Chapter III - Institutionalised Philanthropy

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Made publicly available in the spirit of open access by its author, Noshir Dadrawala (CEO, Centre for Advancement of Philanthropy), and collaborators CAP and Forbes Marshall.

The earliest form of institutionalised philanthropy dates to 150 B.C. Roman law broadened the legal heir concept by declaring philanthropic organisations to be both 'sentient reasonable beings' and 'immutable undying persons.' The reign of the 'five good emperors' (beginning 96 A.D.) gave a further fillip to these concepts. Nerva accorded the cities the right to accept and administer bequest of funds, Trajan extended this privilege to towns and Hadrian to villages, and Marcus Aurelius permitted even private groups to receive bequests.

In India, the first institutionalised efforts in social development and welfare were initiated by Christian missionaries in the early nineteenth century. Apparently, the objective was to propagate Christianity, but their contribution to the establishment of schools, colleges, dispensaries and orphanages cannot be underrated. Later in the same century, the English established a number of organisations for the promotion of professions, arts, culture and research, notable among these being the Bombay branch of the Royal Asiatic Society and the Bombay Natural History Society.

The advent of Mahatma Gandhi on the Indian socio-political scene gave a fresh impetus to the voluntary movement in the country. He believed that voluntary action was the only path to India's development. His vision of development included all facets of life- social, economic, cultural, political and spiritual. His conceptual framework of rural development was constructing self-supporting, self-governing and self-reliant village communities where everyone's needs were satisfied, and everyone lived in harmony, co-operation and peace. To achieve this goal, Gandhiji introduced a constructive programme to achieve egalitarianism in Indian society by introducing basic education and sanitation, and by eradicating untouchability.

Origin of trusts

In England, trusts came into existence as a creation of the Court of Chancery. They were an outcome of the feudal 'uses' invented by medieval lawyers in England, in order to overcome the hardship of the Common Law rules preventing the land from being 'devised' (i.e., left by will) and the hardships of the feudal burdens imposed by the feudal lords of the manor on freehold tenants under the feudal system of the Middle Ages (500 A.D. to 1500 A.D.).

Trusts, in the sense in which that term is used and known in English law, was not known to Hindu law. However, in the wider sense of the term, it was quite analogous. There are instances in the Hindu law of the Karta of the Joint Hindu Family managing on behalf of a minor or absent members, or cases of setting apart of property which is intended to be held and used by the manager for the time being, for the purpose of providing for the worship of an idol or of carrying out any other religious or charitable obligation of the original donor.

The earliest legislation on trusts had three different legislative measures called Regulations:

Public charitable trusts in the province of Bombay had been governed by various legislations for well over a century. The Religious Endowment Act was passed by the Government, way back in 1863. This was followed, decades later, by the Charitable and Religious Trusts Act in 1920 and the Bombay Public Trusts Registration Act in 1935.

The Societies Registration Act, 1860, was passed by the Central Government on the lines of the Literary and Scientific Institutions Act, 1854.

In Bombay Presidency, since 1936, every communal trust was being governed by its own independent Act. To cite an example - the various Parsi trusts were governed by the Parsi Public Trusts Registration Act, 1936.

On January 15, 1948, the Government of independent India appointed a committee, under the chairmanship of Justice Tendolker, to investigate into the question of management of trusts and endowments, in the province of Bombay. Taking into consideration this committee's report, and after eliciting public opinion, a comprehensive Bill was passed. The Bombay Public Trusts Act, 1950, then became law. The Act repealed all other Acts and provisions applicable to the state of Bombay and the Charity Commissioner took over the guardianship of trusts from the Advocate General in Bombay.

Definition of trust

The entity called Trust is not defined anywhere in the Bombay (now Maharashtra) Public Trusts Act, 1950.

Section 3 of the Indian Trusts Act, 1882 (which governs private trusts) however defines a trust as "an obligation annexed to the ownership of poverty, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him for the benefit of another".

Scope of the term charity

In its widest sense, the word charity denotes 'all the good affections that men ought to bear towards each other'. In its most restricted and common sense, it denotes relief for the poor.

It is a clearly established principle of the law of charity that a trust is not charitable unless it is directed to public benefit (unreported decision of the Bombay High Court in Appeal No. 5 of 1975). Negatively, a trust is not a charitable trust if it confers only private benefits. In the case of trusts for educational purposes, the conditions of public benefit must be satisfied. A trust by a father for the education of his son is not a charity. The public element is not supplied by the fact that from that son's education, all may benefit. But the establishment of a college or a university is, beyond doubt, a charity. 

Whether any particular object of a bounty falls within the definition of charity must, to a large extent, depend upon the standard of customary law and common opinion amongst the community to which the parties interested belong (Trustees of Tribunal Press vs. Commissioner of Income Tax, 66 IA. 241 - A.I.R. 1939 P.C. 280 182 I.C. 882 - 41 BOM. L.R. 1150.)

Communal trusts

The Constitution of India has established a secular state and has attempted to do away with distinction of caste, color and creed. However, it is open to any citizen of India to create a valid trust for the benefit of a particular section of the community, e.g., it has been held in the Aga Khan Diamond Jubilee Trust case, by the Bombay High Court, that a trust for the uplift of the Khoja community is a public trust under the Bombay Public Trusts Act, 1950. (Unreported decision of Bom. H.C. Appeal No. 50 of 1952 - Original side.) Section 13 clause (a) of sub-section 1 of the Income Tax Act pertains to religious trusts, and clause (b) pertains to charitable trusts. In the case of a trust or institution for charitable purpose, created or established after 1-4-1962, its income would not be exempt under section 11 or 12, if the trust or institution is created or established for the benefit of any particular religious community or caste. Hence, although it is permissible to create a valid trust for the benefit of a particular section of the community, that trust would not enjoy tax exemption under section 11 or 12 of the Income Tax Act.