public Charitable Trusts as per the Foreign Contribution Regulation Act, 2010

Application in Form FC-3 to be filed to foreigners division of ministry of home affairs online and in hard copy within 30 days with copy of registration, copy of PAN, copies of audited statements, details of activities for last three years and the prescribed fees. The requirements lay down that incomplete applications will be rejected. The registration certificate is granted within 90 days from date of receipt of application if all the specified conditions are met.

Specified conditions under FCRA Act

1. The Applicant should not be,

(a) Fictitious or Benami,

(b) Found guilty of misutilization of funds,

(c) Prosecuted or convicted for conversion of people belonging to one religion to another, creating communal tension,

(d) Engaged in propagation of sedition,

(e) Likely to use Foreign Contribution for Personal benefits,

(f) If found in contravention of FCRA.

2. The applicant is required to take reasonable work and preparations for benefit of the society.
3. Any office bearers should not have been convicted under any law under any law for the time being in force or any prosecution should not be pending against him/her in any court of law.

4. Acceptance of FC should not be to affect prejudicially-

• The sovereignty and integrity of India,
• Security, strategic, scientific or economic interest of India,
• Public Interest,
• Freedom of fairness of any election,
• Friendly relation with any foreign state,
• Harmony between various castes or communities.

5. Acceptance of FC should not lead to incitement of an offence or endanger the life or physical safety of any person.

If the certificate or permission is not granted it has to be communicated to the applicant. Application for prior permission should be seeked for receiving a specific amount, specific purpose and from a specific donor. The application is required to be made online in Form FC-4, Duly signed hard copy with certified copy of trust deed, commitment letter from foreign donor specifying the amount of contribution, copy of PAN, copy of project report for which FC is granted and prescribed fees of Rs.1,000. The registration stands valid for 5 years and has to be renewed by making application in Form FC-5.

Certain Requirements regarding receipt of funds as FC like,

• Only to be deposited only in designated FC bank account.
• Records of all FC to be maintained with name of donors, locations and purposes.
• FC received can only be treated as corpus donation only if supported by written consent of donor.

Requirements regarding utilization of Funds

• Utilized for the purpose it has been received.
• Not more than 50% of received amount be utilized for administrative expense, except for the prior approval of central government.
• All assets purchased should be in the name of association.
• FC received cannot be invested in speculative business.
• Interest earned on FC should also be used towards its objective.

FCRA lays down restrictions on fund transfer

• FC received cannot be transferred to any person with no registration or prior permission.
• Only 10% of total FC can be transferred to any person who has not obtained registration only after prior approval of central government. Such approval is not required if payment is made to self-help groups or if FC received for providing financial assistance as charity.

Associations are required to maintain separate books of accounts for the FC received and utilized, all such statements shall be preserved at least for a period of 6 years. Registers of investments are mandatorily required to be maintained and audited. Accounts should be such that it becomes easy to differentiate between local funds and FC. Associations receiving FC in excess of Rs. One Crore in a financial year is required to place a summary data in public domain.

Public charitable trusts should submit annual report in Form FC-6 along with audited statement of accounts and solvency, duly certified by a chartered accountant, accompanied with duly certified statement of FC account from bank. Filing of this report is must. Public Charitable Trusts in Mumbai have to comply with The Bombay Trusts Act, 1950, Income Tax Act, 1961, Foreign Contribution Regulation Act, 2010 as discussed above.