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2019 Supreme(Mad) 357
IN THE HIGH COURT OF JUDICATURE AT MADRAS
VINEET KOTHARI, C.V. KARTHIKEYAN, JJ.
Union of India, Rep. by the Secretary, Ministry of Finance, New Delhi & Others - Appellant
Versus
The Society of Mary Immaculate (Tamil Nadu), Rep. by its President, Madras & Others - Respondent
Writ Appeal Nos. 391 to 402, 569 to 583, 585 to 596, 598, 599 & 603 of 2019 & 817, 819 to 827, 829, 832, 833, 837 to 844, 846, 836, 897 to 906 of 2019
Decided on : 20-03-2019
For the Appellants : Karthik Ranganathan, Standing Counsel.
For the Respondents:Arvind Datar, S.C, Fr. Xavier Arulraj, S.C assisted by Fr. Xavier Associates, Poornima, Advocates.
Headnote:
Income Tax Act, 1961 - Section 192 – Taxation – Trust/Institute - Determination of Tax – Deduction of Tax - Petitions filed by the respondent/assesses, Christian Religious Institutions, which run and control a large number of educational institutions, Convents or Schools in the State of Tamil Nadu and who represent the cause of the Teachers working in such Schools, mainly the Nuns, Sisters, Missionaries and Fathers, who are also Teachers in such Schools of the various subjects - Whether the Income Tax Law is a-political, a-religious in character, whether the character and attributes of the recipient of an income determines the taxability or the character of the receipt of income and whether the provisions for withholding of tax or deduction of tax at source are dependent upon the final taxability of the sum paid or not, are the background cords, in which, we are called upon to decide a few important questions of law arising in the present – Held, It has nothing to do with the Religious freedom as guaranteed under Articles 25 and 26 of the Constitution of India. In the present case, the State Government cannot be said to be bound to pay such salary in favour of the Church or Diocese in place of Teachers concerned who may be Nuns or Missionaries and who may even leave and come out of such Religious Order on their own volition. On the other hand, the State Authorities, if they do not deduct tax at source on such salary payments, may be held guilty of not following the provisions of Income Tax Act rendering them to pay penalty and even face prosecution. Therefore, neither the Income Tax Department nor the State Government have anything to do with the religiious character of the Institution, may be Teachers or Nuns or Missionaries and therefore, they cannot take a stand for not making the tax deduction at source in view of the Canon Law – Appeal disposed of.
Key Points:- The judgment states that Income Tax Law is apolitical and a-religious in character, and tax provisions apply irrespective of religious status of recipients. (!) - It discusses Section 192 requirements for deduction at source on salaries and the obligation of the payer (State Government) to deduct tax at source at the time of payment. (!) - It analyzes whether Circulars/Instructions on exemption (1944, 1940, 1977, 2016 clarifications) can exempt salary payments to nuns/missionaries and concludes they do not blanket-exempt salary from TDS; focuses on diversion of income vs.application of income. (!) (!) (!) - It elaborates that diversion of income by overriding title may apply in some contexts, but in this case salary paid by the State to individuals is taxable income in the individuals' hands, with possible later application to the religious institution, not a direct diversion at source. (!) (!) (!) - It notes that old circulars are not applicable to salary payments under Grant-in-Aid/ECS arrangements for teachers, per the court’s reasoning. (!) (!) - It confirms the judgment is to be applied prospectively. (!) - It addresses the locus standi and the scope of writ petitions challenging TDS on salary payments to teachers in religious institutions. (!) - It references the definition of salary under Section 15 and its interplay with Section 192. (!) (!)
What is the nature of Income Tax Law: Is it apolitical and non-religious in character and how does that affect tax deduction at source for salaries paid to religious personnel?What are the conditions under which tax deduction at source (Section 192) applies to salaries paid by the State Government to teachers in religious educational institutions, including nuns and missionaries, and can such salaries be exempt from TDS under old circulars/instructions?What are the legal implications of diversion of income by overriding title at source versus application of income in the context of salaries paid to members of religious congregations?
DR. VINEET KOTHARI, J.
1. Whether the Income Tax Law is a-political, a-religious in character, whether the character and attributes of the recipient of an income determines the taxability or the character of the receipt of income and whether the provisions for withholding of tax or deduction of tax at source are dependent upon the final taxability of the sum paid or not, are the background cords, in which, we are called upon to decide a few important questions of law arising in the present Writ Appeals filed by the Union of India and Income Tax Department, arising from the judgment of the learned Single Judge, by which he allowed the writ petitions filed by the respondent/assessees, the Christian Religious Institutions, which run and control a large number of educational institutions, Convents or Schools in the State of Tamil Nadu and who represent the cause of the Teachers working in such Schools, mainly the Nuns, Sisters, Missionaries and Fathers, who are also Teachers in such Schools of the various subjects.
2. The crux of controversy is that the Nuns, Sisters, Priests or Fathers, who also render their services as Teachers in these schools which receive Grant-in-aid from the State Government under the Grant-in-Aid Schemes formulated by the State to the extent of their full salary, claim that they are bound by the Canon Law for their vows of poverty to the Christ and that they cannot be taxed in respect of the Grant-in-Aid or salary received from the State Government by respective school or educational institutions and now directly transferred to the individual Bank Account of the Teachers under ECS Scheme, as the receipt of salary in their hands entirely belongs to the Institution, Church or the Religion and having taken such vows of poverty etc. in their Canon Law, they have suffered a civil death and renounced the world and therefore, they cannot be subjected to the deduction of tax at source as stipulated in Section 192 of the Income Tax Act, 1961, and for which, in the recent past, the Income Tax Department instructed the concerned authorities of the State Government to deduct income tax at source on the payment of salaries made to these Teachers, nuns, etc. along with other Teachers also who are employed in such Schools and consequently, the relevant Instructions of the Income Tax Department in this regard deserve to be quashed.
3. The learned single Judge, in the judgment under appeal rendered on 22.12.2016 in W.P.Nos.37565 to 37567 of 2015, etc. (Institute of the Fransican Missionaries of Mary v. Union of India and Others), allowed the said writ petitions upholding the aforesaid contention of the Assessee Institutions and the Missionaries, discussing the Canon Law in detail and held that no income tax can be deducted at source from the salaries and other monetary benefits paid to these persons, who are the Members of the Religious Congregation and it would be sufficient, if the Head of the Institution concerned certifies the names of the staff Members, who were Members of the Religious Body and the period during which they have served and the designation of the post. While doing so, the learned Single Judge held that in terms of Article 26 of the Constitution of India, there is a guarantee to religious denomination, a right to acquire its own property and to administer such property in accordance with law and that the administration of the property by a religious denomination has thus been placed on a different footing from the right to manage its own affairs in matters of religion. The latter is a fundamental right which no legislature can take away, whereas the former can be taken away by law which the legislative can validly impose. The learned single Judge proceeded to hold that an action by an authority which impinged upon the right to practice a religion as guaranteed under Articles 25 and 26 of the Constitution of India has to be held to be as not sustainable.
4. Aggrieved by the said judgment, the Union
