[Opinion] Compliance of Any Other Law for the Time Being in Force – Trust Law | Scope & Its Effects

CA Naresh Kumar Kabra & Anuj Somani – [2024] 169 taxmann.com 267 (Article)

Introduction

“Picture this: You’re all set to start a trust, thinking it’s as simple as trusting your friends to split the bill at dinner. But just like that one friend who mysteriously ‘forgets’ their wallet, Indian trust law throws in a surprise clause—Compliance of Any Other Law for the Time Being in Force. Sounds like legalese for ‘gotcha,’ doesn’t it?”

Now, the plot thickens! Trusts are no longer just about upholding faith and fulfilling noble objectives; they’ve been handed a new challenge—ensuring compliance with laws that aren’t even clearly defined or listed. It’s like being asked to solve a jigsaw puzzle without knowing how many pieces there are or what the final picture looks like.

To keep things focused, this article does not cover the provisions of the Income Tax Act (ITA). “Trust” us, tackling that beast deserves a whole other discussion!

Trust law is a legal framework that governs the creation, operation and administration of trusts, where one party (the trustee) holds and manages property for the benefit of another (the beneficiary). The person establishing the trust is called the settlor or grantor, who specifies the trust’s terms in a trust deed. Trusts can be used for asset protection, estate planning, tax efficiency, or charitable purposes. Trustees have a fiduciary duty to act in the beneficiaries’ best interests and manage the trust’s assets responsibly.

The Indian Trusts Act, 1882 provides a comprehensive legal framework for the creation, management, and regulation of private trusts in India, ensuring clarity and accountability in their operation. It defines the roles and responsibilities of the settlor, trustee, and beneficiary, establishing their rights and obligations. However, the Act specifically governs private trusts, whereas public and charitable trusts are regulated by separate laws, including state-specific statutes such as the Rajasthan Public Trusts Act, 1959, and other specialized laws like the Wakf Act for religious endowments. This distinction ensures tailored governance for different types of trusts based on their purposes.

Beyond the fundamental regulations of trust law, trusts must also comply with a series of other legal requirements, depending on their specific activities as per item (B) of Sec. 12AB(1)(b)(i) of ITA which is also one of the conditions for grant of registration of trust in Form 10AC.

Such condition is reproduced below:

Compliance with other laws refers to the obligation of trusts to adhere to additional legal and regulatory requirements beyond the primary laws governing trusts. This means that while a trust may be established under a specific trust law (such as the Indian Trusts Act, 1882, or a public trust statute like the Rajasthan Public Trusts Act, 1959), it must also follow other relevant laws that apply to its operations, assets, and activities.

Few examples of compliances of some other laws other than Income Tax Act, 1961 non-compliance of which would trigger penalties and fines leading to deregistration of trust are discussed below:

Registration under local laws

Some states have specific local laws that require trusts operating within those states to register under the respective Acts. For e.g. in case of trusts operating in Rajasthan, they are required to obtain mandatory registration from the Devasthan Vibhag.

In cases such as search, survey, issuance of notices, or the conversion of provisional registration to regular, the department may request registration under the Devasthan Vibhag. Further, the trusts registered under old law and obtained registration under amended law are required to renew their registration latest by the month of September 2025. Failure to comply with this requirement will lead to cancellation of registration.

Other than Sec. 8 companies, for any form of Charitable Institution be it society, trust or non-trading company etc. Department is prima facie asking for this registration. However, since March 2023, Section 8 Companies are relaxed from this requirement. However, there is no official notification from CBDT in this regard but is an in house mechanism/understanding of the Department.

In future, it is possible that the Devasthan Vibhag registration could be made mandatory for Section 8 Companies, which could result in the cancellation of their registration if they fail to comply.

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