INDIA Law and Practice Contributed by: Rishabh Shroff, Kunal Savani and Chirag Shah, Cyril Amarchand Mangaldas
ment Act, 1999 (FEMA) and the rules and regulations thereunder need to be evaluated, as private trusts are treated as pass through-entities under FEMA. Charitable organisations are often used as sophis- ticated structures for undertaking philanthropic and non-profit activities as a part of the larger wealth plan as opposed to being primary vehicles for estate and succession planning. They can be established in the form of public trusts, societies or Section 8 companies under the Indian Companies Act, 2013, each with dis- tinct governance and flexibility features, but all serving the purpose of advancing charitable objects. Public Trusts provide continuity and concentrated control, societies enable broad-based participation, and Sec- tion 8 companies offer stability with corporate-style governance. India does not have a single, unified legislation gov- erning “charity”. Instead, charitable entities are regu- lated under a patchwork of central and state-specific laws, with frameworks varying depending on the type of organisation and the state of incorporation. At the central level, laws such as the Charitable and Reli- gious Trusts Act, 1920, the Religious Endowments Act, 1863, and the Charitable Endowments Act, 1890 provide broad oversight, while states like Maharash- tra and Gujarat have enacted their own public trust statutes. 9.2 Recent Developments Affecting Planning Vehicles It has been observed that tax authorities, who had previously adopted a more liberal interpretation of residency rules, have now begun undertaking deeper scrutiny, applying a stricter interpretation to reassess the resulting tax liability. In this regard, there have been precedents wherein the tie-breaker rules pro- vided under applicable tax treaties have been invoked in conjunction with domestic residency rules to deter- mine the tax residence of individuals with cross-bor- der connections. Further, there have been significant judicial rulings that have re-emphasised the principle of substance over form in investment structures. Courts have consist- ently held that the true nature of a transaction must be determined by looking beyond its legal form to its
economic substance. Consequently, tax authorities have been scrutinising arrangements more rigorously to assess the tax liability of taxpayers, particularly in cases involving complex holding structures, con- duit arrangements, and transactions that appear to lack commercial rationale. This heightened scrutiny extends to the examination of structures including its the genuineness, and the overall commercial sub- stance employed by taxpayers in their succession and wealth planning structures. 10. Fiduciary Regulation, Standards and Taxation 10.1 Corporate and Professional Fiduciaries In India, corporate trustees are commonly used for private trusts. While not mandated by law, corporate trustees generally follow higher standards than indi- vidual trustees, favouring pragmatism and profes- sionalism. Corporate trustees’ role, remuneration and liabilities are set out in the trust deed. Typically, they are not liable for losses or costs from good faith deci- sions if they act without bad intentions. Such protec- tive clauses are common, even in private family trusts, offering comfort to trustees. Wealth management companies are often preferred corporate trustees in India, especially when invest- ing trust funds for a fee. Judicial forums in India rec- ognise and allow the piercing of the corporate veil as provided under the Companies Act, 2013 to hold responsible officers accountable for fraud or default. There are no specific laws for companies providing trusteeship services to private trusts. There is also no embargo against formation of professional trusteeship companies in India. Such corporate trustees follow the Indian Trusts Act, 1882, the trust deed and other applicable laws. 10.2 Taxation of Trusts Trusts in India are based on the common law princi- ples and are classified under two broad categories being: • private trusts (for family inheritance or private pur- pose); and
87 CHAMBERS.COM
Powered by FlippingBook