Registration of A Charitable and Religious Trust

Registration of a Charitable and Religious Trust typically involves the following steps:

Table of Contents

1. Introduction :

Choose a name for the trust:

The first step is to choose a name for the trust that is not already in use by another organization. The name should reflect the charitable and religious nature of the trust.

Create a trust deed:

A trust deed is a legal document that outlines the objectives, powers, and governance structure of the trust. The trust deed should also specify the names of the trustees and the beneficiaries of the trust.

Obtain a PAN card:

The trust should obtain a Permanent Account Number (PAN) card from the Income Tax Department. This is necessary to open a bank account in the name of the trust and to file income tax returns.

Open a bank account:

The trust should open a bank account in the name of the trust. This account will be used to receive donations and other funds.

Register with the registrar of societies:

The trust should register with the registrar of societies in the state where it will operate. This involves submitting the trust deed and other relevant documents, along with an application for registration.

Apply for tax exemption:

The trust can apply for tax exemption under Section 80G of the Income Tax Act, which allows donors to claim a deduction on their taxable income for donations made to the trust.

Obtain necessary licenses:

Depending on the activities of the trust, it may be necessary to obtain licenses from other government authorities, such as the Charity Commissioner or the Registrar of Public Trusts.

Once the above steps are completed, the trust can begin its charitable and religious activities. It is important to maintain proper records and comply with all legal and regulatory requirements.

2. Need for Registration of A “Charitable & Religious Trust”

For a public trust, whether in relation to a movable property or an immovable property the registration is optional but always desirable. From the practical point of view, it is always advisable for charitable trusts to have a proper registered trust deed.

Registration has the following advantages:

a) A registered Trust Deed becomes an official document which carries support and force of law.

b) a registered deed effectuates transmutation of possession. The registration of a trust-deed, in the absence of an intention to the contrary, is enough to convey the title to trust-property to the trustee, even if the trust deed is not delivered to him;

c) A conveyance of trust property to the trustee under a registered deed is generally not open to challenge.

d) In case of a charitable or religious trust, in relation to an immovable property, for claiming exemption u/s. 11 of the Income Tax Act, it is essential that the instrument of trust is duly registered [CIT Trustees of Dr Divekar Charity Trust { 1977 } 110 ITR 227 (Born.)]

e) When the trust deed is reduced into writing with the Registrar, it facilitates exemptions under section 80G of the Income-Tax Act for the donors. It may be noted that this is an essential requirement for the purposes of section 80G of the Income-tax Act, 1961.

(f) Under the provisions of sections 11,12,1 2A and 13 read with sections 60 to 63 of the Income-Tax Act, the income of charitable! religious trust is exempt from income tax subject to the fulfillment of certain conditions. Such trust institutions are entitled to exemption under the Income-tax Act when they are created or established for charitable purposes as defined under section 2(15) of the Income tax Act, 1961.

3. Types of Registrations of A “Charitable & Religious Trust”

Registration of a Trust is mainly required from two angles:

Registration under State Act
Registration under Income Tax Act

Other types of registrations associated with a trust, required in certain situations, may be briefly stated as under:

(a) Registration under the Indian Registration Act;

(b) Registration under Public Trusts Act;

Registration under the Indian Registration Act

As regards registration under the Indian Registration Act, it may be noted that it is the trust-deed and not the trust which is required to be registered. Thus, for this purpose, a trust deed has to be framed incorporating the necessary provisions for management of the affairs and objects of the trust. This deed has to be registered with the Sub-Registrar of the Registration Department of the respective State Government. Besides, a trust created by a will may also be registered under the said Act by registering the will itself.

A trust-deed should be presented for registration within four months of its execution (Sec.23), in the office of the Sub-Registrar within whose sub district the whole or some portion of the property is situate. (Sec. 28). If a document cannot be prescribed for registration within the aforesaid period, owing to urgent necessity or unavoidable accident, it may be presented for registration within a further period of four months along with a fme which shall not exceed ten times the amount of registration fee (Sec. 25.). Registration fees, as prescribed by the state Government, is payable on presentation of the document. (Sec.78).

A trust deed relating to immovable property must, for the purposes or registration, contain a description of such property, sufficient to identify the same. (Secs.2 1 & 22). If there are any interlineations, blanks, erasures or alterations in a deed, the same must be duly attested by the person(s) executing the deed (Sec.20).

When the Registering Officer is satisfied that the provisions of the Act as applicable to the document presented for registration have been complied with, he shall endorse thereon a certificate containing the word “registered”, together with the number and page of the book in which the document has been copied. Such certificate shall be signed, sealed and dated by the Registering Officer, and shall then be the conclusive evidence that the document has been duly registered. (Sec.60).

Registration under Public Trusts Act

It may be noted that a charitable or religious trust, whether public or private, is not required to obtain registration under the Indian Registration Act. However, in certain states like Maharashtra and Gujarat there is a Public Trusts Act, which obliges such institutions/trusts to get registered as such under the said Act.

For example, according to the Bombay Public Trusts Act, 1950, all charitable and religious institutions are to be registered as Public Trusts and will come under the supervision of the Charity Commissioner of the State.

For details, the relevant state law on trusts, if any, should be consulted.

Registration under Income-tax Act

Charitable or religious trusts and societies, claiming exemption under Section 11 and 12 of the Income-tax Act are required to obtain registration under the Act. Private / family trusts are neither allowed such exemption nor, thus, required to seek registration under the Income-tax Act. However, private trusts partly for charitable or religious purposes, are also eligible and should, thus, obtain registration.

Registration under Foreign Contribution (Regulation) Act, 1976

Any society, trust or charitable company, carrying on educational, charitable, religious, economic, cultural or social welfare activities and desirous of receiving any foreign contribution from a foreign source, is required to obtain registration under section 6(1) of the Act. Any such association which is not registered or which has been denied registration, can receive foreign contribution only alter obtaining prior permission from the Central Government under section 6(1 A) of the Act.

4. Procedure for Registration of Trust under the Indian Trusts Act, 1882

1. Decide the following:

a) Name of the trust

b) Address of the trust

c) Objects of the trust (Charitable or Religious)

d) One settlor of the trust

e) Two trustees of the trust (minimum)

f) Property of the trust — movable or immovable property (normally a small amount of cash/cheque is given to be the initial property of the trust, in order to save on the stamp duty).

2. Prepare a Trust Deed on stamp paper of the requisite value. The rates of stamp duty varies from state to state. Kindly check the current rate of stamp duty applicable in your state.

3. Requirement for registration of Trust Deed with the Local Registrar under the Indian Trusts Act, 1882:

a) Trust Deed on stamp paper of requisite value.

b) One passport size photograph & copy of the proof of identity of the settlor.

c) One passport size photograph & copy of the proof of identity of each of the two trustees.

d) One passport size photograph & copy of the proof of identity of each of the two witnesses.

e) Signature of settlor on all the pages of the Trust Deed.

t) Witness by two persons on the Trust Deed.

4. Go to the local Registrar and submit the Trust Deed, along with one photocopy, for registration. The photocopy of the Deed should also contain the signature of settlor on all the pages. At the time of registration, the settlor and two witnesses are required to be personally present, along with their identity proof in the original.

5. The Registrar retains the photocopy and returns the original registered copy of the Trust Deed.

5. Registration of Trust under Sections 11 & 12 of the Income Tax Act, 1961

(i) Section 1 2AA of the Act provides for the procedure to be followed for grant of registration to a trust or institution.

(ii) According to which, the person in receipt of the income should make an application in Form No. 1 OA for registration of the trust or institutions to the Commissioner before the expiry of a period of one year from the date of the creation of the trust or the establishment of institution, whichever is earlier.

(iii) However, where an application for registration is made after the expiry of the aforesaid period, the provisions of sections 11 and 12 will apply from 1st day of the financial year in which the application is made.

(iv) Along with Form no. 1 OA(in duplicate), ifie the original (or certified copy of) Trust Deed, together with one copy thereof, under which the trust is set up (original copy of the deed if filed shall be returned).

(v) Two copies of accounts (i.e. Balance Sheet, Income & Expenditure A/c., and Receipts & Payment A/c.) for the last three years, prior to the financial year in which application is made, are also to be filed along with application (if applicable). It should be noted here that only the copies of accounts of the trust since its inception or during the last three years, whichever is less, are required to be filed.

(vi) The Commissioner shall call for documents and information and hold enquiries regarding the genuineness of the Trust or Institution. After he is satisfied about the charitable or religious nature of the objects and genuineness of the activities of the trust or institution, he will pass an order granting registration and if he is not so satisfied, he will pass an order refusing registration, subject to the condition that an opportunity of being heard shall be provided to the applicant before an order of refusal to grant registration is passed by the Commissioner and the reasons for refusal of registration shall be mentioned in such order.

(vii) The application for registration of a trust or institution is to be made to the Commissioner. However, in case trust falls under the jurisdiction of an income tax authority having its head quarters at Mumbai, Chennai, Kolkata or Delhi, the application is to be made to the Director of Income Tax (Exemptions).

(viii) The order granting or refusing registration has to be passed within six months from the end of the month in which the application for registration is received by the Commissioner and a copy of such order shall be sent to all the applicants. The order is effective until withdrawn. It is also provided that the grant of registration shall be one of the conditions for grant of income-tax exemption u/s. 11 & l2ofthelncomeTaxAct, 1961.

(ix) The Commissioner is empowered to cancel registration at any time if he is satisfied that the activities of the trust are not genuine or not according to the objects of the trust, after giving a reasonable opportunity of being heard.

(x) One of the conditions as to registration of trusts as provided by section 1 2A is that the accounts of the trust or institution for that year should be audited by a chartered accountant where the total income of the trust or institution as computed under this Act without giving effect to the provisions of section 11 and 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year and such audit report is furnished along with the return of income for the relevant assessment year.

6. Cancellation of Registration of A “Charitable & Religious Trust”

The Commissioner of Income Tax is empowered by section 12AA to cancel registration already granted to a charitable trust or institution, with effect from 15t October, 2004. The new provision has been introduced to clarify that the power of cancellation of registration already granted was in existence but it was the subject matter of litigation.

The amendment provides that if the Commissioner of Income tax is satisfied that the activities of any trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, he shall, after giving reasonable opportunity of being heard to the concerned trust or institution, pass an order in writing cancelling the registration granted under section 1 2AA.

A section of the society feels that the power to cancel registration would be a threat which the Department could use against the trusts and institutions to make them fall in line with the departmental view or action, failing which threat of cancellation of registration would be executed so as to deny total exemption from tax to charitable institutions and to impose the levy of tax, interest and penalty on the moneys already spent / utilized for charitable purposes.

The power to cancel registration has been given to the Commissioner without granting to the trusts a corresponding right to agitate the order of cancellation. The assessee has to agitate the grievances only before the High Court in a writ petition. The Finance Act, 2010, amended subsection 3 of section 1 2AA so as to also provide for cancellation of registration where any trust or institution has obtained registration at any time under section 1 2A before its amendment, effective from 1st June, 2010.

Practical Tips

It is advisable to pass resolutions in the Board meeting of the trustees relating to the following aspects and attach the same along with Form No. 10A:

(a) That the investment of surplus funds will be made only in such manner and in such securities, permitted by the Income-tax Act,

(b) In case the trust deed is silent, that in the event of dissolution of the trust, the funds of the trust will be donated to some other trust with similar objectives.

(c) That any alteration to the trust deed will be communicated to the Commissioner immediately. Though this part is founded in Form No. 10A itself, most Commissioners insist that a resolution of the Board of trustees should be passed in this regard. Some Commissioners insist that the resolution should be to the effect that any alteration to the trust deed will not be carried out except without the prior written permission of the Commissioner.

(d) Form No. 10A is to be filed in duplicate. In case PAN has been obtained for the trust, the same may be quoted on right hand top corner of Form No. 10A. Form No. 10A in duplicate, along with a certified copy of the trust deed and a copy may be filed along with the above resolution copies, in the office of the Commissioner along with a covering letter which clearly lists out the enclosures. If two copies of the letter are taken, the receiving clerk in the Commissioner’s office will sign and affix date and seal in one copy of the letter. This is the proof of having submitted the application for registration.

7. Belated Filing of Application for Registration of A “Charitable & Religious Trust”

Previously, the trustee could have sought condonation of the delay. If the Commissioner was satisfied about the reasons for the delay, he would have condoned the delay, in which case the registration was effective from the date of formation of the trust.

This position was changed by the Finance Act, 2007 from 01.06.07. The power of Commissioner of condonation of delay in making of application for registration is taken away. Now the trust filing delayed application, under any circumstances, will not be able to obtain registration from the date of creation. To become eligible from the date of creation, the trust will have to make an application for registration in the same financial year of creation. Now the one year time-limit from the date of creation within which the trust could so far make such application is also removed. New registration, from the date of creation or from the first day of financial year in which year the application has been moved, will be granted.

Supposing a trust was formed on 1st March, 2011 and the application for registration is submitted on 31st. December, 2012, the benefits of sections 11 and 12 will be made available with effect from 1st April 2012.

8. Practical Problem on Registration of a ‘Trust’ Under Section 12A

A Charitable trust was formed in 2012 by an instrument in writing, the author transferring Rs. 5,000 as trust property. The instrument was not registered with the Registrar. The trust is yet to be registered with CIT under Section 12A. The major activity of the trust during these years was to collect donation for the corpus, and get invested in building. The donation for the year comes around Rs. 1,00,000. Now the trustees want to get it registered with CIT under Section 12A.

My queries are: –

(1) Whether the registration with the Registrar is necessary for getting registration under Section 12 A?

(2) As the application has been delayed, what would be treatment of donation for building corpus- whether it would be treated as capital receipt or revenue receipt? Whether provisions of Section 147 would be applicable or not in this case?

Reply –

Section 12A lays down two conditions which should be fulfilled before Section 11 and 12 providing exemption of income of trust and institution referred to therein could operate and one of these conditions is that the person in receipt of the income should have made an application for the registration of trust or institution in the prescribed form and in the prescribed manner to the Commissioner of Income Tax before the expiry of a period of one year from the date of creation of trust or the establishment of the institution. If such an application is made after the expiry of the period of one year, the provision of Section 11 and 12 would not apply from the date of creation of trust but from the first day of the financial year in which application is made.

Neither Section 12A nor Rule 17A of the IT Rules, 1962 lays down that the trust should have been registered before the “Registrar” or with any other authority. Form No: 1 OA contains the particulars to be mentioned in the application and documents that should accompany the application. This form also does not envisage prior registration with Registrar The querist should examine the provisions of the local Act dealing with public charitable trusts in order to find out the duties of the trustees of such trusts as prescribed therein. That is altogether a different matter and has nothing to do with registration under Section 12A of the IT Act, 1961.

The donation received by the trust would be regarded as voluntary contribution and in view of sub-cl. (iia) of Section 2(24), such voluntary contribution would be regarded as income of the trust. The fact that amounts received from such voluntary donations were spent in constructing building would not mean that said contribution was not income. In case of delay in making an application, the assessment could be made by resorting to provisions of Section 147 ( income escaping assessment).

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