Court rules income tax must be deducted from salaries of nuns and priests

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Case Name: 

Provincial Superior & Ors Vs Union of India & Ors (High Court of Kerala)

WA No. 410 of 2015

Date: 13th July 2021

Key Takeaways:

1. Income tax is a compulsory extraction of money on accrued income, unless specifically excluded by law.
2. The concept of “civil death” under canon law does not override the requirements of the income tax law.
3. Circulars issued by the tax authorities cannot override the provisions of the income tax statute.
4. The right to freedom of religion under the Constitution does not exempt one from complying with a valid tax law.
5. Past non-deduction of tax cannot create a legitimate expectation to continue avoiding tax deduction.

Issue: 

Whether the salaries paid to nuns and priests by the government are exempt from tax deduction at source (TDS) under the income tax law.

Facts:

• Nuns and priests of various religious congregations were employed as teachers in government and aided educational institutions.
• From 1944 to 2014, the salaries paid to these nuns and priests were not subject to TDS, based on circulars issued by the tax authorities.
• In 2014, the tax authorities directed that TDS should be deducted from the salaries of these employees who were members of religious congregations.
• The religious congregations and some individual priests and a nun filed writ petitions challenging the TDS deduction.

Arguments:

• The appellants (religious congregations) argued that the salaries of nuns and priests should be exempt from TDS based on the principle of “diversion of income by overriding title” under the canon law.
• They also relied on the circulars issued by the tax authorities in 1944 and 1977 to claim exemption from TDS.
• The government argued that the income tax law does not recognize any exemption for nuns and priests, and that the circulars do not override the statutory provisions.

Key Legal Precedents:

• Sitaldas Tirathdas case (AIR 1961 SC 728) - Established the test for “diversion of income by overriding title”.
• Tuticorin Alkali Chemicals case ((1997) 6 SCC 117) - Held that taxability is not dependent on the destination or utilization of income.
• Kerala Financial Corporation case ((1994) 4 SCC 375) - Circulars cannot override the provisions of the income tax statute.

Judgment:

• The court dismissed the appeals filed by the religious congregations.
• It held that the income tax law does not recognize any exemption for nuns and priests, and that the concept of “civil death” under canon law has no relevance for tax purposes.
• The court also ruled that the circulars issued by the tax authorities cannot override the statutory provisions and cannot be used to claim exemption from TDS.
• The court directed that TDS should be deducted from the salaries of nuns and priests going forward, but the non-deduction in the past would not create any vested right against TDS.

FAQs:

1. Why did the court rule against the religious congregations?

The court held that the income tax law does not recognize any exemption for nuns and priests, and that the concept of “civil death” under canon law cannot override the statutory requirements. The circulars issued by the tax authorities also cannot override the provisions of the income tax law.

2. Does this mean nuns and priests have to pay income tax on their salaries?

Yes, the court has ruled that the salaries paid to nuns and priests are subject to income tax, and tax must be deducted at source from these salaries. However, the nuns and priests can still claim any applicable deductions or exemptions when filing their annual income tax returns.

3. What is the impact of this judgment?

This judgment establishes that the income tax law applies uniformly to all individuals, including nuns and priests, and that religious or personal laws cannot override the statutory tax requirements. It reinforces the principle that tax obligations must be fulfilled as per the law, regardless of one’s religious or vocational status.

4. Can the religious congregations challenge this judgment further?

The religious congregations have the option to appeal this judgment further, but the chances of success appear limited given the court’s clear interpretation of the income tax law and its primacy over personal or religious laws.

"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 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.

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.

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

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.

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.

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.

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."

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.

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.

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.

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.

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.

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 above-

referred propositions, that, there are no equities in tax.

20. Section 4 (of Income Tax Act, 1961) 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 income-

tax) 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), income-

tax 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 Income Tax Act, 1961) levies tax on the total income

of an assessee, section 4(2) (of Income Tax Act, 1961) 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 Income Tax Act, 1961) deals with Heads of Income and

clause A is the head “Salaries”. Section 15(a) (of Income Tax Act, 1961) 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 (of Income Tax Act, 1961) deals with permissible deductions

while section 17 (of Income Tax Act, 1961) 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 Income Tax Act, 1961)

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.”

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.

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 Income Tax Act, 1961) must be

effected from every person who receives any income as salary, if

they fall within the purview of chargeability.

26. Section 192 (of Income Tax Act, 1961) 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 Income Tax Act, 1961)

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 Income Tax Act, 1961), 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 Income Tax Act, 1961) 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

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”.

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

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.”

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.

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.

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

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.”

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.

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

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.

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.

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.

Q.(iv) Whether the circulars of 1944 and 1977 are valid? If

yes, do they exclude salar ies 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:

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.

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

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.

42. The power of the CBDT to issue circulars can be traced to

section 119 (of Income Tax Act, 1961). A reading of section 119 (of Income Tax Act, 1961) 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:

“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 Income Tax Act, 1961) 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 (of Income Tax Act, 1961) has empowered is to issue orders,

instructions or directions for the “proper administration”

of the Act or for such other purposes specified in sub-

section (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

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 Income Tax Act, 1961). 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. 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

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.

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 Income Tax Act, 1961) 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.

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.

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