Trusts and Trust Deeds

Saji Koduvath, Advocate, Kottayam.

Introduction

A trust is what its authors or founders intended, as revealed from the deed of dedication, if any, or on other substantial evidence. In CIT v. Kamala Town Trust, AIR 1996 SC 620, 1996-7 SCC 349, it is pointed out as under:

“A Trust Deed is a document which sets out the terms of an understanding between the author of the trust and the trustees. Though in form, the trustees are not signatories to the instrument as drawn up, they are parties to the instrument in a real sense, for it is on the terms of the instrument that they accept office and proceed to administer the trust. The law obliges them to act upon the terms of the Trust Deed, and they cannot commit a breach thereof.”

The trustee is bound to fulfil the purpose of the trust, and to obey the directions of the author of the trust given at the time of its creation (Sec. 11 of the Indian Trusts Act, 1882). Usually, there will be trust deeds which direct the administration of the trusts, which include how the trustees are appointed, and how new trustees are selected.

As per the Indian Trust Act. 1882, the trustee holds the trust-property for ‘management’ or ‘administration’. The legal ownership vests in the trustee for the purposes of the trust, and its administration should be in accordance with the provisions of the deed of trust (Ramabai Govind v. Raghunath Vasudevo: AIR 1952 Bom 106).

In Abdul Kayum Vs. Alibhai, AIR 1963 SC 309, our Apex Court expounded the following legal incidents of trusteeship:

(i) Trustees cannot transfer their duties, functions & powers to some other body of men and create them trustees in their own place unless this is clearly permitted by the trust deed, or agreed to by the entire body of beneficiaries (Sec. 48);
(ii) A trustee is not bound to accept the trust; but having once entered upon the trust he cannot renounce the duties and liabilities except with the permission of the Court or with the consent of the beneficiaries or by the authority of the trust deed itself (Sec. 46).
(iii) A trustee cannot delegate his office or any of his functions except in some specified cases (Sec. 47).

Trustee is Obliged to Manage for Benefit of the Beneficiaries

As pointed out by our Apex Court, in WO Holdsworth Vs. State of Uttar Pradesh,[AIR1957 SC 887; See also: Ramabai Govind Vs. Raghunath Vasudevo: AIR 1952 Bom 106.] the Indian Trusts Act, 1882 declares vesting legal ownership with trustees. The vesting of ownership of trust property with the trustee is under an obligation to manage it for the benefit of the beneficiaries.[Chhatra Kumari Vs. Mohan Bikram: AIR 1931 PC 196; Kansara Abdulrehman Sadruddin Vs. Trustees Maniar Jamat: AIR 1968 Guj 184. See also: RamabaiGovind Vs. Raghunath Vasudevo: AIR 1952 Bom 106; Chikkamuniyappa Reddy Vs. State of Karnataka: ILR 1997 Kar 2460; Mathura Bai Fatechand Damani Vs. Regional PF: 1992 WLN 206(Raj)] Though, in a trust, the trust property must have been transferred to the trustees, and the trust property vests in the trustee as owner thereof, it does not absolutely belong to any individual.

Trustee has no ‘Proprietor Interest’

It is observed by the Supreme Court in State Bank of India Vs. Special Secretary Land and Land Revenue [1995-Supp. 4 SCC 30] that the trustee would become the owner of the trust property for the purpose of effectively executing or administering the trust for the benefit of the beneficiaries and for due administration thereof, and not for any other purpose. Merely because the property is vested in the trustee as the legal owner, he has no ‘proprietor interest’, inasmuch as the beneficial interest is ‘carved out’ in the property itself.

Trustee Deals with the Property According to the Deed of Trust

The property is vested in trustees subject to the obligations upon which the trustees accepted the trust.[Chikkamuniyappa Reddy Vs. State of Karnataka: ILR 1997 Kar 2460; Mathura Bai Fatechand Damani Vs. Regional PF: 1992 WLN 206(Raj)] The trustee deals with the property in accordance with the provisions of the deed of trust.[Ramabai Govind Vs. Raghunath Vasudevo: AIR 1952 Bom 106] In dealings with the world at large, the trustee personates or represents as the owner of the property.[Govardhandhari Devsthan Vs. Collector of Ahmednagar: AIR 1982 Bom 332. Kapoorchand Rajendra Vs. Parasnath Digambar: 2000-1 MPJR 199]The legal ownership which vests in the trustee is for the purposes of the trust and to administer [Bhavna Nalinkant Vs. Commr Gift Tax: 2002-174 CTR 152,2002-255 ITR 529] the same.

Basic Principle of Foundation of a Trust Cannot be Changed

The trustees are bound to administer the affairs of the trust to attain the objects (Commr of IT Vs. Rajmitra Bhailal: 1964-54 ITR 241) envisioned by the founder and in accordance with his directions laid down in the trust deed; and the acts and actions of trustees ultra vires such objects or directions are void. If a trustee fails to administer in accordance with the terms of the trust, it amounts to breach of trust (RP Kapur Vs. Kaushalya Educational Trust:1982-21 DLT 46; ILR 1982-1Del 801).

The basic principle of foundation of a trust cannot be changed. Tudor on Charities [6th Edn. At p. 131], explained it as under:

“When a charity has been founded and trusts have been declared, the founder has no power to revoke, vary or add to the trusts. This is so irrespective of whether the trusts have been declared by an individual, or by a body of subscribers, or by the trustees.” (Agasthyar Trust Vs. Commr IT Madras ; 1998 AIR (SCW)3945 ;1998-5 SCC 588)

No Change to Basic Principles, Even By Majority, Unless Specific Power

Fundamental principles upon which an association is founded (as revealed from the deed of dedication, if any, or on other substantial evidence) are also not open to alteration, even for the majority of its members, unless such a power is specifically reserved. This principle is laid down in

Milligan Vs. Mitchell, (1837) 3 My. & Cr. 72 : 40 ER 852,
Attorney General Vs. Anderson, (1888) 57 LJ Ch 543, and
Free Church of England Vs. Overtoun, (1904) AC 515

These decisions are referred to in –

Prasanna Venkitesa Rao Vs. Srinivasa Rao, AIR 1931 Mad. 12.

See also:

Inderpal Singh Vs. Avtar Singh: 2007-4 Raj LW 3547;
Allahabad High School Society Vs. State of UP: 2010-5 ADJ 734, 2010-82 All LR 83;
P. Jayader Vs. Thiruneelakanta Nadar Chinnaneela Nadar: ILR 1966-2 Mad 92.

Ultra Vires Acts, Void; It Constitutes ‘Breach of Trust’.

A company is a juristic person. The actions and functioning of a company differ from that of a natural person who is free to act on his whims and fancies. The actions and functioning of a company are limited by its Memorandum of Association and Articles of Association.

Deed of Endowment/Dedication

A declaration by a registered deed or vesting/transferring property to a trustee is the usual mode of dedication of immovable property for the creation of a public trust; though no document is necessary for creating an endowment.

If the founders’ intention is clear from the document of foundation or other direct evidence, oral or documentary, no difficulty arises. In cases where express dedication cannot be proved, it will be a matter for legal inference from the proved facts and circumstances of each case. In Radhakanta Deb Vs. Commr. of Hindu Reli. Endts, it is held:

“Where, however, a document is available to prove the nature and origin of the endowment and the recitals of the document show that the control and management of the temple is retained with the founder or his descendants, and that extensive properties are dedicated for the purpose of the maintenance of the temple belonging to the founder himself, this will be a conclusive proof to show that the endowment was of a private nature.”[AIR 1981 SC 798; (quoted in Kuldip Chand Vs. Advocate General to Government of H P: AIR 2003 SC 1685).]

In S. Shanmugam Pillai . Vs. K. Shanmugam Pillai .[AIR 1972 SC 2069] it is held:

“Whether or not a dedication is complete would naturally be a question of fact to be determined in each case on the terms of the relevant document if the dedication in question was made under a document. … “[Quoted in Sitaram Agarwal Vs. Subarata Chandra: AIR 2008 SC 952; Controller of Estate Duty West Bengal Vs. Usha Kumar: AIR 1980 SC 312]

In Hemanta Kumari Debi Vs. Gauri Shankar Tewari _{[AIR 1941 PC 38; Quoted in Kuldip Chand Vs. AG to Government of H P: AIR 2003 SC 1685. Terms of the document, important:1951 SCR 1122; Sri. Govindlalji Vs. State of Rajasthan: AIR 1963 SC 1638; R Venugopala Reddiar Vs. Krishnaswamy: AIR 1971 Mad 262; Kuldip Chand Vs. A G to Govt of H P: AIR 2003 SC 1685. Importance of document: Radhakanta Deb Vs. Commr. of Hindu Endts.: AIR 1981 SC 798; Dr. BK Mukherjea, J. on the Hindu Law of Religious and Charitable Trusts: Page 188]}it is held, while dealing with a bathing ghat on the banks of the River Ganges, that complete relinquishment of title was not the only form of dedication under Hindu Law.

It further observed as under:

“In the absence of a formal and express endowment evidenced by deed or declaration, the character of the dedication can only be determined on the basis of the history of the institution and the conduct of the founder and his heirs.”

Our Apex Court observed the following, interpreting a deed, in Idol of Sri Renganatha-swamy Vs. PK Thoppulan Chettiar [(2020) 5 Mad LJ 331(SC)] as under:

“The Deed of Settlement must be examined as a whole to determine the true intention of the settlor. Where the settlor seeks to divest himself of the property entirely for a religious purpose, a public religious charity is created. In the present case, the Deed of Settlement creates an absolute prohibition on the subsequent sale or mortgage of the suit property. The Deed of Settlement provides that, the settler purchased the punja land mentioned in the schedule of property… for the performance of charity work in reference to Sri Renganathan-swamy sanctum. The property outlined in the schedule of the Deedof Settlement is described as, property allotted for charity work. With respect to the legal heirs, the Deed of Settlement creates an obligation on the settlors legal heirs to continue the charitable activities at the suit property out of their business incomes. The settlor had a clear intent to divest himself and his legal heirs of the property and endow it for the continuation of the charitable activities at the suit property. The purpose of the endowment was to carry on charitable work. The Deed of Settlement obligates the legal heirs to continue the charitable activities at the suit property.”

West and Buhler in Digest of Hindu Law [at page 248] reads further as under:

“Like the trustee in English law, a Shebait has to act gratuitously and he cannot charge the debutter estate for any remuneration on account of the time and labour he spends over his affairs. The position would certainly be different if there is a provision in the deed of dedication to that effect; or, in the absence of any deed of endowment, there is a usage sanctioning such remuneration to the Shebait. The law is well established that, in the absence of any provision in the deed of dedication or any usage to that effect, a Shebait has no right to take any portion of the income of the debutter estate nor even the surplus that remains after meeting the expenses of the deity. In this income would be included not merely the rents and profits of the debutter property but the offerings which are made to the deity by its devotees. “

Underhill in his treatise Law relating to Trusts and Trustees under the caption, Right to Reimbursement and Indemnity, it has been stated as under:

“Trustee is entitled to be reimbursed out of the trust property all expenses which he has properly incurred having regard to the circumstances of each particular case but without interest unless he has paid an interest bearing claim in which case he stands in the shoes of the creditor by subrogation.”

Description of Property as Debutter in a Deed, Not Conclusive

Execution of a deed by itself will not prove dedication. Though it is a piece of evidence, it is not conclusive for determining the dedication. In Paras Nath Thakur Vs. Mohani Dasi Deceased Ana [AIR 1959 SC 1204 ] it is held that when a document is solemnly executed and registered, burden is heavy on the person who plead it to be fictitious. [ILR 18 Cal. 10; ILR 42 All. 295]

Appointment and Succession of Trustees

Method of appointment of trustees and the mode of their succession are the matters for the author of the trust. If sought for, court will give effect to the same. In the absence of an instrument of trust, custom and usage will hold the field. Under Sec. 92 CPC, when the trustees fail to take administration of the trust, the designated court is destined to interfere in the appointment of new trustees if the trust deed is silent as to the appointment of the new trustees.

Under Hindu Law, when there is no provision in the deed of endowment about the succession of office of Shebait, or the succession provided therein comes to an end, the management and control of the property follows the ordinary rule of inheritance from the founder and passes to his heirs. (Bhagauti Prasad Khetan Vs. Laxminathji Maharaj: AIR 1985 All 228)

Rights, Duties and Liabilities of Trustees in a Nut Shell

Trustee has all rights as a legal-owner of the trust property. It includes possession of the trust property. Rights enumerated under Chapter IV (The Rights and Powers of Trustee) of the Indian Trusts Act, which includes the following:

Sec.31. Right to title-deed.

All Trustees Should Act Jointly

Indian Trusts Act, 1882 reads as under:

48. Co-trustees cannot act singly.—When there are more trustees than one, all must join in the execution of the trust, except where the instrument of trust, otherwise provides.

Lewin on Trusts reads as under [Sixteenth Edition, page 181]:

“In the case of co-trustees of a private trust, the office is a joint one. Where the administration of the trust is vested in co-trustees, they all form as it were but one collective trustee and therefore must execute the duties of the office in their joint capacity. Sometimes, one of several trustees is spoken of as the acting trustees, but the Court knows of no such distinction: all who accept the office are in the eyes of the law acting trustees. If anyone refuses or is incapable to join, it is not competent for the others to proceed without him, and, if for any reason they are unable to appoint a new trustee in his place under Section 36(1) of the Act, the administration of the trust must devolve upon the Court. However, the act of one trustee done with the sanction and approval of a co-trustee may be regarded as the act of both, though such sanction or approval must be strictly proved.” [Quoted in: Atmaram Ranchhodbhai Vs. Gulamhusein Gulam Mohiyaddin, AIR 1973 Guj 113]

No trustee can delegate his powers and duties to another trustee and any agreement to do so would be against the obligations he had undertaken, illegal and void [H.E.H. The Nizam’s Jewellery Trust (in re:): AIR 1980 SC 17]. But in the absence of such provision, all co-trustees must join in the execution of the duties of the office [Atmaram Ranchhodbhai Vs. Gulamhusein Gulam Mohiyaddin: AIR 1973 Guj 113]. This principle applies both to Public and private trusts[Atmaram Ranchhodbhai Vs. Gulamhuse in Gulam Mohiyaddin: AIR 1973 Guj 113. Also See: Man Mohan Das Vs. Janki Prasad, AIR 1945 PC 23].

In Kishore Joo Vs. Guman Behari Joodeo [AIR 1978 All 1] it has been held that the trustees would join to file an application to execute the decree obtained on behalf of the idol of a temple. However, it was also observed that it was a settled law that it was Shebait alone who can file a suit. But in exceptional circumstances, persons other than Shebait can institute a suit on behalf of the idol. Our Apex Court in M/s. Shanti Vijay and Co. Vs. Princess Fatima Fouzfa [AIR 1980 SC 17] held as under:

“The act of one trustee done with the sanction and approval of a co-trustee may be regarded as the act of both. But such sanction or approval must be strictly proved.” [Quoted in: JP Srivastava and Sons Vs. Gwalior Sugar Co.AIR2005 SC 83].

Suit by One of its Trustees: Effect

The trustees altogether constitute one body in the eye of law and all must act together. A suit against a trust is not maintainable without impleading all its trustees. However, suits can be filed by any one (or more) of the trustees, when so authorised in that behalf by the rest.[Kishorelal Asera Vs. Haji Essa Abba Sait Endowments: 2003-3 Mad LW 372: 2003-3 CCC367] But such sanction or approval must be strictly proved.[ Shanti Vijay Co. Vs. Princess Fatima: AIR 1980 SC 17. Lewin’s Law of Trusts referred to. Vaidyaratnam P. S. Variers Arya Vaidyasla Vs. K. C. Vijaikumar: ILR 1990-1 Del 124.] It is doubtful whether it can be by a resolution, otherwise than executing powers of attorney. Similarly, all co-trustees together should determine the tenancy by issuing notice;[ Atmaram Ranchhodbhai v. Gulamhusein Gulam Mohiyaddin: AIR 1973 Guj 113; Duli Chand Vs. Mahabir Pershad Trilok Chand Charitable Trust: AIR 1984 Del 144] and all together should file the suit for eviction.[ Kansara Abdulrahman Vs. Trustees of the Maniar Jamat: AIR 1968 Guj. 184; Uma Ray Vs. Smt. Meghamala: AIR 1989 NOC. 166 (Cal); Iswardas Vs. Maharashtra Revenue Tribunal: AIR 1968 SC 1364; Baisnab Das Sen Vs. Bholanath Sen: AIR 1986 Cal 118; M. M. Nagalinga Nadar Vs. Sri. Lakshmi Family Trust: 2001- 3 MLJ 523] In J.P. Srivastava and Sons (P) Ltd. Vs. Gwalior Sugar Co. Ltd. [(2005) 1 SCC 172] it is held by the Supreme Court as follows:

“Therefore, although as a rule, trustees must execute the duties of their office jointly, this general principle is subject to the following exceptions when one trustee may act for all
.(1) where the trust deed allows the trusts to be executed by one or more or by a majority of trustees;
(2) where there is express sanction or approval of the act by co-trustees;
(3) where the delegation of power is necessary;
(4) where the beneficiaries competent to contract consent to the delegation;
(5) where the delegation to a co-trustee is in the regular course of the business,
(6) where the co-trustee merely gives effect to a decision taken by the trustees jointly.”

Our Apex Court, in Kanakarathanammal Vs. Loganatha Mudaliar [AIR 1965 SC 271] has observed that where all the trustees were not joined as parties the omission was fatal and that in appropriate cases it was not impermissible for the Court, to permit the impleading of the other Trustees in exercise of its powers under Order I Rule 10 (2) of the CPC, 1908. The Apex Court cautioned that this should be done at the stage of trial and that too, without prejudice to the plea of the parties as to limitation.

But it is held otherwise by Bombay High Court in Namdeo Vs. Shahi Gupta Masjid Chandrapur,[2014-4 AIR Bom R 657] pointing out that the trust represented by one of the co-trustees itself was the ‘landlord’ and that the ‘landlord’ was entitled to file a petition for eviction under the Rent Control Act and also referring the definition of ‘landlord’ mentioned in the Act.

Dr. BK Mukherjea, J. on The Hindu Law of Religious and Charitable Trusts speaks in this regard as under:

“When there are more Shebaits than one, they constitute one body in the eyes of law, and all of them must act together. The management may be for practical purposes in the hands of one of the Shebaits who is called the managing Shebait or the Shebaits themselves may exercise their right of management by turns; but in neither case it is competent for one of the Shebaits to do anything in relation to the Debutter estate without the concurrence either express or implied of his co-Shebaits. This is of course, subject to any express direction given by the grantor.”[Quoted in Bhagauti Prasad Khetan Vs. LaxminathjiMaharaj: AIR 1985 All 228]

Managing Trustees Would be Entitled to Execute the Duties

The instrument of trust may provide that one or more trustees shall be managing trustees and where such provision is made, those who are empowered to act as managing trustees would be entitled to execute the duties of the office without the concurrence of the other co-trustees. But in the absence of such provision, all co-trustees must join in the execution of the duties of the office. [Atmaram Ranchhodbhai Vs. Gulamhusein Gulam Mohiyaddin: AIR 1973 Guj 113; Kishore Joo Vs. Guman Behari Joo Deo: AIR 1978 All 1; Shanti Vijay and Co. Vs. Princess Fatima Fouzfa: AIR 1980 SC 17.]

In JP Srivastava and Sons Ltd. Vs. Gwalior Sugar Co [AIR 2005 SC 83] it is held by the Supreme Court as follows:

“Therefore, although as a rule, trustees must execute the duties of their office jointly, this general principle is subject to the following exceptions when one trustee may act for all:
(1) where the trust deed allows the trusts to be executed by one or more or by a majority of trustees;
(2) where there is express sanction or approval of the act by co-trustees;
(3) where the delegation of power is necessary;
(4) where the beneficiaries competent to contract consent to the delegation;
(5) where the delegation to a co-trustee is in the regular course of the business,
(6) where the co-trustee merely gives effect to a decision taken by the trustees jointly.”

If the Trust Deed Permits One Trustee can Execute the Duties

The observation in J.P. Srivastava and Sons (P) Ltd. v. Gwalior Sugar Co. Ltd., AIR 2005 SC 83; (2005) 1 SCC 172 – if the trust deed so permits, one trustee can execute the duties for other trustees also – is referred to in the following decisions:

Charu Kishor Mehta v. Joint Charity Commissioner, 2015-8 SCC 207
Tapendro Mullick v. Kumar Mrigendro Mallick, 20193 CHN 640 (Cal)
Life Insurance Corporation of India v. Digvijaysingh Gangasingh, 2017-6 AllMR 346; 2018-1 MhLJ 259
Namdeo v. Shahi Gupta Masjid Chandrapur, 2014-3 AllMR 592; 2014-4 MhLJ 209
Shyamabai v. Madan Mohan Mandir Sanstha, 2014-1 AllMR 810; 2014-2 BomCR 436; 2014-2 MhLJ 547
Indian Youth Centres Trust v. Shishir Bajaj, 2012-193 DLT 584
Shyamabai v. Madan Mohan Mandir Sanstha, AIR 2010 Bom 88
Canbank Mutual Fund v. Nuclear Power Corporation, 2007-145 DLT 1; 2007-98 DRJ 464; ILR 2007-16 Dlh 1303.

A person/trustee is not bound to accept the trust; but having once accepted, he cannot renounce the duties and liabilities except with the permission of the Court or with the consent of the beneficiaries or under the authority of the trust deed itself.

Delegatus Non Potest Delegare (a delegate has no power to delegate, unless sub-delegation of the power is authorised by express words by the terms of the deed or necessary implication (Director General, ESI Vs. T. Abdul Razak AIR 1996 SC 2292.Shanti Vijay And Co Vs. Princess Fatima Fouzia: AIR1980 SC 17;Also see: Sk. Abdul Kayum Vs. Mulla Alibhai: AIR 1963 SC 309.) is a well-settled principle of law

‘Cy pres’ Doctrine

When it is found by the court that the particular mode of charity, indicated by the donor, cannot be carried on for impossibility or impracticability, the court will execute and accomplish the donor’s intention applying ‘cy pres’ doctrine. It is applied where from lapse of time or change of circumstances it is no longer possible to apply the property left by the founder or donor in the precise way in which it was directed to be applied. [Balkrishna Vishvanath Vs. Vinayak Narayan: AIR 1932 Bom 191; AP Shah Vs. BM Institute of Mental Health: 1986 GLH 262.] It is based on the principle that the court is the protector of all charities; [C Chikka Venkatappa Vs. D Hanumanthappa 1970 (1) Mys LJ 296; Narayan Krishnaji Vs. Anjuman E Islamia: AIR 1952 Kar14] and that the court will not allow to fail a validly created trust or objects of foundation.

Invoking ‘cy pres’ doctrine the court will apply the property of the Trust to a charitable purpose ‘as nearly as possible’ [In Re Man Singh and Others, AIR 1974 Del. 228]. Besides physical impossibility, becoming the trust valueless, owing to attendant circumstances, also invites application of cy pres doctrine [Hormusji Franji Warden, ILR 32 B. 214] resembling the original Trust.

The trustees are bound to carry out the directions of the author under Sec. 11 of the Trusts Act and the only way in which the directions of the testament may be varied is by applying ‘cy pres’ doctrine.

Amendment of Objects in Trust Deed – If Only Original Trust-Deed Permitted

If only the original trust-deed permitted amendment to the objects of the trust, then only the object clauses could be amended. It is settled principle of trust law that once a trust is created and certain objects stipulated therein, even the settler has no power to delete any of the objects. [Association of University Teachers Tamilnadu, v. Government of Tamil Nadu, 2012 3 MLJ 875]

CIT v. Kamala Town Trust, AIR 1996 SC 620, 1996-7 SCC 349

The Apex Court considered the effect of amendment made to a trust deed – which had earlier been rectified by a Civil Court – in CIT v. Kamala Town Trust, AIR 1996 SC 620, 1996-7 SCC 349. It was held that whatever might be the correctness or otherwise of the order passed by the Civil Court under Section 26 of the Specific Relief Act, it was not open to the Income-tax Officer to say that the trustees could administer the trust in accordance with the original deed and that the claim for exemption had to be dealt with on the basis of the original deed. It is held as under:

“In this connection it is profitable to have a look at the decision of Delhi High Court in the case of Jagdamba Charity Trust v. Commissioner of Income-Tax, Delhi (Central) (1981) 128 I.T.R. 377. In that case Deed of Trust was got rectified by the parties from the Civil Court. These proceedings had to be initiated in the light of judgment of the High Court which had held that due to provisions in certain clauses of the Trust Deed the trust was non-charitable and the trust was not entitled to exemption under Income-tax Act and that since the decision had created some doubts regarding the validity of some clauses of the deed it was necessary that the deed should be rectified. The Civil Court granted a decree and directed that the Trust Deed be rectified. The question was whether such rectification order of the Civil Court was binding on the Income Tax Department when the assessee-trust armed with such rectification order claimed exemption from income tax under Section 11 of the 1961 Act. S. Ranganathan, J., as he then was, speaking for the Delhi High Court took the view that the word ‘instrument’ used in Section 26 of the Specific Relief Act has a very wide meaning and includes every document by which any right or liability is, or is purported to be created, transferred, limited, extended, extinguished or recorded. There is no reason to exclude a Trust Deed from its purview. A Trust Deed is a document which sets out the terms of an understanding between the author of the trust and the trustees. Though in form, the trustees are not signatories to the instrument as drawn up, they are parties to the instrument in a real sense for it is on the terms of the instrument that they accept office and proceed to administer the trust. The law obliges them to act upon the terms of the Trust Deed and they cannot commit a breach thereof. If a gift deed, sale deed or promissory note could be within the terms of the section, there is no reason why a Trust Deed cannot be rectified under Section 26. It was further held that since there was an order of Civil Court binding on the author and the trustees, they could administer the trust only in terms of the amendment directed by the Court. The trustees were and must be deemed, from the beginning, to have been under a legal obligation to hold the properties only for the object and with the powers set out in the Trust Deed as amended. Therefore, whatever might be the correctness or otherwise of the order passed by the Civil Court under Section 26 of the Specific Relief Act, 1963, it was not open to the Income-tax Officer to say that the trustees could administer the trust in accordance with the original deed and that the claim for exemption had to be dealt with on the basis of the original deed. Nor was it open to the Income-tax Officer to say that in the relevant accounting year, the trustees held the property subject to the terms of the original and not the amended deed. In our view the aforesaid decision of the Delhi High Court lays down the correct legal position in connection with proceedings for rectification of instruments like trust deeds, initiated before competent civil courts under the relevant provisions of the Specific Relief Act.”

CIT, Amritsar v. Rattan Trust, AIR 1997 SC 2831; 1997-11 SCC 56

In this decision it is held as under:

“10. The requirements of the proviso with which we are concerned are (1) Trust should have been created before April 1, 1962 and (2) the trustees apply the funds of the Trust in concern in which they themselves are interested if there was a mandatory provision in the Trust Deed for such a purpose. The question which squarely falls for consideration is if the second condition should have been there is the Trust Deed before April 1, 1962 when the I.T. Act came into force or if such a condition could be added subsequently in the Trust Deed after this date if the propounder of the Trust in the Trust-Deed so authorised the trustees to amend the Trust-Deed allowing the trustees to invest the funds of the Trust in a concern in which they might be interested. To us it appears the answer is quite obvious that such a mandate in the Trust-Deed should have existed before April, 1, 1962 and could not have been brought in by amending the Trust-Deed at a later stage after that crucial date even if the Trust-Deed so authorised the Trustees to amend the Trust-Deed to bring in the mandatory condition or requirement for them to invest funds of the Trust in a concern in which they might be interested. Any other interpretation would set at naught the proviso and would defeat the very purpose for which the proviso was added in Section 13. If we accept any other interpretation then the Trustees even today could amend the Trust-Deed and bring in their case to fall within the proviso.”

Is Trust a ‘Living Person’ under S. 5 of the TP Act

Can transfer of property be made to or by Trusts/Associations?

Sec. 5 of the TP Act reads as under:

5. “Transfer of property” defined: In the following sections “transfer of property” means an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself and one or more other living persons; and “to transfer property” is to perform such act.
In this section “living person” includes a company or association or body of individuals, whether incorporated or not, but nothing herein contained shall affect any law for the time being in force relating to transfer of property to or by companies, associations or bodies of individuals.

Existing Laws as to Transfer of Property will Remain in Force

Two points are emphasised in the 2^nd paragraph of Sec. 5 –

First, all unregistered associations, whether incorporated or not, are ‘living persons’, so that transfer of property can be made.
Second, the qualifying second limb – ‘nothing herein contained shall affect any law for the time being in force relating to transfer of property to or by companies, associations or bodies of individuals‘ – made it clear:
- if any law regulates transfer of property to (or by) companies, associations or bodies of individuals, it will remain in force.

“Bodies of individuals” in Sec. 5, TP Act

It may also be pointed out that, “bodies of individuals” in Sec. 5, TP Act is wide in meaning; and it stands independent. It is broad enough to take-in Beneficiaries/ Trustees of a Trust.

Accordingly, the registration and revenue authorities, without objection, register deeds relating to such properties in the names of such institutions, associations etc.

Note: Order 31 rule 1 CPC spells out – a trust is not a legal person. It enables to file a suit by (or be sued) a trustee concerning ‘property vested in trustees’.

Can ‘Law for the Time Being in Force’ Include ‘Common Law’

‘Law for the time being in force’ in Sec. 5 TP Act includes “common law”.

It is a reality – the common law of our country accepts as valid the ‘transfer of property’ made to or effected by well-known institutions, organisations, and associations attached to reputed trusts, institutions etc., though they are not juristic-persons in its strict sense. Our courts sumptuously refer to such deeds as documents executed by or in favour of such entities, when they are referred to as exhibits. For example:

Settlement deed by Ashramam–Swayam Prakash Ashramam Vs. G Anandavally Amma : AIR 2010 SC 622;
Settlement to trust – S N Mathur Vs. Board of Revenue: 2009-13 SCC 301;
Sale deed by unregistered society – Suresh s/o. Bhagwanrao Puri Vs. State of Maharashtra: 2016-3 AIR Bom R (Cri.) 603;
Gift to unregistered Association – Pullamma Vs. Valmiki Anna Satram: 1984-2 ALT 157;
Sale deed to an association – K. Kala Vs. Dist Registrar, Madurai: 2016 3 MLJ 50,
Sale deed to an association – State of Punjab Vs. Amolak Ram Kapoor: [1990] 79 STC 315; ILR1991- 2 P&H 218.
Sale deed to an association – Asst. Commr. Vs. Shivalingawwa: ILR 2003 Kar 2855;
Lease deed by trust to school – TNP Mothoo Natarajan Vs. PV Ravi: 2015-2 MLJ (Cri.) 656;
Lease deed by a firm -2014-3 ALT 46;
Settlement deed to private trust –Kolli Venkata Raja Vs. Govt. of AP: 2014-1 ALT 155;
Lease deed to a public trust –Nadigar Sangham Charitable Trust, rep. by its managing Trustee, R. Sarathkumar Vs. S. Murugan:2013-1 MLJ 433;
Sale deed to Board of Trustees – Commissioner of Income Tax Vs. Chemists and Druggists Association Building Trust: 1995-215 ITR(Mad) 741;
Mortgage deed by a College – Sonar Bangla Bank Vs. Calcutta Engineering College: AIR 1960 Cal 450.

Similarly, the registration and revenue authorities, without objection, register deeds relating to such properties in the names of such institutions, associations etc.

It was held by our Apex Court in Kamaraju Venkata Krishna Rao Vs. Sub Collector, Ongole, AIR 1969 SC 563, that, under Hindu Law, a tank can be an object of charity and when a dedication was made in favour of a tank, the same was considered as a charitable institution. Without deciding whether that institution can also be considered as a juristic person, it was held that the same had to be registered in its name (ie., in the name of the tank) in the Inam register though it had continue to be managed by its Manager.

It is also noteworthy that Salmond on Jurisprudence reads: “Legal persons, being the arbitrary creations of the law, may be of as many kinds as the law pleases.”

*Nature of Association.*	*Vesting of Management and Legal Ownership.*	*Vesting of actual/ ultimate ownership*	*Whether perma-nent or can it be put an end to*
Club	Trustees or Gov. Body, as per Byelaws	Members, subject to the byelaws and objectives of foundation.	Presumed to be not permanent.
Unregistred. Society/ Association	-do-	-do-	Presumed to be permanent.
Registered Society	-do-	-do-	Permanent. SR Act governs dissolution.
Firm	Partners	Partners	Contract/partnership deed governs
Trading Company	Board of Directors	Company	Permanent. Co. Act governs winding up.
Charitable or Non-trading company	-do-	-do-	-do-

Public Trust– English Law	Trustees	Legal ownership in Trustees; beneficial ownership in Beneficiaries.	Permanent
Public Trust-Indian (common) Law	Trustees	Beneficiaries have only beneficial interest; and, no beneficial ownership. Theoretically, properties vest in public or section who are beneficiaries, subject to the objectives of foundation, as established by evidence or as revealed from the deed of founda-tion or byelaws, if any.	Permanent
Public School, Public Library, etc.	Trustees (called by different names).	-do-	Permanent.
Private religious or charitable trusts	Management on Trustees (called by different names). If the trust/ institution/ endowment is a legal person upon which legal ownership can be vested, legal ownership will be vested upon it.	Properties vest in trust/ institution/endowment itself. If it cannot be – for it is not a legal person – property vests in such persons as established by evidence or the deed of foundation or byelaws. Beneficiaries have no beneficial ownership.	Presumed to be permanent.
Mosque, Church, Gurudwara, etc.	Management on Trustees (by different names). If the trust/ institution/ endowment is a legal person upon which legal ownership can be vested, legal ownership will be vested upon it.	In trust/institution or endowment itself. If it cannot be – for it is not a legal person – section of public who are beneficiaries, subject to the objectives of foundation, as established by evidence or as revealed from the deed of foundation or bylaws, if any.	Permanent
Temple (Public)	Management on Shebaits/ Darmkarta/ Ooralen. Since Idol/deity is a legal person upon which legal ownership can be vested, legal ownership vests upon it.	Idol/deity	do-
Temple (private)	-do-	-do-	-do-
Mutt	Management on Madathipathi. Since Mutt is a legal person upon which legal ownership can be vested, legal ownership vests upon it.	Mutt	-do-
Private Trust (Coming under the Trusts Act	Trustees	Terms/ Deed of Trust govern.	Trusts Act governs Extinction and Revocation.

Trusts and Trust Deeds

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