Kerala HC: Article 25 Does Not Provide Any Immunity From Taxation On The Basis Of Religion, Salaries Of Nuns And Priests Working As Teachers Liable To TDS


The Kerala High Court recently ruled that salaries paid to nuns and priests of religious congregations, working as teachers in educations institutions are liable for tax deduction at source while dismissing a batch of nearly 50 writ appeals.

A Division Bench of Justice SV Bhatti and Justice Bechu Kurian Thomas upheld the rider of a Single Bench and observed that such deduction of tax does not violate freedom of religion under Article 25 of the Constitution.

“Article 25 does not provide any immunity from taxation on the basis of religion”. 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,” the Court remarked.

The Bench also turned down the contention that nuns and priests do not utilize the salary they get but rather give it to their congregation, holding that if the income payable falls under the head ‘Salaries’ under Income Tax Act, 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,” the Court underscored.

Brief Facts: 

Although nuns and priests take the vow of poverty, many of them indulge in pedagogy apart from their religious calling and are paid salaries. However, since they are bound by their vow of poverty, their income is handed over to their religious congregation.

From 1944,  the salary paid to the nuns or priests by the government or aided institutions was not subjected to TDS. However, this changed in 2014,  when the Income Tax Officers directed District Treasury Officers that TDS must be effected even for employees who are members of religious congregations receiving salary from the government exchequer.

The appellants approached the court challenging the decision. They cited circulars issued by the Central Board of Direct Taxes in 1944 as well as in 1977, to claim exemption from TDS. 

A single judge of the High Court(Justice AK Jayasankaran Nambiar), however, dismissed the plea leading to the present batch of appeals before the Division Bench.

Senior Advocate Joseph Kodianthara, Senior Advocate Kurian George Kannanthanam, Advocate Abraham Joseph Markose, Advocate Tony George Kannanthanam, and Advocate A Kumar appeared on behalf of the appellants. Advocate Christopher Abraham represented the Income Tax Department in the matter.

Observations of the Court

  • Maintainability of the Appeals

The Court found that 45 out 49 appeals were filed by religious congregations that do not receive any salary directly.  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.

Hence, the Court proclaimed that these 45 appeals are not maintainable. However, it was also held that the 4 appeals preferred by individual nuns and priests were maintainable.

  • Salaries Paid to Nuns and Priests, who are Employees of Educational Institutions liable for TDS

Upon scrutiny of Section 192 of the Act, the Bench observed that provision 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’,” the Court opined.

The petitioners had claimed that they were not utilising their salaries but were handing it over to their congregations. But the Court ruled that it is not a relevant consideration to determine TDS and that this could only be a probable window for claiming a deduction or a refund.

  • Application of Principle of Diversion of Income by Overriding Title 

The Court adverted to the judgments of the Supreme Court in various cases which established that tax is the point when income is earned or accrued and is not dependent on the manner in which income is utilised.

The appellants contended that as per the canon law, once a perpetual vow of poverty is taken, the nun or priest, undergoes a civil death, and thereafter, they are not ‘persons’ under the Act.

However, the Court held that “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.

  • Validity of CBDT Circulars from1944 and 1977

The Court opined that the circular of 1977 cannot apply to the salaries received by nuns or priests from the government or aided institutions.

Further, 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.

  • TDS and Article 25 

The right to profess, practice and propagate religion under Article 25 of the Constitution of India is not an absolute or an unfettered right and is subject to the law of the land, the Court held.

It further said that 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,” the Bench opined.

Payment of taxes imposed under a validly enacted legislation is an essential attribute of public order, the Court ruled.

“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,” the judgment made it clear.

  • Non-deduction of TDS for more than 76 years does not Confer a Right against such Deduction

The appellants had contended that the non-collection of TDS all these years has vested a legitimate expectation and a right upon them. The Court, however, found no merit in the argument stating that there cannot be any estoppel against law.

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

It clarified that this direction is issued not on the basis of any proclaimed right of the nuns or priests. The Court, therefore, dismissed the appeal and held that nuns and priests who accrue salaries from the Government exchequer are liable to pay TDS.

In 2019, the Madras High Court had also held that salaries received by missionaries and nuns for teaching profession are liable to TDS deduction, as Canon law does not bind the Income Tax Act. That judgment is under stay by the Supreme Court now, on an appeal filed by the congregation.

Case title: Provincial Superior, Nirmal Rani Provincial House v. Union of India

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