By TIOL News Service

NEW DELHI, OCT 06, 2018: THE ISSUE IS - Whether restriction/impediment provided under Explanation 1 to Section 60 & 73 of Indian Trust Act, makes it impossible for a citizen domiciled abroad to establish an Indian charitable trust. NO IS THE ANSWER.

Facts of the case:

The assessee is an educational trust, established for the benefit of humanity at large without discrimination of caste, religion, creed or sex. Looking to its objects which was charitable in nature, the trust had applied for registration u/s 12AA before the CIT(E) along with application for exemption u/s 80G. The CIT(E) on the perusal of the Trust deed noted that there were five initial trustees, and all were Non-Resident Indian, i.e., who had taken the citizenship of the foreign country. According to CIT(E) in terms of Explanation-1 to Section 60 & Section 73 of the Indian Trust Act" a non-resident could not be a trustee of an Indian resident trust unless he was domiciled in India. Based on this reasoning, he has rejected the assessee's application for grant of registration u/s 12AA as well as application for exemption u/s 80G.

Tribunal held that,

++ it is noted that the sole reason for denying the registration u/s 12AA by the CIT(E) is that the trustees are the non-resident and therefore, under the provisions of 'Indian Trust Act, 1882' they cannot be held to be a valid trustee; and when the trust and its structure itself is not proper, therefore, the condition precedent for grant of registration is not fulfilled. The provision of Section 10 of Indian Trust Act, clearly provides that every person capable of holding property may be a trustee, but where trust involves the exercise of discretion, he (trustee) cannot execute it unless he is competent to contract. Thus, a person who may be trustee must be capable of holding a property of which the Trust is declared and must be competent to deal with the property as required by the Trust or as directed by the beneficiaries. The CIT(E) in his order has also mentioned that under the Indian exchange control regime, it is not possible for a trust holding immovable property to have a non-resident trustee. However, he has not specified under which Indian control regime there is such a bar. On the contrary, provision of Section 6(5) of FEMA 1999, a person resident outside India can hold, own, transfer or invest in Indian currency, security or any immovable property situated in India, if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India. Thus, there is no specific bar u/s 10 of the Trust Act for an appointment of NRI as trustee of an Indian Trust;

++ though there are certain restriction of appointment of NRI as trustee has been given in the Act, for example Section 73 deals with the appointment of a new trustee on death, or is absent from India for the period of more than 6 months or domiciled outside India, etc. This section merely provides that a new trustee may be unfit to be appointed in case the said person is domiciled abroad for a period of six months continuously; or leaves India for the purpose of residing abroad, etc. In such a case, it is considered that there is a personal incapacity to act in a Trust by such person. This inter-alia means that he is considered to be unfit for the office of the trustee and the said section presume that vacancy has occurred and the provision authorizes the appointment of a new trustee in his/her place. This provision also does not forbid the appointment of NRI, albeit acts as an impediment to their appointment. Section 73 per se cannot invalidate a Trust, but rather provides bar for appointment of non-resident as a trustee. Similarly, Section 60 r.w.s. Explanation-1 of the Indian Trust Act provides that beneficiary has a right to proper trustees. This section is based on a principle that the trust whose property depends for its continuance upon the faith and integrity of the trustee should be allowed for all practical means to secure himself against the occurrence of any act of misconduct. This section provides for removal of the trustee by the beneficiary of the trust if he is not a proper person as given in Explanation-I. However, this section again does not in any way impose restriction on the author as he may very well appoint a person who is considered not proper under this Act;

++ as pointed out before the CIT(E) in the application filed in 'Form 10A', the assessee-applicant Trust has already given the list of the trustees and one of the trustee was citizen of India and domiciled in India, and therefore, it cannot be held that simply because other four trustees were non-resident and the assessee trust is not a valid trust. Now coming to the 'objects' as given in the 'Trust Deed', prima facie, it appears that all the objects are ostensibly for the charitable purposes. However, the CIT(E) has not examined the objects and the genuineness of the activities of the assessee trust which is required to be examined while considering the registration u/s 12AA, and therefore, in all fitness of mater, this matter of registration should be restored back to the file of the CIT(E) who shall examine the 'objects' of the Trust as well as genuineness of its activities; and if the assessee trust's 'objects' are charitable and is actually carrying out charitable activities for the benefit of public at large, then registration u/s.12AA should be granted.

(See 2018-TIOL-1733-ITAT-DEL)