HIGH COURT OF KERALA
Provincial Superior
v.
Union of India
S.V. BHATTI AND BECHU KURIAN THOMAS, JJ.
WA NOS. 410, 411, 414 AND 426 OF 2015
JULY 13, 2021
Joseph Kodianthara, Sr. Adv., V. Abraham Markos, Abraham Joseph Markos, Isaac Thomas, Alexander Joseph Markos and Sharad Joseph Kodanthara, Advs. and others for the Appellant. Shamsudheen V.K. and Christopher Abraham, Advs. and others for the Respondent.
Bechu Kurian Thomas, J.
“Render unto Caesar the things that are Caesar’s
Render unto God the things that are God’s.”
We are reminded of the above teachings of Jesus Christ as
written in the synoptic gospels of the Bible, while we consider an
engrossing question on the liability of tax deduction at source from
the salary paid to teachers who are nuns or priests of the religious
congregations. The learned Single Judge dismissed the writ petitions
by concluding that tax is liable to be deducted at source from the
salary paid to the teachers, who are nuns or priests. Hence this
batch of writ appeals, at the instance of writ petitioners.
“Render unto Caesar the things that are Caesar’s
Render unto God the things that are God’s.”
We are reminded of the above teachings of Jesus Christ as
written in the synoptic gospels of the Bible, while we consider an
engrossing question on the liability of tax deduction at source from
the salary paid to teachers who are nuns or priests of the religious
congregations. The learned Single Judge dismissed the writ petitions
by concluding that tax is liable to be deducted at source from the
salary paid to the teachers, who are nuns or priests. Hence this
batch of writ appeals, at the instance of writ petitioners.
2. Few of the nuns and priests indulge in pedagogy apart from
their religious calling. Those pedagogues are paid salaries. Under
their religious calling. Those pedagogues are paid salaries. Under
their religious covenant, nuns and priests bind themselves to a vow
not to own property. At the time of initiation into their religious calling,
they claim to have taken that vow – known as the vow of poverty.
Therefore, the income received by them is handed over to their
religious congregation.
not to own property. At the time of initiation into their religious calling,
they claim to have taken that vow – known as the vow of poverty.
Therefore, the income received by them is handed over to their
religious congregation.
3. From 1944 until the filing of the writ petitions in 2014, the
salary paid to the nuns or priests by the Government was admittedly
not subjected to tax deduction at source (for brevity ‘TDS’). (It is
admitted that during the pendency of the writ petition as well as these
appeals, such salary has not been subjected to TDS). Appellants
relied upon circulars issued by the Central Board of Direct Taxes (‘the
CBDT’ for short) in the year 1944 as well as in 1977, to claim
exemption from TDS. According to the appellants, based upon the
circulars so issued, salary received by the nuns and priests, and
made over to the religious congregations were not chargeable to
income tax, and tax was never deducted at source from the salary
paid to the nuns and priests.
salary paid to the nuns or priests by the Government was admittedly
not subjected to tax deduction at source (for brevity ‘TDS’). (It is
admitted that during the pendency of the writ petition as well as these
appeals, such salary has not been subjected to TDS). Appellants
relied upon circulars issued by the Central Board of Direct Taxes (‘the
CBDT’ for short) in the year 1944 as well as in 1977, to claim
exemption from TDS. According to the appellants, based upon the
circulars so issued, salary received by the nuns and priests, and
made over to the religious congregations were not chargeable to
income tax, and tax was never deducted at source from the salary
paid to the nuns and priests.
4. Surprisingly, in the year 2014, Income Tax Officers informed
District Treasury Officers that proper deduction of TDS must be
effected in the case of employees of Government or aided
District Treasury Officers that proper deduction of TDS must be
effected in the case of employees of Government or aided
institutions, who are members of religious congregations receiving
salary from the Government exchequer. The aforesaid
communication resulted in the writ petitions challenging the direction
issued by the Income Tax Officers. Writs of mandamus were sought
to direct the disbursement officers not to deduct TDS from the salary
of teachers who are members of the petitioners’ congregations.
Three individual priests and one nun had also filed separate writ
petitions
salary from the Government exchequer. The aforesaid
communication resulted in the writ petitions challenging the direction
issued by the Income Tax Officers. Writs of mandamus were sought
to direct the disbursement officers not to deduct TDS from the salary
of teachers who are members of the petitioners’ congregations.
Three individual priests and one nun had also filed separate writ
petitions
5. Controverting the claim of the petitioners, statements were
filed by the second respondent in all the writ petitions, pleading that
the CBDT circular does not have the effect of exempting deduction of
TDS from the salary paid by the Government to the teachers through
their respective institutions. It also stated that the nuns and priests
receiving salary from Government are to be considered as
Government employees and that they are given salary, pension, and
even gratuity, on par with other Government employees. It was
further pleaded that if any person is entitled to exemption from
payment of income tax, the same is not a ground for not deducting
TDS. Respondents claimed in their statement that the entitlement of
salaried employees for exemption or deduction from tax could at the most be a ground for seeking a refund but not for avoiding TDS.
6. The learned Single Judge by the impugned judgment
dismissed the writ petitions against which these appeals were
preferred.
filed by the second respondent in all the writ petitions, pleading that
the CBDT circular does not have the effect of exempting deduction of
TDS from the salary paid by the Government to the teachers through
their respective institutions. It also stated that the nuns and priests
receiving salary from Government are to be considered as
Government employees and that they are given salary, pension, and
even gratuity, on par with other Government employees. It was
further pleaded that if any person is entitled to exemption from
payment of income tax, the same is not a ground for not deducting
TDS. Respondents claimed in their statement that the entitlement of
salaried employees for exemption or deduction from tax could at the most be a ground for seeking a refund but not for avoiding TDS.
6. The learned Single Judge by the impugned judgment
dismissed the writ petitions against which these appeals were
preferred.
7. We heard the arguments of Senior Advocate Sri. Joseph
Kodianthara duly instructed by Adv. Abraham Joseph Markose,
Senior Advocate Sri. Kurian George Kannanthanam instructed by
Adv. Tony George Kannanthanam and Adv. A.Kumar, on behalf of the
appellants. We also heard the Senior Standing Counsel
Sri. Christopher Abraham, on behalf of the Income Tax Department.
Kodianthara duly instructed by Adv. Abraham Joseph Markose,
Senior Advocate Sri. Kurian George Kannanthanam instructed by
Adv. Tony George Kannanthanam and Adv. A.Kumar, on behalf of the
appellants. We also heard the Senior Standing Counsel
Sri. Christopher Abraham, on behalf of the Income Tax Department.
8. We must mention at this juncture that, at the time when the
writ appeals came up for admission, this Court had, on 09.03.2015,
while interdicting deduction of tax at source during the pendency of
the appeals, directed consideration of the issue of the 1944 and the
1977 circulars, by the CBDT and to place its views/decision before
this Court for further consideration. The abstract of the aforesaid
order is as follows: “………….We think that primarily, this is an issue which
the CBDT ought to consider, having regard to the fact that Exhibit P1
instructions of CBDT following the circular of 1944 still appears to hold the
field. Under such circumstances, the Secretary, CBDT is directed to place this issue along with a copy of this order and the materials referred to
above for the consideration of CBDT, so that a decision can be generated
at that end and the decision of the CBDT can be placed before this Court
for further consideration of this appeal.”
9. Pursuant to the aforesaid order, an affidavit has been filed
on behalf of the CBDT stating that “the salary and pension earned by
the members of the congregation in lieu of services rendered by them in
their individual capacity are taxable in the hands of the members
themselves even if the same are made over to the congregation. In view
of the above, no exemption from TDS is envisaged under the Circulars
and Instructions of the Board under reference in respect of payments
received by members of religious congregations in their individual capacity
as remuneration for services rendered by them on the basis of their
individual qualifications and experience which do not have the character of
fees collected in a fiduciary capacity.”
writ appeals came up for admission, this Court had, on 09.03.2015,
while interdicting deduction of tax at source during the pendency of
the appeals, directed consideration of the issue of the 1944 and the
1977 circulars, by the CBDT and to place its views/decision before
this Court for further consideration. The abstract of the aforesaid
order is as follows: “………….We think that primarily, this is an issue which
the CBDT ought to consider, having regard to the fact that Exhibit P1
instructions of CBDT following the circular of 1944 still appears to hold the
field. Under such circumstances, the Secretary, CBDT is directed to place this issue along with a copy of this order and the materials referred to
above for the consideration of CBDT, so that a decision can be generated
at that end and the decision of the CBDT can be placed before this Court
for further consideration of this appeal.”
9. Pursuant to the aforesaid order, an affidavit has been filed
on behalf of the CBDT stating that “the salary and pension earned by
the members of the congregation in lieu of services rendered by them in
their individual capacity are taxable in the hands of the members
themselves even if the same are made over to the congregation. In view
of the above, no exemption from TDS is envisaged under the Circulars
and Instructions of the Board under reference in respect of payments
received by members of religious congregations in their individual capacity
as remuneration for services rendered by them on the basis of their
individual qualifications and experience which do not have the character of
fees collected in a fiduciary capacity.”
10. Thus, contrary to the understanding of the Appellants, the
CBDT has submitted before this Court that the circulars of 1944 and
even that of 1977 do not exempt the members of the religious
congregations from the requirement of TDS on the payments
received by them as remuneration in their individual capacity.
CBDT has submitted before this Court that the circulars of 1944 and
even that of 1977 do not exempt the members of the religious
congregations from the requirement of TDS on the payments
received by them as remuneration in their individual capacity.
11. With the above prelude, we refer to the contentions raised by
the learned counsel for the appellants. Adv. Joseph Kodianthara, the
learned Senior Counsel contended that the 1944 notification
continued to hold the field even after the coming into force of the
Income Tax Act, 1961 (for short ‘the Act’), and thereafter, the contents
of the circular were reiterated through the 1977 notification.
According to the learned Senior Counsel, based on these
notifications, no tax has ever been deducted from the salary paid to
the nuns and priests. Adverting to the scope of the circulars issued
by the CBDT, he emphasized that the circulars are binding upon the
officers under the Act and hence Ext.P4 direction to deduct TDS was,
according to him, liable to be set aside. Referring to the circulars
issued by the CBDT as an interpretation of the CBDT on the statutory
provisions, the learned Senior Counsel further urged that Ext.P1 was
binding upon all authorities under the statute as it was based on the
principle of diversion of income by an overriding title in favour of
congregation. He further submitted that the overriding title of the
congregations over the salaries paid to the nuns and priests was the
reason behind the concept enunciated in the circulars and since the
same is not contrary to any statutory provision, the same was
binding. By referring to the decisions in Mother Superior Adoration Convent, Kanjiramattom v. D.E.O. Kottayam and
Others (1977 KLT 303) and Oriental Insurance Co. v. Mother
Superior S.H.Convent (1994 (1) KLT 868), it was further urged that
on account of the civil death invited by the nuns and priests upon
taking the oath of vow of poverty, payment to them can only amount
to payment to the congregation and the individual remains invisible
for collection of tax or TDS.
learned Senior Counsel contended that the 1944 notification
continued to hold the field even after the coming into force of the
Income Tax Act, 1961 (for short ‘the Act’), and thereafter, the contents
of the circular were reiterated through the 1977 notification.
According to the learned Senior Counsel, based on these
notifications, no tax has ever been deducted from the salary paid to
the nuns and priests. Adverting to the scope of the circulars issued
by the CBDT, he emphasized that the circulars are binding upon the
officers under the Act and hence Ext.P4 direction to deduct TDS was,
according to him, liable to be set aside. Referring to the circulars
issued by the CBDT as an interpretation of the CBDT on the statutory
provisions, the learned Senior Counsel further urged that Ext.P1 was
binding upon all authorities under the statute as it was based on the
principle of diversion of income by an overriding title in favour of
congregation. He further submitted that the overriding title of the
congregations over the salaries paid to the nuns and priests was the
reason behind the concept enunciated in the circulars and since the
same is not contrary to any statutory provision, the same was
binding. By referring to the decisions in Mother Superior Adoration Convent, Kanjiramattom v. D.E.O. Kottayam and
Others (1977 KLT 303) and Oriental Insurance Co. v. Mother
Superior S.H.Convent (1994 (1) KLT 868), it was further urged that
on account of the civil death invited by the nuns and priests upon
taking the oath of vow of poverty, payment to them can only amount
to payment to the congregation and the individual remains invisible
for collection of tax or TDS.
12. Adv. Kurian George Kannanthanam, the learned Senior
Counsel, by inviting the attention of this Court to the concept of the
three vows undertaken by a nun or a priest during their initiation into
the religious order under the canon law, submitted that, on account of
the civil death undergone by the nuns and priests, they are not
entitled to hold any property of any nature whatsoever. According to
the learned Senior Counsel, the nuns and priests are not entitled to
have any income or hold any property and all their properties, assets
including salary and pension, belong or accrue to the religious
congregation. Reliance was placed again on the decisions in Mother
Superior, Adoration Convent, Kanjiramattom v. D.E.O. Kottayam
and Others (1977 KLT 303) and Oriental Insurance Co. v. Mother
Superior S.H.Convent (1994 (1) KLT 868). As an alternative contention, it was submitted that since a co-ordinate Bench had
adopted a different view in MSGR. Xavier Chullickal and Others v.
C.G.Raphael and Others [2017 (3) KHC 193 (DB)], the question
must be referred for consideration by a Full Bench.
13. Adv. A.Kumar, the learned counsel appearing for the three
priests who have individually filed appeals, after adopting the
arguments of the learned Senior Counsel, further added that the right
claimed by the three individual appellants is sourced from the canon
law and according to him, the circulars of 1944 and 1977 only
recognized the right of diversion of income by overriding title. He
submitted that it was a practice that has been in vogue for the last 76
years and is in alignment with the taxing statute. According to
Adv. A.Kumar, the circular did not create any new right, instead, it
merely recognized the underlying principle of an existing right of
appellants. He further bolstered his submissions by pointing out that,
since there was no dispute that the salary received by the nuns and
priests are handed over to the respective religious congregations, the
said income cannot have any significant impact upon the taxability of
the said income.
Counsel, by inviting the attention of this Court to the concept of the
three vows undertaken by a nun or a priest during their initiation into
the religious order under the canon law, submitted that, on account of
the civil death undergone by the nuns and priests, they are not
entitled to hold any property of any nature whatsoever. According to
the learned Senior Counsel, the nuns and priests are not entitled to
have any income or hold any property and all their properties, assets
including salary and pension, belong or accrue to the religious
congregation. Reliance was placed again on the decisions in Mother
Superior, Adoration Convent, Kanjiramattom v. D.E.O. Kottayam
and Others (1977 KLT 303) and Oriental Insurance Co. v. Mother
Superior S.H.Convent (1994 (1) KLT 868). As an alternative contention, it was submitted that since a co-ordinate Bench had
adopted a different view in MSGR. Xavier Chullickal and Others v.
C.G.Raphael and Others [2017 (3) KHC 193 (DB)], the question
must be referred for consideration by a Full Bench.
13. Adv. A.Kumar, the learned counsel appearing for the three
priests who have individually filed appeals, after adopting the
arguments of the learned Senior Counsel, further added that the right
claimed by the three individual appellants is sourced from the canon
law and according to him, the circulars of 1944 and 1977 only
recognized the right of diversion of income by overriding title. He
submitted that it was a practice that has been in vogue for the last 76
years and is in alignment with the taxing statute. According to
Adv. A.Kumar, the circular did not create any new right, instead, it
merely recognized the underlying principle of an existing right of
appellants. He further bolstered his submissions by pointing out that,
since there was no dispute that the salary received by the nuns and
priests are handed over to the respective religious congregations, the
said income cannot have any significant impact upon the taxability of
the said income.
14. Adv. Christopher Abraham, the learned standing counsel
representing the Department, on the other hand, contended that the
CBDT circular of 1944, as well as that of 1977, deal with and refers
to the income earned by ‘missionaries’ as ‘fees’, in contradistinction
to the salary earned by nuns or priests. He further submitted that the
letter now placed before this Court by the CBDT, pursuant to the
direction of this Court, clarified the position and the said clarification
now holds the field. It was also argued that canon law cannot have
predominance over the Act under any circumstances. He further
submitted that even though by a mistaken notion, tax had not been
deducted by the officers responsible for paying the salary all these
years, the said mistake is liable to be corrected. He also invited Our
attention to the decision in Joshi Technologies International Inc. v.
Union of India and Others [(2015) 7 SCC 728] and canvassed that
there cannot be any estoppel against law. It was also argued that the
circular cannot override the statutory provisions under any
circumstances whatsoever and in the absence of any independent
exemption from tax, the appellants cannot rely upon the 1944 or
even 1977 circular to claim exclusion from TDS. The learned
standing counsel also invited our attention to the decision reported in
Union of India v. Society of Mary Immaculate (Tamil Nadu), Madras [(2019) 412 ITR 545] wherein the Madras High Court had,
after approving the judgment of the learned Single Judge impugned
in this appeal, declared that the TDS is liable to be deducted from the
salaries paid to the nuns or priests.
CBDT circular of 1944, as well as that of 1977, deal with and refers
to the income earned by ‘missionaries’ as ‘fees’, in contradistinction
to the salary earned by nuns or priests. He further submitted that the
letter now placed before this Court by the CBDT, pursuant to the
direction of this Court, clarified the position and the said clarification
now holds the field. It was also argued that canon law cannot have
predominance over the Act under any circumstances. He further
submitted that even though by a mistaken notion, tax had not been
deducted by the officers responsible for paying the salary all these
years, the said mistake is liable to be corrected. He also invited Our
attention to the decision in Joshi Technologies International Inc. v.
Union of India and Others [(2015) 7 SCC 728] and canvassed that
there cannot be any estoppel against law. It was also argued that the
circular cannot override the statutory provisions under any
circumstances whatsoever and in the absence of any independent
exemption from tax, the appellants cannot rely upon the 1944 or
even 1977 circular to claim exclusion from TDS. The learned
standing counsel also invited our attention to the decision reported in
Union of India v. Society of Mary Immaculate (Tamil Nadu), Madras [(2019) 412 ITR 545] wherein the Madras High Court had,
after approving the judgment of the learned Single Judge impugned
in this appeal, declared that the TDS is liable to be deducted from the
salaries paid to the nuns or priests.
15. The rival contentions adverted to at the Bar has given rise
to the following questions for our consideration:
(i) Whether the writ petitions were maintainable?
(ii) Whether salaries paid to nuns and priests, who are
employees of educational institutions, are liable for tax
deduction at source?
(iii) Whether the principle of diversion of income by
overriding title apply to the salary received by nuns and
priests?
(iv) Whether the circulars of 1944 and 1977 are valid? If
yes, do they exclude TDS from the salaries of nuns or
priests?
(v) Whether deduction of tax at source violates Article 25 of
the Constitution of India?
(vi) Whether the non-deduction of tax at source from the
salaries of nuns or priests for more than 76 years
confers a right against such deduction?
16. The above questions are considered in seriatim as below.
Q.(i) Whether the writ petitions were maintainable?
17. At the outset itself, we observe that, of the 49 appeals in
this batch, except for four, the rest are all preferred by different religious congregations who are not the assessees for the purpose of
receiving the salary. Of the four appeals mentioned above, W.A.
No.701 of 2015 is filed by a nun while W.A. No.434 of 2015, W.A.
No.435 of 2015 and W.A. No.436 of 2015 are filed by individual
priests along with the religious congregations.
to the following questions for our consideration:
(i) Whether the writ petitions were maintainable?
(ii) Whether salaries paid to nuns and priests, who are
employees of educational institutions, are liable for tax
deduction at source?
(iii) Whether the principle of diversion of income by
overriding title apply to the salary received by nuns and
priests?
(iv) Whether the circulars of 1944 and 1977 are valid? If
yes, do they exclude TDS from the salaries of nuns or
priests?
(v) Whether deduction of tax at source violates Article 25 of
the Constitution of India?
(vi) Whether the non-deduction of tax at source from the
salaries of nuns or priests for more than 76 years
confers a right against such deduction?
16. The above questions are considered in seriatim as below.
Q.(i) Whether the writ petitions were maintainable?
17. At the outset itself, we observe that, of the 49 appeals in
this batch, except for four, the rest are all preferred by different religious congregations who are not the assessees for the purpose of
receiving the salary. Of the four appeals mentioned above, W.A.
No.701 of 2015 is filed by a nun while W.A. No.434 of 2015, W.A.
No.435 of 2015 and W.A. No.436 of 2015 are filed by individual
priests along with the religious congregations.
18. The religious congregations are not in receipt of any
amount as salary. In the eyes of law and that of the income tax
department, tax deduction at source is to be effected from the salary
paid to the employee of the Government. The religious
congregations have no role in that whatsoever. The religious
congregations are not employees. In such circumstances, we are of
the firm view that, the writ petitions filed by the religious
congregations were not maintainable except for those filed by the
nun and priests individually. However, taking into perspective the
importance of the questions raised and the fact that the
maintainability of the writ petitions was not questioned seriously, we
consider the questions raised in these appeals on merits. We are
also persuaded to consider the questions not only due to their
importance but also because, a nun and three individual priests are
even otherwise before this Court raising the same challenge. We hold the writ petitions to be maintainable in the peculiar
circumstances of the cases.
Q.(ii) Whether salaries paid to nuns and priests, who are
employees of educational institutions, are liable for tax deduction at
source?
19. Income tax is a tax on income. As tax is a compulsory
extraction of money, however much one despises it, once income
accrues, the compulsory extraction is inevitable, unless excluded by
law. While appreciating the weighty contentions put forth by all the
learned counsel, we also remind ourselves, apart from the abovereferred propositions, that, there are no equities in tax.
amount as salary. In the eyes of law and that of the income tax
department, tax deduction at source is to be effected from the salary
paid to the employee of the Government. The religious
congregations have no role in that whatsoever. The religious
congregations are not employees. In such circumstances, we are of
the firm view that, the writ petitions filed by the religious
congregations were not maintainable except for those filed by the
nun and priests individually. However, taking into perspective the
importance of the questions raised and the fact that the
maintainability of the writ petitions was not questioned seriously, we
consider the questions raised in these appeals on merits. We are
also persuaded to consider the questions not only due to their
importance but also because, a nun and three individual priests are
even otherwise before this Court raising the same challenge. We hold the writ petitions to be maintainable in the peculiar
circumstances of the cases.
Q.(ii) Whether salaries paid to nuns and priests, who are
employees of educational institutions, are liable for tax deduction at
source?
19. Income tax is a tax on income. As tax is a compulsory
extraction of money, however much one despises it, once income
accrues, the compulsory extraction is inevitable, unless excluded by
law. While appreciating the weighty contentions put forth by all the
learned counsel, we also remind ourselves, apart from the abovereferred propositions, that, there are no equities in tax.
20. Section 4 of the Act creates the incidence of income tax on
the total income of every person. Sections 4(1) and (2) of the Act
reads as follows:-
“4. Charge of Income-Tax.-(1) Where any Central Act enacts
that income-tax shall be charged for any assessment year at any
rate or rates, income-tax at that rate or those rates shall be
charged for that year in accordance with, and subject to the
provisions (including provisions for the levy of additional incometax) of, this Act in respect of the total income of the previous year
of every person:
Provided that where by virtue of any provision of this
Act income-tax is to be charged in respect of the income of a
period other than the previous year, income-tax shall be charged
accordingly.
(2) In respect of income chargeable under sub-section (1), incometax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act”
the total income of every person. Sections 4(1) and (2) of the Act
reads as follows:-
“4. Charge of Income-Tax.-(1) Where any Central Act enacts
that income-tax shall be charged for any assessment year at any
rate or rates, income-tax at that rate or those rates shall be
charged for that year in accordance with, and subject to the
provisions (including provisions for the levy of additional incometax) of, this Act in respect of the total income of the previous year
of every person:
Provided that where by virtue of any provision of this
Act income-tax is to be charged in respect of the income of a
period other than the previous year, income-tax shall be charged
accordingly.
(2) In respect of income chargeable under sub-section (1), incometax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act”
21. While section 4(1) of the Act levies tax on the total income
of an assessee, section 4(2) empowers deduction of tax at source
wherever it is so deductible under the provisions of the Act. The
effect of the aforesaid charging provision is that, if the statute
imposes tax and provides for deducting tax at source through its
provisions, the same has to be done, peremptorily.
of an assessee, section 4(2) empowers deduction of tax at source
wherever it is so deductible under the provisions of the Act. The
effect of the aforesaid charging provision is that, if the statute
imposes tax and provides for deducting tax at source through its
provisions, the same has to be done, peremptorily.
22. Section 14 of the Act deals with Heads of Income and
clause A is the head “Salaries”. Section 15(a) of the Act provides that
any salary due from an employer to an assessee in the previous year
whether paid or not, is chargeable to income tax under the head
“Salaries”. Further, section 16 deals with permissible deductions
while section 17 of the Act deals with what all are included as salary.
23. Since we are dealing with the question of deduction of tax
at source from salaries, it is advantageous to extract section 192(1)
of the Act, which is as follows:-
clause A is the head “Salaries”. Section 15(a) of the Act provides that
any salary due from an employer to an assessee in the previous year
whether paid or not, is chargeable to income tax under the head
“Salaries”. Further, section 16 deals with permissible deductions
while section 17 of the Act deals with what all are included as salary.
23. Since we are dealing with the question of deduction of tax
at source from salaries, it is advantageous to extract section 192(1)
of the Act, which is as follows:-
“192. Salary (1) Any person responsible for paying any
income chargeable under the head “Salaries” shall, at the
time of payment, deduct income-tax on the amount payable
at the average rate of income-tax computed on the basis of
the rates in force for the financial year in which the payment
is made, on the estimated income of the assessee under this
head for that financial year.”
income chargeable under the head “Salaries” shall, at the
time of payment, deduct income-tax on the amount payable
at the average rate of income-tax computed on the basis of
the rates in force for the financial year in which the payment
is made, on the estimated income of the assessee under this
head for that financial year.”
24. The above-extracted provision makes it obvious that it is
the statutory duty of the person paying any income as salary to
another, to deduct, at the time of making the payment, income tax at
the rates in existence. None of the provisions referred to above
provide any exemption for any category of persons, based on their
nature of vocation or occupation.
the statutory duty of the person paying any income as salary to
another, to deduct, at the time of making the payment, income tax at
the rates in existence. None of the provisions referred to above
provide any exemption for any category of persons, based on their
nature of vocation or occupation.
25. As mentioned by us earlier, when the incidence of tax
under the Act falls on every person based upon his income, the
deduction of tax at source under section 192 of the Act must be
effected from every person who receives any income as salary, if
they fall within the purview of chargeability.
under the Act falls on every person based upon his income, the
deduction of tax at source under section 192 of the Act must be
effected from every person who receives any income as salary, if
they fall within the purview of chargeability.
26. Section 192 of the Act does not contemplate any
exemption from the liability to deduct tax at source on the basis of the
nature of calling, profession, or vocation of the person who receives
the salary. The statute makes it an obligation upon the person who
pays the salary to deduct tax, at the time when payment of salary is
made. As per the statutory scheme, the sole focus under section 192
of the Act, upon the person paying the salary, is whether the income
is chargeable under the head ‘Salaries’. If the income payable will
fall under the head ‘Salaries’, the statute attaches an obligation to the
exemption from the liability to deduct tax at source on the basis of the
nature of calling, profession, or vocation of the person who receives
the salary. The statute makes it an obligation upon the person who
pays the salary to deduct tax, at the time when payment of salary is
made. As per the statutory scheme, the sole focus under section 192
of the Act, upon the person paying the salary, is whether the income
is chargeable under the head ‘Salaries’. If the income payable will
fall under the head ‘Salaries’, the statute attaches an obligation to the
person paying the salary to deduct TDS. While deducting the TDS
under section 192 of the Act, the person deducting it, is not obliged to
or required to ascertain the nature of calling or vocation of the
assessee or utilization or application of the income by the assessee.
under section 192 of the Act, the person deducting it, is not obliged to
or required to ascertain the nature of calling or vocation of the
assessee or utilization or application of the income by the assessee.
27. Chargeability to tax is not dependent on the manner of
utilization of the income. The utilization of a person’s income may be
a window for claiming a deduction or a refund, but, it is irrefutably not
a ground to claim an exclusion from deduction of tax at source. At
the time of deducting tax at source, the exigibility to tax or the
quantum to be taxed are not matters of relevance. Under the
scheme of the Act, those are matters to be considered subsequently,
after the annual returns are filed. Thus we hold that section 192 of
the Act obliges every person who makes a payment under the head
‘Salaries’ to deduct tax at source at the rates prescribed without fail
utilization of the income. The utilization of a person’s income may be
a window for claiming a deduction or a refund, but, it is irrefutably not
a ground to claim an exclusion from deduction of tax at source. At
the time of deducting tax at source, the exigibility to tax or the
quantum to be taxed are not matters of relevance. Under the
scheme of the Act, those are matters to be considered subsequently,
after the annual returns are filed. Thus we hold that section 192 of
the Act obliges every person who makes a payment under the head
‘Salaries’ to deduct tax at source at the rates prescribed without fail
Q.(iii) Whether the principle of diversion of income by
overriding title applies to the salary received by nuns and priests?
28. Appellants claimed that their income received as salary is
wholly made over to the religious congregation, due to their vow of
poverty and hence their income is not exigible to tax deducted at
source. Appellants based their claim on the principle of diversion of
overriding title applies to the salary received by nuns and priests?
28. Appellants claimed that their income received as salary is
wholly made over to the religious congregation, due to their vow of
poverty and hence their income is not exigible to tax deducted at
source. Appellants based their claim on the principle of diversion of
income by overriding title. It is settled that income tax is attracted at
the point when income is earned or accrued. Taxability of income is
not dependent upon its destination or the manner in which the
income is utilized or applied by the asessee. (See Tuticorin Alkali
Chemicals & Fertilizers Ltd., Madras v. Commissioner of Income
Tax, Madras [(1997) 227 ITR 172 (SC)].
29. Though various High Courts had applied the concept
differently, the Supreme Court in the decision in Commissioner of
Income-Tax, Bombay City II, Bombay v. Sitaldas Tirathdas,
Bombay (AIR 1961 SC 728) laid down the test to determine the
applicability of the aforestated principle. It was stated that if the
obligation for diversion of income arises even before the payment is
received by the assessee, it can be treated as a case of diversion of
income by overriding title. It was further held that if the obligation to
pay arises only after the income is received, it is a case of application
of income. The following observations of the Supreme Court,
classically illustrate the principle “In our opinion, the true test is whether
the amount sought to be deducted, in truth, never reached the assessee
as his income. Obligations, no doubt there are in every case, but it is the
nature of the obligation which is the decisive fact. There is a difference
between an amount which a person is obligated to apply out of his income and an amount which by the nature of the obligation cannot be said to be
a part of the income of the assessee. Where by the obligation income is
diverted before it reaches the assessee, it is deductible; but where the
income is required to be applied to discharge an obligation after such
income reaches the assessee, the same consequence, in law, does not
follow. It is the first kind of payment which can truly be excused and not
the second. The second payment is merely an obligation to pay another a
portion of one’s own income, which has been received and is since
applied. The first is a case in which the income never reaches the
assessee, who even if he were to collect it, does so, not as part of his
income, but for and on behalf of the person to whom it is payable. In our
opinion, the present case is one in which the wife and children of the
assessee who continued to be members of the family received a portion of
the income of the assessee, after the assessee had received the income
as his own. The case is one of application of a portion of the income to
discharge an obligation and not a case in which by an overriding charge
the assessee became only a collector of another ‘s income”
the point when income is earned or accrued. Taxability of income is
not dependent upon its destination or the manner in which the
income is utilized or applied by the asessee. (See Tuticorin Alkali
Chemicals & Fertilizers Ltd., Madras v. Commissioner of Income
Tax, Madras [(1997) 227 ITR 172 (SC)].
29. Though various High Courts had applied the concept
differently, the Supreme Court in the decision in Commissioner of
Income-Tax, Bombay City II, Bombay v. Sitaldas Tirathdas,
Bombay (AIR 1961 SC 728) laid down the test to determine the
applicability of the aforestated principle. It was stated that if the
obligation for diversion of income arises even before the payment is
received by the assessee, it can be treated as a case of diversion of
income by overriding title. It was further held that if the obligation to
pay arises only after the income is received, it is a case of application
of income. The following observations of the Supreme Court,
classically illustrate the principle “In our opinion, the true test is whether
the amount sought to be deducted, in truth, never reached the assessee
as his income. Obligations, no doubt there are in every case, but it is the
nature of the obligation which is the decisive fact. There is a difference
between an amount which a person is obligated to apply out of his income and an amount which by the nature of the obligation cannot be said to be
a part of the income of the assessee. Where by the obligation income is
diverted before it reaches the assessee, it is deductible; but where the
income is required to be applied to discharge an obligation after such
income reaches the assessee, the same consequence, in law, does not
follow. It is the first kind of payment which can truly be excused and not
the second. The second payment is merely an obligation to pay another a
portion of one’s own income, which has been received and is since
applied. The first is a case in which the income never reaches the
assessee, who even if he were to collect it, does so, not as part of his
income, but for and on behalf of the person to whom it is payable. In our
opinion, the present case is one in which the wife and children of the
assessee who continued to be members of the family received a portion of
the income of the assessee, after the assessee had received the income
as his own. The case is one of application of a portion of the income to
discharge an obligation and not a case in which by an overriding charge
the assessee became only a collector of another ‘s income”
30. The above principle was followed by the Supreme Court in
Moti Lal Chhadami Lal Jain v. Commissioner of Income Tax,
Delhi and Ors. [(1991) 190 ITR 1 (SC)] and Commissioner of
Income Tax v. Sunil J.Kinariwala [(2003) 1 SCC 660]. The
Moti Lal Chhadami Lal Jain v. Commissioner of Income Tax,
Delhi and Ors. [(1991) 190 ITR 1 (SC)] and Commissioner of
Income Tax v. Sunil J.Kinariwala [(2003) 1 SCC 660]. The
observations of the Supreme Court in the latter of the above cases
are also relevant. “Under the scheme of the IT Act, 1961, it is the total
income of an assessee, computed under the provisions of the Act, that is
assessable to income tax. So much of the income which an assessee is
not entitled to receive by virtue of an overriding title created in favour of a
third party would get diverted at source and the same cannot be added in
computing the total income of the assessee. The criteria to determine as
to when the income attributable to an assessee gets diverted by an
overriding title is the nature and effect of the assessee’s obligation in
regard to the amount in question. When a third person becomes entitled
to receive the amount under an obligation of an assessee even before he
could lay a claim to receive it as his income, there would be diversion of
income by an overriding title; but when after receipt of the income by the
assessee, the same is passed on to a third person in discharge of the
obligation of the assessee, it will be a case of application of income by the
assessee and not of diversion of income by an overriding title.”
are also relevant. “Under the scheme of the IT Act, 1961, it is the total
income of an assessee, computed under the provisions of the Act, that is
assessable to income tax. So much of the income which an assessee is
not entitled to receive by virtue of an overriding title created in favour of a
third party would get diverted at source and the same cannot be added in
computing the total income of the assessee. The criteria to determine as
to when the income attributable to an assessee gets diverted by an
overriding title is the nature and effect of the assessee’s obligation in
regard to the amount in question. When a third person becomes entitled
to receive the amount under an obligation of an assessee even before he
could lay a claim to receive it as his income, there would be diversion of
income by an overriding title; but when after receipt of the income by the
assessee, the same is passed on to a third person in discharge of the
obligation of the assessee, it will be a case of application of income by the
assessee and not of diversion of income by an overriding title.”
31. Similarly in the decision in Tuticorin Alkali Chemicals &
Fertilizers Ltd, Madras v. Commissioner of Income Tax, Madras,
(1997) 6 SCC 117, it was held that tax is attracted at the point when
the income is earned. Taxability of income is not dependent upon its
destination or manner of its utilization.
Fertilizers Ltd, Madras v. Commissioner of Income Tax, Madras,
(1997) 6 SCC 117, it was held that tax is attracted at the point when
the income is earned. Taxability of income is not dependent upon its
destination or manner of its utilization.
32. In view of the above propositions laid down by the
Supreme Court, we need to consider whether the salary paid to nuns
or priests gets diverted even before they can lay a claim to receive it
as their income.
33. The basis for applying the principle of diversion of income
by overriding title in the instant case is claimed to be the canon law.
Appellants contended that as per the canon law, once a perpetual
vow of poverty is taken, the nun or priest, as the case may be,
undergoes a civil death, and thereafter, they are not ‘persons’ under
the Act. The said contention, according to us, is too far-fetched and
is legally untenable.
Supreme Court, we need to consider whether the salary paid to nuns
or priests gets diverted even before they can lay a claim to receive it
as their income.
33. The basis for applying the principle of diversion of income
by overriding title in the instant case is claimed to be the canon law.
Appellants contended that as per the canon law, once a perpetual
vow of poverty is taken, the nun or priest, as the case may be,
undergoes a civil death, and thereafter, they are not ‘persons’ under
the Act. The said contention, according to us, is too far-fetched and
is legally untenable.
34. Canon law or the personal law of Christians belonging to
the Catholic faith have been held to have only theological or
ecclesiastical implications to the followers of that faith. When
legislation has been enacted covering a field, the said legislation has
to be interpreted based on the provisions of that enactment. The
legislation enacted by the legislature gains primacy and supremacy
over the personal laws. In this context it would be fruitful to refer to
the decision of the Full Bench of the Kerala High Court in George
Sebastian v. Molly Joseph [1994 (2) KLT 387 (FB)] dealing with the
the Catholic faith have been held to have only theological or
ecclesiastical implications to the followers of that faith. When
legislation has been enacted covering a field, the said legislation has
to be interpreted based on the provisions of that enactment. The
legislation enacted by the legislature gains primacy and supremacy
over the personal laws. In this context it would be fruitful to refer to
the decision of the Full Bench of the Kerala High Court in George
Sebastian v. Molly Joseph [1994 (2) KLT 387 (FB)] dealing with the
order of the ecclesiastical tribunal granting divorce, this Court held
that “When there is a statute governing the area, the statute has primacy
over any personal law in that regard. Personal law has relevance only to
the above extent, vis-a-vis, the statutory law. In other words, personal law
stands clipped to the extent statutory law has stepped”. While affirming
the above decision, the Supreme Court in Molly Joseph Alias Nish v.
George Sebastian Alias Joy [(1996) 6 SCC 337] held that “It is well
settled that when legislature enacts a law even in respect of the personal
law of a group of persons following a particular religion, then such
statutory provisions shall prevail and override any personal law, usage or
custom prevailing before coming into force of such Act.”
that “When there is a statute governing the area, the statute has primacy
over any personal law in that regard. Personal law has relevance only to
the above extent, vis-a-vis, the statutory law. In other words, personal law
stands clipped to the extent statutory law has stepped”. While affirming
the above decision, the Supreme Court in Molly Joseph Alias Nish v.
George Sebastian Alias Joy [(1996) 6 SCC 337] held that “It is well
settled that when legislature enacts a law even in respect of the personal
law of a group of persons following a particular religion, then such
statutory provisions shall prevail and override any personal law, usage or
custom prevailing before coming into force of such Act.”
35. The concept of civil death propounded by the canon law is
not real. The extent of civil death under canon law is limited in its
extent and in its operation. The said fiction under the canon law,
cannot be extended to cover all situations in the life of a nun or a
priest. It cannot be extended to cover situations governed by the
statutes enacted by the legislature unless the same is recognized by
the provisions of the statute. None of the provisions of the income
tax Act recognize the concept of civil death. Thus the concept of civil
death has no application under the Income Tax Act. In fact, the
decision relied upon by the appellants in Mother Superior, Adoration Convent, case (supra) itself refers to the limitations on
the fiction of civil death. The said decision observed that the criminal
wrongs committed by a nun or a priest will necessarily be dealt with
under the criminal laws of the country and when such proceedings
are initiated, the nuns or priests cannot take refuge under the canon
law or the concept of civil death. According to us, though the ratio
decidendi of the aforesaid decision has no application to the present
case, the above observations have relevance to the extent of
explaining the operational limitations of the canon law vis-a-vis
statutory obligations under any statute
not real. The extent of civil death under canon law is limited in its
extent and in its operation. The said fiction under the canon law,
cannot be extended to cover all situations in the life of a nun or a
priest. It cannot be extended to cover situations governed by the
statutes enacted by the legislature unless the same is recognized by
the provisions of the statute. None of the provisions of the income
tax Act recognize the concept of civil death. Thus the concept of civil
death has no application under the Income Tax Act. In fact, the
decision relied upon by the appellants in Mother Superior, Adoration Convent, case (supra) itself refers to the limitations on
the fiction of civil death. The said decision observed that the criminal
wrongs committed by a nun or a priest will necessarily be dealt with
under the criminal laws of the country and when such proceedings
are initiated, the nuns or priests cannot take refuge under the canon
law or the concept of civil death. According to us, though the ratio
decidendi of the aforesaid decision has no application to the present
case, the above observations have relevance to the extent of
explaining the operational limitations of the canon law vis-a-vis
statutory obligations under any statute
36. The inapplicability of civil death for claiming exemption
from tax/TDS liability can be viewed from another perspective. There
is no doubt that this Court appreciates the vow of obedience, the vow
of celibacy, and the vow of poverty undertaken by the nuns and
priests while entering the congregation. However, if in spite of the
vow of poverty undertaken by the nuns or priests, they work for gain
and receive salary, irrespective of whether the ultimate beneficiary is
somebody else or not, the salary partakes the character of income
received by the nuns and priests from Government. It stands to
reason that, a person receiving income by way of salary, cannot be in
from tax/TDS liability can be viewed from another perspective. There
is no doubt that this Court appreciates the vow of obedience, the vow
of celibacy, and the vow of poverty undertaken by the nuns and
priests while entering the congregation. However, if in spite of the
vow of poverty undertaken by the nuns or priests, they work for gain
and receive salary, irrespective of whether the ultimate beneficiary is
somebody else or not, the salary partakes the character of income
received by the nuns and priests from Government. It stands to
reason that, a person receiving income by way of salary, cannot be in
a state of penury or continue to be under a vow of poverty. If salary
is received for the services rendered, even while the vow of poverty
subsists, it ought to be viewed as to how far the vow being eclipsed
for the purpose of earning income. The vow of poverty when
eclipsed by the receipt of income, renders the civil death
contemplated under the religious calling also, in a state of eclipse for
the limited application of statutory obligations.
is received for the services rendered, even while the vow of poverty
subsists, it ought to be viewed as to how far the vow being eclipsed
for the purpose of earning income. The vow of poverty when
eclipsed by the receipt of income, renders the civil death
contemplated under the religious calling also, in a state of eclipse for
the limited application of statutory obligations.
37. Apart from the above, the nuns and priests are part of the
society. They can walk freely, speak freely and even indulge in most
of the regular activities unrestricted, like any other individual. They
enjoy all privileges that law confers upon other persons, including
fundamental rights under Part III of the Constitution of India. They
have the constitutional right of franchise. They are entitled to practice
the profession of law, [see the decision in Bar Council of India v.
Mary Tresa (2006 (2) KLT 210) medicine, teaching or any other
profession of their choice. They act as managers of educational
institutions, hospitals and other establishments. They enter into
contracts for manifold purposes. In all these spheres, they act like
any other living human. In such a scenario, we are of the firm view
that the concept of civil death under the canon law, not only stands eclipsed but has no relevance vis-a-vis the taxing statutes. We are a
nation governed by the rule of law. The concept of civil death is alien
to the Income Tax Act and the same cannot be incorporated into the
statute book through any mode of interpretation. The civil death
contemplated under our rule of law is only the civil death provided for
in section 108 of the Indian Evidence Act, 1872. Thus, the reliance
upon the concept of civil death of nuns and priests under canon law,
to avoid deduction of tax at source, cannot be of avail to the
appellants
society. They can walk freely, speak freely and even indulge in most
of the regular activities unrestricted, like any other individual. They
enjoy all privileges that law confers upon other persons, including
fundamental rights under Part III of the Constitution of India. They
have the constitutional right of franchise. They are entitled to practice
the profession of law, [see the decision in Bar Council of India v.
Mary Tresa (2006 (2) KLT 210) medicine, teaching or any other
profession of their choice. They act as managers of educational
institutions, hospitals and other establishments. They enter into
contracts for manifold purposes. In all these spheres, they act like
any other living human. In such a scenario, we are of the firm view
that the concept of civil death under the canon law, not only stands eclipsed but has no relevance vis-a-vis the taxing statutes. We are a
nation governed by the rule of law. The concept of civil death is alien
to the Income Tax Act and the same cannot be incorporated into the
statute book through any mode of interpretation. The civil death
contemplated under our rule of law is only the civil death provided for
in section 108 of the Indian Evidence Act, 1872. Thus, the reliance
upon the concept of civil death of nuns and priests under canon law,
to avoid deduction of tax at source, cannot be of avail to the
appellants
38. After the coming into force of the Constitution, the exigibility
to tax is governed and controlled by the respective taxing statutes
and not by the canon law. Canon law, cannot relieve the legal
obligations/duties created under the various legislations enacted by
the legislature. We are therefore in complete agreement with the
learned Single Judge that the principle of diversion of income by
overriding title has no application to the salary paid to nuns or priests
by the Government or any other employer.
to tax is governed and controlled by the respective taxing statutes
and not by the canon law. Canon law, cannot relieve the legal
obligations/duties created under the various legislations enacted by
the legislature. We are therefore in complete agreement with the
learned Single Judge that the principle of diversion of income by
overriding title has no application to the salary paid to nuns or priests
by the Government or any other employer.
Q.(iv) Whether the circulars of 1944 and 1977 are valid? If
yes, do they exclude salaries of nuns or priests from TDS?
39. The contention of the appellants that the circulars of 1944
yes, do they exclude salaries of nuns or priests from TDS?
39. The 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. Since the circular of 1944 was
issued before the coming into force of the Act, the said circular is not
extracted. However, the circular of 1977 is extracted below for easier
comprehension:
deduction of tax at source, albeit appealing on first blush, is, on
deeper analysis, legally untenable. Since the circular of 1944 was
issued before the coming into force of the Act, the said circular is not
extracted. However, the circular of 1977 is extracted below for easier
comprehension:
V – Circular of the Central Board of Direct Taxes, dated 5th December 1977
11B, Income Tax Exemption to Missionaries
F.No. 200/88/75-II(A)
Central Board of Direct Taxes
GOVT. OF INDIA
New Delhi
Dated 5.12.1977
To
All Commissioners of Income Tax
Sir,
Sub:Exemption from payment of Income-Tax on Salaries of members of
Religious Congregations.
Attention is Invited to Circular No. 1 of 1944 C.No.26(43)IT43 dated
24.1.1944 in which the liability to tax on the fees received by Missionaries and
subsequently made over to the society have been considered.
Representations have been received from the members of religious
congregations situated all over the country regarding the taxability of the fees
received by them. The question for consideration is whether the fees or the
other earnings of the missionaries be accessed as their income, although the
same is to be made over to the congregation to which they belong under the
rule thereof.
11B, Income Tax Exemption to Missionaries
F.No. 200/88/75-II(A)
Central Board of Direct Taxes
GOVT. OF INDIA
New Delhi
Dated 5.12.1977
To
All Commissioners of Income Tax
Sir,
Sub:Exemption from payment of Income-Tax on Salaries of members of
Religious Congregations.
Attention is Invited to Circular No. 1 of 1944 C.No.26(43)IT43 dated
24.1.1944 in which the liability to tax on the fees received by Missionaries and
subsequently made over to the society have been considered.
Representations have been received from the members of religious
congregations situated all over the country regarding the taxability of the fees
received by them. The question for consideration is whether the fees or the
other earnings of the missionaries be accessed as their income, although the
same is to be made over to the congregation to which they belong under the
rule thereof.
The Board have examined this issue and have decided that since the
fees received by the missionaries are to be made over to the congregation
concerned there is an overriding title to the fees which would entitle the
missionaries to exemption from payment of income tax. Hence, such fees or
earnings are not taxable in their hands.
These instructions may be brought to the notice of all the officers
working in your charge.
fees received by the missionaries are to be made over to the congregation
concerned there is an overriding title to the fees which would entitle the
missionaries to exemption from payment of income tax. Hence, such fees or
earnings are not taxable in their hands.
These instructions may be brought to the notice of all the officers
working in your charge.
Yours faithfully
Sd/-
J. F. Sharma
Secretary
Central Board of Direct Taxes.
Note: This exemption is restricted only to the individual missionary and not
to the income of the missionary per se. Taxability of such an income gets
transferred to the institution from the individual provided the entire income for
the missionary is assessed with the income of the institution and satisfies all
the rules governing Income Tax exemption given to the institution u/s12A.
J. F. Sharma
Secretary
Central Board of Direct Taxes.
Note: This exemption is restricted only to the individual missionary and not
to the income of the missionary per se. Taxability of such an income gets
transferred to the institution from the individual provided the entire income for
the missionary is assessed with the income of the institution and satisfies all
the rules governing Income Tax exemption given to the institution u/s12A.
40. It is explicit from a reading of the circular extracted above,
that, though the caption mentions the subject as ‘Fees of members of
religious congregation’, the recital portion of the circular refers only to
the fees received by the missionaries in contradistinction to salary
received by the nuns or priests. According to us, 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 CBDT in 2016, pursuant to the direction by this Court in these
appeals, mentioned by us as a prelude in this judgment, states in
unmistakable terms that the circular does not apply to salaries and
pensions received by the nuns or priests.
that, though the caption mentions the subject as ‘Fees of members of
religious congregation’, the recital portion of the circular refers only to
the fees received by the missionaries in contradistinction to salary
received by the nuns or priests. According to us, 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 CBDT in 2016, pursuant to the direction by this Court in these
appeals, mentioned by us as a prelude in this judgment, states in
unmistakable terms that the circular does not apply to salaries and
pensions received by the nuns or priests.
41. Apart from the above, the chargeability of an income is
determined by the statutory provisions. 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
determined by the statutory provisions. 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.
This takes us to the question as to whether the CBDT can issue a
circular contrary to the statutory provisions or excluding/exempting a
person from payment of tax who is otherwise chargeable to income
tax.
This takes us to the question as to whether the CBDT can issue a
circular contrary to the statutory provisions or excluding/exempting a
person from payment of tax who is otherwise chargeable to income
tax.
42. The power of the CBDT to issue circulars can be traced to
section 119 of the Act. A reading of section 119 of the Act will make it
explicit that the power to issue circulars, or instructions by the CBDT
is only for the ‘proper administration’ of the Act. In the process of
proper administration of the Act, the CBDT does not have the power
to issue any circular excluding or exempting a person or a category
of persons from the taxing provisions. The power to exclude any
person or category of persons from the purview of tax can be done
only through the mandate of the statute. If the CBDT is empowered
to issue circulars, instructions or directions contrary to the provisions
of the statute, the same can be destructive of the legislative intention.
A delegated authority cannot, under any circumstances whatsoever,
be presumed to possess a power beyond those conferred by the
statute. The statute has not recognized any exclusion of tax on the
income of nuns or priests. In such a perspective, the CBDT could
section 119 of the Act. A reading of section 119 of the Act will make it
explicit that the power to issue circulars, or instructions by the CBDT
is only for the ‘proper administration’ of the Act. In the process of
proper administration of the Act, the CBDT does not have the power
to issue any circular excluding or exempting a person or a category
of persons from the taxing provisions. The power to exclude any
person or category of persons from the purview of tax can be done
only through the mandate of the statute. If the CBDT is empowered
to issue circulars, instructions or directions contrary to the provisions
of the statute, the same can be destructive of the legislative intention.
A delegated authority cannot, under any circumstances whatsoever,
be presumed to possess a power beyond those conferred by the
statute. The statute has not recognized any exclusion of tax on the
income of nuns or priests. In such a perspective, the CBDT could
not have issued any circular in exercise of the powers under section
119 of the Act to confer an exemption to the salaries received by the
nuns or priests from the rigour of income tax.
43. We are fortified in the above conclusion from the decision in
Kerala Financial Corporation v. Commissioner of Income Tax
[(1994) 4 SCC 375]. It was held in the above referred decision as
follows:
119 of the Act to confer an exemption to the salaries received by the
nuns or priests from the rigour of income tax.
43. We are fortified in the above conclusion from the decision in
Kerala Financial Corporation v. Commissioner of Income Tax
[(1994) 4 SCC 375]. It was held in the above referred decision as
follows:
“14. The fact that the circular to which Shri Salve has
referred is one which had been issued in exercise of
powers conferred by section 119 of the Act has no
significance insofar as the point under consideration,
namely, whether the circular can override or detract from
the provisions of the Act, is concerned, inasmuch as
what Section 119 has empowered is to issue orders,
instructions or directions for the “proper administration”
of the Act or for such other purposes specified in subsection (2) of the section. Such an order, instruction or
direction cannot override the provisions of the Act; that
would be destructive of all the known principles of law as
the same view would really amount to giving power to a
delegated authority to even amend the provisions of law
enacted by Parliament. Such a contention cannot
seriously be even raised.”
referred is one which had been issued in exercise of
powers conferred by section 119 of the Act has no
significance insofar as the point under consideration,
namely, whether the circular can override or detract from
the provisions of the Act, is concerned, inasmuch as
what Section 119 has empowered is to issue orders,
instructions or directions for the “proper administration”
of the Act or for such other purposes specified in subsection (2) of the section. Such an order, instruction or
direction cannot override the provisions of the Act; that
would be destructive of all the known principles of law as
the same view would really amount to giving power to a
delegated authority to even amend the provisions of law
enacted by Parliament. Such a contention cannot
seriously be even raised.”
44. The contention that the practice had the effect of
recognizing an underlying principle, according to us, has no basis.
As mentioned earlier, under the scheme of the Act, there cannot be
an exemption or exclusion of income from chargeability, otherwise
than by the taxing statute. Since the statute has not provided for any
recognizing an underlying principle, according to us, has no basis.
As mentioned earlier, under the scheme of the Act, there cannot be
an exemption or exclusion of income from chargeability, otherwise
than by the taxing statute. 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 under section 192 of the Act. We are therefore of the firm
view that the 1944 circular or even the 1977 circular cannot be
construed as excluding tax deducted at source from the salaries
received by the nuns or priests from their respective establishments
nuns or priests, the circulars cannot exclude or exempt the obligation
created under section 192 of the Act. We are therefore of the firm
view that the 1944 circular or even the 1977 circular cannot be
construed as excluding tax deducted at source from the salaries
received by the nuns or priests from their respective establishments
Q.(v) Whether deduction of tax at source from the salaries
payable to nuns or priests violates Article 25 of the Constitution of
India?
45. The learned Senior Counsel also 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. While considering this
contention, we bear in mind the perspective that the right under
Article 25 is not an absolute or an unfettered right. Article 25 does
not provide any immunity from taxation on the basis of religion. The
right is subject to public order, which term has a wide connotation.
One of the facets of public order is the law of the land.
payable to nuns or priests violates Article 25 of the Constitution of
India?
45. The learned Senior Counsel also 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. While considering this
contention, we bear in mind the perspective that the right under
Article 25 is not an absolute or an unfettered right. Article 25 does
not provide any immunity from taxation on the basis of religion. The
right is subject to public order, which term has a wide connotation.
One of the facets of public order is the law of the land.
A valid piece of legislation and its compliance is part of public order under Article
25 of the Constitution. Payment of taxes imposed under a validly
25 of the Constitution. 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. We
reject the said contention.
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. We
reject the said contention.
Q.(vi) Whether the non-deduction of tax at source from the
salaries of nuns or priests for more than 76 years confers a right
against such deduction?
46. 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. The appellants
contended that the non collection of TDS all these years have vested
a legitimate expectation and a right upon them. We are afraid that
we cannot agree with the contentions put forward by the appellants.
Since we have already found 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, a contrary practise, which was contrary to the law of
the land, cannot be permitted to be continued. As held in the decision in Joshi Technologies International Inc. v. Union of India and
Others [(2015) 7 SCC 728] and several other decisions, there cannot
be any estoppel against law. Hence we reject the said contention
too.
salaries of nuns or priests for more than 76 years confers a right
against such deduction?
46. 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. The appellants
contended that the non collection of TDS all these years have vested
a legitimate expectation and a right upon them. We are afraid that
we cannot agree with the contentions put forward by the appellants.
Since we have already found 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, a contrary practise, which was contrary to the law of
the land, cannot be permitted to be continued. As held in the decision in Joshi Technologies International Inc. v. Union of India and
Others [(2015) 7 SCC 728] and several other decisions, there cannot
be any estoppel against law. Hence we reject the said contention
too.
47. We have been referred to the decision of the Madras
High Court in Union of India v. Society of Mary Immaculate
(Tamil Nadu), Madras [(2019) 412 ITR 545] where the Madras High
Court, after taking note of the judgment of the learned Single Judge
impugned in these appeals, agreed with the learned Single Judge of
this Court. We too, agree with the conclusions reached by the
learned Single Judge in the impugned judgment as well as in the
aforecited decision of the Madras High Court.
High Court in Union of India v. Society of Mary Immaculate
(Tamil Nadu), Madras [(2019) 412 ITR 545] where the Madras High
Court, after taking note of the judgment of the learned Single Judge
impugned in these appeals, agreed with the learned Single Judge of
this Court. We too, agree with the conclusions reached by the
learned Single Judge in the impugned judgment as well as in the
aforecited decision of the Madras High Court.
48. In deference to the observations of the Madras High Court
towards the concluding paragraphs, we hold that this judgment shall
apply only with prospective effect and not for any earlier periods.
This direction is issued not on the basis of any proclaimed right of the
nuns or priests, but solely on account of the admission of the
department that they had not, by a mistake/omission failed to
properly instruct the collection of TDS at source prior to 2014. From
2014 till date, this Court had interdicted collection of tax at source also.
towards the concluding paragraphs, we hold that this judgment shall
apply only with prospective effect and not for any earlier periods.
This direction is issued not on the basis of any proclaimed right of the
nuns or priests, but solely on account of the admission of the
department that they had not, by a mistake/omission failed to
properly instruct the collection of TDS at source prior to 2014. From
2014 till date, this Court had interdicted collection of tax at source also.
49. Thus, let all render unto the exchequer what is due to it and
let all render the remaining at one’s own discretion.
In view of the above, we dismiss these appeals with the above
observations and in the nature of the case, there shall be no order as
to costs.
Sd/-
S.V.BHATTI
JUDGE
Sd/-
BECHU KURIAN THOMAS
JUDGE