Read Judgement: The Provincial Superior And Ors v.The Union Of India And Ors

LE Staff

Kochi, August 7, 2021: The Kerala High Court recently held that salaries paid to nuns and priests of religious congregations, working as teachers in government or government aided educational institutions, are liable for tax deduction at source (TDS). 

The High Court found that from 1944 until the filing of the petitions in 2014, the salary paid to nuns or priests by government or aided institutions was not subjected to TDS.

A Division Bench of Justice SV Bhatti and Justice Bechu Kurian Thomas upheld the judgment rendered by a single-judge and observed that non-collection of TDS from the salaries of nuns or priests for more than 76 years does not confer a vested right or a legitimate expectation against such deduction. 

The dispute arose in 2014, when Income Tax Officers directed the District Treasury Officers that proper deduction of TDS must be effected even in the case of employees who are members of religious congregations receiving salary from the government exchequer. 

The appellants approached the court challenging the decision. A single-judge of the High Court dismissed the plea leading to the present appeal before the Division Bench.

The respondents have admitted that by a mistaken notion, tax had not been deducted from the salaries payable to nuns or priests by the officers responsible for paying the salary all these years. According to the department, the said mistake is liable to be corrected and that too without further loss of time, found the Bench.  

The Court noted that the mandate of section 192 of the Act is clear that TDS has to be deducted from the salaries payable to nuns or priests, and hence a contrary practise, which was contrary to the law of the land, cannot be permitted to be continued. 

The counsel for the appellant argued that the right to profess, practice and propagate religion under Article 25 of the Constitution of India will be infringed if tax is deducted at source from the salaries payable to the nuns or priests. 

Answering such contention, the Division Bench said that the right under Article 25 is not an absolute or an unfettered right and it does not provide any immunity from taxation on the basis of religion. 

Payment of taxes imposed under a validly enacted legislation is an essential attribute of public order. Thus, if a valid law permits deduction of tax at source, we find ourselves at a loss to assimilate the scope of the contention that deduction of tax at source violates the fundamental right to freedom of religion, added the Bench. 

The further contention of the appellants that the circulars of 1944 and 1977 exempt the salaries received by the nuns and priests from deduction of tax at source, albeit appealing on first blush, is, on deeper analysis, legally untenable in the opinion of the High Court. 

According to the Court, the circular of 1977 cannot apply to the salaries received by nuns or priests from the Government or aided institutions. Further, the clarification issued by the Central Board of Direct Taxes (CBDT) in 2016 states in unmistakable terms that the circular does not apply to salaries and pensions received by nuns or priests.

The Division Bench added that when Article 265 of the Constitution of India clearly specifies that no tax shall be levied or collected except by authority of law, the corollary must also apply with equal rigour. When a tax is imposed by the authority of law, the exclusion from the taxing provisions must also be through a valid law.  

“Since the statute has not provided for any such exemptions or exclusions for a certain category of persons like nuns or priests, the circulars cannot exclude or exempt the obligation created u/s 192 of the Act,” observed the Bench. 

Noting that the Income Tax Department admitted that they had, by mistake, failed to properly instruct the collection at source prior to 2014, the High Court held that this judgment shall apply only prospectively and not for any earlier periods.

The Division Bench also clarified that this direction is issued not on the basis of any proclaimed right of the nuns or priests.

The High Court, therefore, dismissed the appeal and held that nuns and priests who accrue salaries from the Government exchequer are liable to pay TDS.

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