Trust and Wakfs
A trust is basically an arrangement made with regard to future devolvement and/or use of a property by its owner. This property can be immovable such as land, houses, building structures etc., or movable such as money,
shares, debentures, ornaments etc.
A trust can be distinguished from a gift or transfer of property by way of sale, mortgage, lease etc.
When a property is gifted or is transferred by way of sale, mortgage, lease etc., it involves only two parties the owner of the property and
the person or persons getting the property via such transfer called the transferee.
However, when a property is arranged to be transferred by way of a trust apart from the owner and the transferee a third party called a trustee is also involved.
The property in such cases is not transferred directly to the transferee but is put in control of the trustee for the benefit of the transferee. The trustee depending upon the nature of the trust either transfers the property or its earnings to the transferee at the happening of certain events or
applies the property and /or its gains for the benefit of such a transferee.
The document by which a trust is created is termed as an instrument of the trust and the person for rules benefit the trust is created is termed as beneficiary.
Private trusts are governed by the Indian Trusts Act, 1882. This Act is applicable to the whole of India except the State of Jammu and Kashmir and the Andaman and Nicobar Islands. That apart this Act is not applicable to the following:
Property of a Hindu Undivided Family’s.
Public or private religious as charitable endowments.
Trusts to distribute prizes taken in war among the captors.
Private trust creation
A Private trust may be created for any lawful purpose.
A private trust can be created by any person who is of the age of majority and is of sound mind, and is not disqualified by any law. Every person domiciled in India attains majority, when he or she completes age of 18years. But in case of a minor, for whom a guardian is appointed
by the court or of whose property the superintendence has been assumed by the court of wards the age of majority is twenty one years.
A trust can be as well created by or
on behalf of a minor with the permission of a principal civil court of original jurisdiction.
Apart from a human being, a company, firm, society or association of persons is also capable of creating a trust.
The trustees and beneficiaries of a private trust?
Trust and Wakfs
Trustee / beneficiary of a private trust
- Any person who is capable of holding property can be appointed a trustee.
- A person has capacity to hold property if such a person is capable of administering the property effectively and efficiently with ordinary prudence. Depending upon the nature of the trust, if trustee is required to play a passive and role without any scope of discretion a minor may as well be appointed as trustee
- However, where the trust involves exercise of discretion such as trustre quiring sale of property or its investment, the trustee should be of the age of majority, of sound mind and should not be disqualified by any law.
- A Corporation, a company or association of persons may as well be appointed as trustee.
Beneficiary of a private trust
- Every person capable of holding property such as a human being, corporation, Company and even a state can be made beneficiary of a trust.
- An unborn person can also be made beneficiary.
- However, a proposed beneficiary is not bound by the desires of the person creating the trust. Such a proposed beneficiary can renounce his interest under the trust by either making a disclaimer addressed to the trustee or by setting up a claim inconsistent with the trust.
Rights of a beneficiary
- Unless the trust instrument expresses a different intention, a beneficiary has a right to the rents and profits of the trust property.
- Again, the beneficiary has the right to ensure that the intention of the author of the trust is specifically executed to the extent of the beneficiary’s interest therein.
- Accordingly, a beneficiary can compel the trustee to perform any particular act of his duty or can as well restrain the trustee from committing any contemplated or probable breach of trust.
- If no trustees are appointed or all the trustees die, disclaim or are discharged or where for any other reason the execution of a trust by the trustee becomes impracticable, the beneficiary can file a suit for the execution of the trust. In such a circumstance, the court executes the trust until a trustee is appointed for the same.
The modes of creating a private trust
Trust and Wakfs
A trust is created when the person creating the trust, termed the author of the trust indicates with reasonable certainty by any words or acts the following.
- An intention on his part to create trust.
- The purpose of the trust.
- The beneficiary.
- The trust property
Again, unless the trust is declared by will, or the author of the trust is himself to be trustee, the author has to transfer the trust property to the trustee
A trust in relation to immovable property has to be declared in writing signed by the author of the trust or the trustee and has to be as well registered such a trust may
as well be declared by a will of the author of the trust or of the trustee. The will is not required to be registered.
A trust in relation to movable property can be either declared as in the case of immovable property or by transferring ownership of the property to the trustee.
Trust and Wakfs
The subject matter of the trust is called trust property. Any property, which can be transferred to the beneficiary, can be subject matter of the trust. But a mere beneficial interest under a subsisting trust cannot be the subject matter of a trust.
Certain other properties also cannot form subject matter of a trust. Some of these are as follows:
- Chance of receiving property such as chance of a relation to obtain legacy on death of a kinsman or chance of an heir apparent to succeed to an estate.
- Mere right to sue.
- Public office or the salary of a public officer whether after or be fore it has became payable.
- An interest in property restricted in its enjoyment to the owner personally.
- Stipends allowed to military, naval, air force and civil pensioner’s of state or political pensions.
The rights of trustees in a private trust
Trust and Wakfs
No one is bound to accept a trust as trustee. Instead of accepting a trust, the intended trustee can within a reasonable period disclaim it. Such a disclaimer prevents vesting of the trust property in the trustee. A disclaimer by one of two or more co-trustees vests the trust property in the other or others, and makes him or them sole trustee or
trustees from the date of the creation of the trust.
However, a trustee who has accepted the trust cannot after wards renounce it except as under.
- With the permission of a principal civil court of original jurisdiction.
- Consent of the beneficiary if he is of the age of majority, and of sound mind and not disqualified by any law.
- By special power in the instrument of the trust.
Equally a trustee cannot generally delegate his duties either to aco-trustee or a stranger. A delegation of duties can be made only, if:
- instrument of trust provides for it
- delegation is in the regular course of business
- the delegation is necessary
- the beneficiary,
being a major of some mind consents to the delegation.
The new trustees are appointed
Trust and Wakfs
A new trustee can be appointed by
- a person nominated for that purpose by the instrument of trust or
- author of trust or
- surviving or continuing trustees or the trustee for the time being
- legal representatives of the last surviving and continuing trustee or
- with the consent of the court, the retiring trustees (if they all retire simultaneously) or the last retiring trustee
- by the court if it is impracticable to appoint a new trustee by the aforesaid persons.
A new trustee can be appointed if
- any person appointed as trustee disclaims
- trustee dies
- any trustee is absent from India for a continuous period of 6 months or leaves India for the purpose of residing abroad
- trustee is declare an insolvent
- any trustee desires to be discharge from the trust or refuses to act as trustee or accepts an inconsistent trust
- if any trustee, in the opinion of a court becomes unfit or personally incapable to act as a trustee
The essentials of religious and charitable trust under Hindu Law
Trust and Wakfs
Essentials of religious and charitable trust under Hindu law
- There are four essential requirements for creating a valid religious or charitable trust under Hindu Law:
- Valid religious as charitable purpose of the trust as per the norms of Hindu Law.
- Capability of the author of the trust to create such a trust.
- The purpose and property of the trust must be indicate with sufficient precision.
- The trust must not violate any law of the country.
- The religious and charitable purpose are neither delineat nor define with precision under the Hindu Law.
- However, acts of piety and benevolence such as gifts to idols, establishment of Dharmasala, mutts or monasteries, performance of ‘Sradhs’ of the author of the trust or his family excavation of tanks, wells etc, establishment of hospitals, educational institute etc. qualify as religious and charitable under the Hindu Law.
- No document in writing is necessary to constitute valid religious and charitable trust by a Hindu. Only there has to be a clear and unequivocal manifestation of an intention on the part of the author to create such a trust.
- Such intention may be manifest by performing the ceremonies of sankalpa and samarpan. But these ceremonies are not essential for the Validity of the trust.
The essentials of religious and charitable trust under Mohemmedan Law
Trust and Wakfs
The word wakf as per Islamic law has two meanings:
- inalienable lands belonging to the Government which are charitable.
- Pious endowments with reference to the subject matter of trusts the second meaning is relevant.
Essentials of wakf
- Wakf has to be a permanent endowment in perpetuity.
- It cannot be either contingent or revocable.
- No instrument in writing is require to create a wakf. An oral dedication can as well create a wakf.
- Neither delivery of possession nor appointment of mutawallis is require. But the subject of wakf must be clearly define.
- A wakf can also be make by a will or by long user.
- Any Muslim who has attend majority and is of sound mind can make a wakf .A minor or his guardian as on behalf of the minor cannot make a wakf. Again, a wakf cannot be make for an illegal object.
- A wakf nama by which immovable property of value of Rs.100 as more is dedicate by way of wakf requires registration.
- The property which is either capable of being use without being consume or which is though consumable in itself but is capable of being convert into property of a permanent nature can form the subject matter of a wakf.
- A wakf can be create for any purpose which is consider religious, pious, or charitable by the Mohammadan law.
- Any wakf created with the object of obtaining the approval of the almighty or a reward in the next world is pious as per Mohammadan law.
- Few instances of a pious or a religious purpose may be mosques, provisions for imams, colleges, bridges, assistance to poor people to perform pilgrimage to Mecca, and distribution of alms to the poor.
- Wakf may be made for the rich as well poor people alike or for the affluent and thereafter for the poor or for the poor people alone. All persons regardless of their financial status can be make beneficiaries of a wakf.
- Even family members and descendents of the wakif, that is the person creating the wakf, can be made beneficiaries. Under Hanafi law, the waki himself can also be a beneficiary.
- Under Muslim law, the administration of a wakf is vest in the Mutawallibut since 1923 a number of Central and State Acts, have restrict and regulate the administration powers of a mutawalli so as to ensure transparency and proper execution of a wakf. For instance the Wakf Act1954 makes registration of a wakf, whether created before or after the commencement of the Act, at the office of a wakf commissioner mandatory.
- Thereafter, the Mutawalli’s of these register wakfs are require to prepare budget and accounts of the wakf for the appraisal of the wakf commissioner and the wakf board.
- In certain cases, the wakf board can assume direct Management of the wakf.
The tax exemptions in a trust
Trust and Wakfs
Following incomes are exempted from the application of income tax and no tax is payable on them.
- Income derived from property held under trust wholly for charitable or religious purpose
- To the extent the income is apply for such purpose in India and;
- to the extent but not exceeding 25% of such income, the income is accumulate or set apart for application to such purposes in India provide such trust has been create before 1.4.1962.
- Income derived from property held under trust partly only for charitable or religious purpose.
- Income derive from property held under trust to the extent the income is apply for the purposes of the trust outside India, if direction to this effect has been issue by the Central Board of Direct Taxes by general or special order
- in case of a trust create on or after 1.4.1962 if the trust was create for a charitable purpose which tends to promote international welfare in which India is interest or
- in case of a trust create before 1.4.1952 if the trust was create for charitable and religious purposes.
- Income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust.
Incomes are not exempt in a trust
Trust and Wakfs
The above said exemptions are not available if the income is transfer by the assessee in favor of another person
without transfer of the property producing the income or when income arises from the property
- transferred by assessee by way of revocable transfer that is, a transfer which can be nullified by the person making the transfer at his will and convenience.
- The income of the trust being profits and gains of business of the trust is exempt only if the business of the trust is incidental to the attainment of the objects of the trust and separate books of accounts are maintain by the trust in respect of the business.
- Income accrued from the property held under a private religious trust, which does not endure for the benefit of the public, does not enjoy any exemption under the Income Tax Act.
- If a public charitable institution is crate for the benefit of any particular religious community or caste except the one create for the benefit of scheduled casts, backward classes, schedule tribes or women and Children only no exemption is available.
- No exemption is available for the income of a public religious or charitable trust establish after 1.4.1962 which ensures as is apply directly or indirectly for the benefit of
- author of the trust
- any person who has made substantial contributions i.e., total contribution of more than Rs.50,000/-
- where author of trust is Hindu Undivide family, any member of such a family
- trustee of the trust
- any relative of the persons aforesaid as any concern in which the persons aforesaid have substantial interest.
Different aspects of trusts
Trust and Wakfs
A trust is an obligation attach to the ownership of the property out of confidence reposed in and accepted
by the owner or declared and accepted by him for the benefit of another. Although, every person who is capable of holding property can be a trustee but not the Government of India. Similarly, a Government servant cannot be a trustee of mosque, temple or any other religious institution.
If a trustee wrongfully sales the property, the beneficiaries have the right to follow so long as it can be traced notwithstanding any immediate change in its ownership accept in the case of a bonafide sale for value and
without notice of the trust.
A deed of trust by itself creates no endowment of the property. The author must prove that he intend for and diveste himself of the ownership in the property and cause the same vest in Deity.
The Indian Trusts Act 1882, does not affect the Mahomedan Law of wakf or the mutual relations of the members of an undivide family as determine by the customary or
general law of public or private religious or charitable endowments.
The Mahomedan law recognizes gift with a condition in the nature of trust, e.g. a gift of a property without reserving any dominion over the corpus but with the stipulation for enjoyment of the income is valid.
Although the court administers a public trust in theory under s. 92 of the Code of Civil Procedure yet some of the principles of the Indian trust act 1882, apply also to public trusts.
Trust and Wakfs
A Mahomedan can make an oral Wakf of his property under the Musalman Wakf validating Act, 1913 and 1930. A wakf may be also create by a will. If create by a deed, it is to be register under s. 17 of the Indian Registration Act, in cases where the value of the property is Rs. 100 or upwards. It is a permanent dedication of some property for any purpose recognize as pious, religious or charitable in Mahomedan law. The property vest in God.
A Sunni Mahomedan can create a valid wakf even though the gifts to charity are illusory. A wakf is something quite different from a trust. It is a dedication to God only for religious or charitable purposes. According the muslim law, a valid wakf is complete by the declaration of the wakif intending thereby a dedication of the property in good faith for some pious or religious purposes. A wakf does not fail even if the objects are not at all specifie or
where the objects specified fail for impracticability or where the objects specifie are partly valid and partly not valid.
Deed of wakf
A mutawalli has no power, without the permission of the court, to mortgage, sell or exchange waks property or any part thereof unless he is expressly empower by the deed of wakf to do so or authorize
by the court but he is to obtain the previous sanction of the Board in all such cases. The 1995 Act makes it clear that notwithstanding anything contained in the wakf deed, any gift, sale, exchange or
mortgage any immovable property which is wakf property shall be void unless such gift, sale, exchange or mortgage is effect with the prior sanction of the Board and that no mosque, dargah or Khangah shall be gift, sell, exchange or mortgage except in accordance with any law for the time being in force. The Board may accord sanction to such transaction if it is opinion that
such transaction is necessary or beneficial to the wakf, the consideration thereof is reasonable and adequate.