9911796707
TMI Blog2019 (3) TMI 1253X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax or deduction of tax at source are dependent upon the final taxability of the sum paid or not, are the background cords, in which, we are called upon to decide a few important questions of law arising in the present Writ Appeals filed by the Union of India and Income Tax Department, arising from the judgment of the learned Single Judge, by which he allowed the writ petitions filed by the respondent/assessees, the Christian Religious Institutions, which run and control a large number of educational institutions, Convents or Schools in the State of Tamil Nadu and who represent the cause of the Teachers working in such Schools, mainly the Nuns, Sisters, Missionaries and Fathers, who are also Teachers in such Schools of the various subjects. 2. The crux of controversy is that the Nuns, Sisters, Priests or Fathers, who also render their services as Teachers in these schools which receive Grant-in-aid from the State Government under the Grant-in-Aid Schemes formulated by the State to the extent of their full salary, claim that they are bound by the Canon Law for their vows of poverty to the Christ and that they cannot be taxed in respect of the Grant-in-Aid or salary received from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25 and 26 of the Constitution of India has to be held to be as not sustainable. 4. Aggrieved by the said judgment, the Union of India and Income Tax Department have come up in the present set of writ appeals, which we heard finally at the admission stage itself, by consent of the parties and Mr.Karthik Ranganathan appeared for the Revenue, whereas Mr.Arvind Datar, learned senior counsel and Fr. Xavier Arulraj, learned senior counsel himself a Father under Canon Law, appeared on behalf of the assessee Institutions. 5. Besides the aforesaid order of the learned Single Judge passed at Principal seat at Chennai, another learned single Judge of this Court allowed a batch of writ petitions filed at Madurai Bench of Madras High Court on 03.3.2016 in WP (MD) Nos.21172 to 21181 of 2015 etc. batch (The Correspondent, Holy Cross Primary School, Golden Rock v. Central Board of Direct Taxes and Others). The learned single Judge at Madurai also allowed the writ petitions and held that upon individual Undertaking and Affidavit given by Priests or Nuns to the Income Tax Department, that his/her entire salary as Teacher/Non-Teaching Staff can be paid directly by the State Government to the Congre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsequently made over to their Society ----- Attention is invited to the instructions contained in Board's circular No.5 of 1940/D.Dis.No.26(33)-I.T./39 dated the 2nd January, 1940 and D.O. D.Dis.No.26(33)-I.T./39, dated the 9th May 1940. It has been brought to the Board's notice that considerable hardship is caused to Missionaries by the taxation of fees received by them for services rendered, which, by the conditions of their service and the Rules of their Society, they are required to make over to the Society. In view of the principle of diversion of income enunciated by the Privy Council in Dudhuria's case (6 I.T.C. 449) it is arguable that fees received by Missionaries on behalf of a Missionary Society and which are payable to it according to their contract of service are not their income. As recognised in the Board's D.O. letter referred to above, where a Missionary employee collects fees in payment of bills due to the institution the amount collected will be the income of the institution and not that of the employee. It makes little difference whether the bills are prepared by the Society and sent out for collection or whether the employee collects the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Instruction IV - Letter of the Commissioner of Income Tax, Madras II, dated 30.01.1969 Office of the Commissioner of Income Tax Madras II 22, Nungambakkam High Road, Madras-34 RC.No.230....11(75) dated 30.1.1969 From The Commissioner of Income Tax Madras-II, Madras To Very Rev.Mgr.B.A. Figredo Secretary Madras Catholic Education Council 15, Kolandai Street Madras - 3. Rev.Father, Sub: Representation for exemption of emoluments drawn by Priests and Religious employed in Education. Ref: Your letter dated 9-8-1967 It has been decided that in cases where the amounts received by Priests and Religious as salary are subject to an overriding title by their conditions, and rules of service to be passed over to the church authorities (Whose income is exempted from tax) such amounts will not be liable to be taxed. Yours faithfully, (Sd.) V.Krishnamoorthy Income Tax Officer (H.Qrs.) (Tech.) for Commissioner 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 I) Central Board of Direct Taxes GOVT OF INDIA New Delhi Dated: 5.12.1977 To All Commissioners of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able only where "a Missionary employee collects fees in payments of bills due to the institutions". Considering the principle of diversion of Income, the Circular prescribed that "The amount collected will be the income of the institution and not that of the employee. It makes little difference whether the bills are prepared by the Society and sent out for collection or whether the employee collects the fees in a fiduciary capacity and pays the amount over to the Society". It appears that the circular is applicable only on the amounts received as fees towards payments of bills due to the institutions and does not cover salary and pension. A copy of Circular No.1 dated 24.1.1944 is enclosed. 2. Further, it is noted that Instruction No.1121 dated 05.12.1977 basically reiterates the contents of Circular No.1 of 1944. Circular No.1 of 1944 pertained to the Income-tax Act, 1922 and since its provisions had undergone changes in the Income-tax Act, 1961, a need was felt to clarify the issue. In this subsequent Instruction of 1977, although the subject of the Instruction mentioned the word 'Salary', the operative portion of the instruction deals only with 'fees' received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the Society and sent out for collection or whether the employee collects the fees in a fiduciary capacity and pays the amount over to the Society". Thus the circular is applicable only on the amounts received as fees towards payments of bills due to the institutions and does not cover salary and pension, which the missionaries earn in their individual capacity. 2. Further, it is noted that Instruction No.1121 dated 05.12.1977 basically reiterates the contents of Circular No.1 of 1944. Circular No.1 of 1944 pertained to the Income-tax Act, 1922 and since its provisions had undergone changes in the Income-tax Act 1961, a need was felt to clarify the issue. In the subsequent Instruction of 1977, although the subject of the instruction mentioned the word 'Salary', the operative portion of the Instruction deals only with 'fees' received by the missionaries, as was the case with the Circular No.1 of 1944. Therefore, it is considered that the Instruction of 1977 has only reiterated the Circular of 1944 and has not extended its scope to cover any payment other than fees received in fiduciary capacity on behalf of the congregation. Accordingly, salary and pension ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lure to deduct tax at source can render the persons obliged to do so, liable for penalty and prosecution, under the Act. 10. The learned counsel urged that the said provision of Section 192 of the Act does not recognise any aspect of religious character of the person receiving such salary and therefore, irrespective of the Religious Order to which a recipient Teacher may belong or any person receiving the salary, the payer of the amount, namely the State Government, is bound to deduct the income tax at source. 11. The learned counsel for the Revenue vehemently submitted that if the Nuns, Sisters or Missionaries who have taken the vows as per Canon law and have surrendered themselves to the Religion of Christianity, have to make over the amount of salary received by them to the Institution itself, that may just be a case of an application of their income, for whatever purpose they are obliged to so surrender as per their vows taken, but that has nothing to do with the taxability aspect of such salary received by them, much less having any prohibitive effect on the requirement of deducting taxes at source under Section 192 of the Act and the payer of such salary, namely the State G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulated in those provisions, but that does not have any bearing on the taxable character of the salary income paid by the State to these Teachers, including Nuns and Missionaries and therefore, there is no question of treating the salary income as exempt in the hands of the Teachers. Therefore, the Institutions could not agitate against the tax deduction at source on the payment of salary to these Teachers. 15. The learned for the Revenue also submitted that the old Circulars of 1940 and 1944 as also that of 1977 quoted above and relied upon by the Assessee Institutions on the side opposite, applied only to 'fees' received by Missionaries and were not applicable to the receipt of salary paid by the State Government involved in the present case. He submitted that the said old circulars, some issued prior to Independence and much before the 1961 Income Tax Act came into force, stood clarified by the later Instructions of the Central Board of Direct Taxes vide Instructions dated 26th February 2016 and 7th April 2016, which are also quoted above, wherein it was clearly clarified by the Central Board of Direct Taxes that any payment other than fees received in fiduciary capacity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be applied to the present case, as no transfer of asset as such has taken place and the claim of the Assessee is based on their surrender or civil death on account of adopting a particular Religious Order and therefore, the receipt in the form of salary not being taxable in their hands and their claim that the receipt of salary by them actually belong to the Institution which they serve, in the name of Christ and whatever are the receipts, it belongs to the Institution itself and therefore, the tax deducted at source provision will not stand attracted, and accordingly, we reject the said last argument of the learned counsel for the Revenue at the threshold itself. 19. The learned counsel for the Revenue has relied upon various case laws which would be discussed hereinafter at appropriate place. 20. On the other hand, Mr.Arvind Datar and Fr. Xavier Arulraj, learned senior counsel, opposed all the aforesaid submissions of the learned counsel for the Revenue and raised the following points for our consideration. 21. Mr.Arvind Datar, learned senior counsel, urged that Nuns or Missionaries who adopted a particular Religious Order and have taken vow of poverty in their complet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttention to some of the account numbers of the Missionaries to indicate that even for them, the payment has directly gone to the common Bank Account of the educational Institution. 25. Mr.Arvind Datar, learned senior counsel urged that the receipt in the hands of these Teachers was for and on behalf of the Institutions, which are Religious Institutions in character and obviously are, therefore, exempt from any income tax and therefore, there was no justification or necessity of applying TDS on such payments made to them entailing further requirement of filing returns and claim the refunds of such advance TDS collected from payment of salaries made to them. He submitted that since these persons are not subjected to income tax at all in respect of their salary income or fees as per aforesaid CBDT Circulars of 1944 and 1977, therefore they cannot be called upon to meet all these return and assessment obligations under the Income Tax Act. There is certainly a diversion of the receipts by overriding title in favour of Religious Institutions to which they have surrendered and have taken vows of poverty etc. and consequently the later so-called clarifications issued by the Department in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the salary, makes the person responsible for paying any income chargeable under the Head "Salaries" to deduct income tax at the rates prescribed, from such payment and deposit the same in the Treasury in the Account of Income Tax Revenue Department. State Government here is the person responsible for paying the salary. The words "at the time of payment" employed in Section 192 of the Act, in the middle of the words "Salaries" and "to deduct income tax" can be read with both sides, prefixed and suffixed word. If the income paid, at the time of payment is chargeable under the Head "Salaries" at that very point of time, the person responsible for paying the same shall deduct the income tax. The later treatment in the hands of the person who receives the income, whether it is treated as taxable or not, does not have any effect on the operation of the said provisions of Section 192 at the time of payment of salary, which is undoubtedly chargeable under the Head 'Salaries' at that point of time. This is obvious because the TDS is always made much in advance before the return of income is filed and the assessment procedure is adopted under the relevant provisions of the Act. The w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Schools. 32. The term "Salary" has been defined in Section 15 of the Act, which stipulates that any salary due from an employer or a former employer to an Assessee, including any arrears of such salary, shall be chargeable to income tax under the Head "Salary". 33. Section 15, read with Section 192, obligates the State Government or the employer, be it educational institution or the State to deduct income tax at source. Therefore, these provisions, which have no reference to the Religion, caste, colour or creed of the person concerned who receives the salary, has to be applied uniformly to all without regard to their caste, colour, creed or Religion or Religious Order by which they may bind themselves. 34. In our opinion, the provisions of Income Tax Law are dry, plain and simple, a-political, a-religious in character. In fact, except the provisions contained in Section 11 which provides for income from property held for charitable or religious purposes to be exempt, subject to compliance of the conditions and registration by the registered Trusts etc., there is no exemption available even to the charitable or religious institutions themselves, who have to secure registration as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business of manufacture and sale of liquor, which was closely controlled and regulated by the State Government, including its storage, bottling, wastage, retail and wholesale sales thereof and it was contended by Assessee Chamundi Winery that since Chamundi was only manufacturing liquor on behalf of Diageo and the receipts of sale of liquor to the Government Corporation stood diverted by overriding title to Diageo, the Assessee Chamundi was not liable to pay tax in the hands of Assessee Chamundi Winery, the Court negatived the said contention of non-taxability in the hands of Chamundi, with the following observations: "The source of income as indicated above is the manufacture and sale of liquor under the Excise Licence, where DIAGEO has no privity or locus. Therefore, whatever income is generated out of the said business has to be first taxed in the hands of the Excise Licencee and after payment of the Income-tax, the 'distribution of surplus' between the two parties, is their discretion and if the Assessee gets its share of total profits only to the extent of Rs. 45/- per Case in the name of bottling charges and DIAGEO takes the entire remaining balance as per Clauses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. The rule in Bejoy Singh Dudhuria's case did not apply." 38. Further explaining the background in which the case was decided by the Appellate Authority, the Hon'ble Apex Court emphasized that unless the money paid was earmarked for charity ab initio once such amount was received as his Professional Income, it would be so taxable in his hands. The relevant extract from the body of the judgment is also quoted below:- "In the circumstances the Appellate Assistant Commissioner rightly pointed out that "if the accused persons had themselves resolved to create a charitable trust in memory of the professional aid rendered to them by the appellant and had made the assessee trustee for the money so paid to him for that purpose, it could, perhaps, be argued that the money paid was earmarked for charity ab initio but of this there was no indication any where." In our opinion, the view taken by the Appellate Assistant Commissioner was the correct view. The money when it was received by the assessee was his professional income, though the assessee had expressed a desire earlier to create a charitable trust out of the money when received by him. Once it is held that the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property comes into existence or is a contract which fastens upon the property as soon as the property comes into existence or is a contract which fastens upon the property as soon as the settler acquires it. In either view, the incomes from the shares will first accrue to the settler before the beneficiary can get it. Such income will undoubtedly be assessable in the hands of the settler despite the contract. We think that the true position is that if a person has alienated or assigned the source of his income so that it is no longer his, he may not be taxed upon the income arising after the assignment of the source, apart from special statutory provisions like section 16(1) c) or section 16(3) which artificially deem it to be the assignor's income. But if the assessee merely applies the income so that it passes hrough him and goes on to an ultimate purpose, even though he may have entered into a legal obligation to apply it in that way, it remains his income. This is exactly what has happened in the present case. We need only add that the principle laid down by the Privy Council in Bejoy Sigh Dudhuria v. Commissioner of Income Tax [1993] 1 ITR 135 does not apply to this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r cent. of the income attributable to his share from the firm stood transferred to the trust resulting in diversion of income at source. The Appellate Tribunal held that there was no diversion of income and that section 60 of the Income-tax Act, 1961, applied. On a reference, the High Court held that on assignment of 50 per cent. of the share of the assessee in the firm it became the income of the trust by overriding title and it could not be added to the income of the assessee. On appeal to the Supreme Court: ... ... ... ... ... ... Held: The principle is simple enough but more often than not, as in the instant case, the question arises as to what is the criteria to determine, when does the income attributable to an assessee get diverted by overriding title? The determinative factor, in our view, 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 a diversion of income by overriding title; but when after receipt of the income by the assessee, the same is passed on to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 44. In a recent decision rendered in April 2018, the Two Judges' Bench of the Hon'ble Supreme Court in the case of Deputy Commissioner of Income-Tax, Chennai v. T. Jayachandran [2018] 406 ITR 1 (SC) upholding the decision of the Madras High Court reported in [2013] 263 CTR 629 (Mad) dealt with an interesting case of a Share Broker who was working on behalf of the Indian Bank and got only his Commission Income but was sought to be taxed for the gross receipts for the sale of Shares and Securities dealt with by him on behalf of the Indian Bank, held in favour of the Assessee that he was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such additional interest through demand drafts. (d) The Respondent filed his return of income for the Assessment Year 1991-92 on 01.11.1993 and declared his income at Rs. 4,82,83,620/-. The total income was determined at 4,85,46,120/- vide order dated 30.06.1994. However, later on, the case was taken up for scrutiny and assessment was framed under Sec 143(3) of the Income Tax Act, 1961 (in short 'the Act'). The Assessing Officer, vide order dated 25.01.1996, raised a demand for a sum of Rs. 14,73,91,000/- with regard to the sum payable to the PSUs while holding that the Respondent has not acted as a broker in the transactions carried out for the Indian Bank rather as an independent dealer and that there was no overriding title in favour of the PSU's with regard to the additional amount earned out of the securities transactions and it is a case of application of income after accrual and, hence, the said amount is liable to be assessed as the income of the Respondent. ... ... ... ... ... ... The relationship between the Indian Bank and the Respondent is very much clear by the evidence led during the criminal proceedings. The Executive Director of the Bank has speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45/- per Case, but that is precisely what is hoodwinking of Revenue, in the face of the fact that the entire business is carried on by CHAMUNDI only and finally profit or income is applied by way of distribution of income between CHAMUNDI getting the apportionment at the rate of Rs. 45/- per Case of Bottles and balance amount going to DIAGEO. The entire real income is earned by CHAMUNDI only, therefore such 'application of income' in the aforesaid agreed portions can be made only after meeting the tax obligations in the hands of CHAMUNDI itself. 47. Clause 24 of the Agreement dated 30/10/2007 itself says respective income tax obligations will be discharged by both the parties independently. 48. The Division Bench of the Rajasthan High Court in the case of Commissioner of Income Tax v. Jodhpur Co-operative Marketing Society [2005] 275 ITR 372 [Raj] dealt with a case of Co-operative Society which under the statutory obligations was liable to transfer 25% of its net profits to the specified funds and the Assessee Society claimed that such diversion was not taxable in its hands. Even negativing this plea of the Assessee - Co-operative Society, the Court explained the conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and of the club generally to regulate racing and to ensure that it is carried on in an orderly fashion only with persons, who are considered competent and desirable, being allowed to take part, subject to their complying with the rules of racing. The amount of the penalties, licence fees and fines collected are amounts which are received by the club as part of income, which it derives by conducting races. These amounts are not paid to the club by any of those, who become liable to the payment of licence fees, penalties or fines, by way of voluntary contribution from them to the benevolent fund. The amounts are not paid by them with the intention that it be a contribution to the charitable or benevolent fund. The race club itself is under no statutory compulsion to earmark or divert any part of its income for the benefit of the jockeys, apprentices, stable boys, etc. The race club was under no statutory obligation to create a trust fund for their benefit. The fact that the club has done so and had done so with the best of intentions, does not on that score result in what is actually the income of the club, a part of which has been applied for benevolent purposes by having those a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncept of diversion of income by overriding title is to be applied in situations which are clear and where the existence of the title in the legal or natural person in whom an overriding title is to be recognized is also certain, and the facts are such as to warrant the conclusion that the income is not that of the recipient, but in fact the income of the person in whose favour an overriding title is to be recognized. A rule framed by an assessee for its own internal management cannot be elevated to the level of statutory rule and the decision on the part of the club to apply a portion of what it receives for benevolent purposes cannot be regarded as an instance of diversion by overriding title when the amounts received by the club and allowed by it to be used by the fund were not amounts, which had been paid voluntarily with the object of making those payments for charitable purposes. Diversion of the income took place after, and not before the income had reached the assessee. - CIT vs. Bangalore Turf Club Benevolent Fund (1984) 38 CTR (Kar) 235: (1984) 145 ITR 323 (Kar): TC 44R. 1060 distinguished" .... 57. The other case law which requires a mention here from the side of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the statutory profits, i.e., between the commercial profits and statutory profits. The latter are statutorily fixed for a specified purpose. If we bear in mind these two principles there will be no difficulty in answering the question raised." 58. Similarly in another case of Electricity Supply Company only, in the case of Godhra Electricity Co. Ltd. v. Commissioner of Income-Tax 225 ITR 746 (SC), the Hon'ble Supreme Court held that the enhanced rate of the Electricity Supplies, which amount could not be realized by the Assessee due to litigation and subsequent take-over of the Undertaking by the Government, such amount due on account of the enhancement of rates had not really accrued to the Assessee Company and therefore, was not taxable in the hands of the Assessee Company. More so touching the concept of taxability of the "real income" rather than the "diversion of income", the Court thus held in favour of the Assessee in the said case. 59. Both the aforesaid cases really have no application to the facts of the present case. There is no doubt that only "real income" can be brought to tax under the Act but as we have said above, what is "real income" itself is a mixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted at source and did not form part of the assessee's income. CIT v. Sitalda Tirathdas [1961] 41 ITR 367 (SC) applied." 62. The said judgment is of little help to the Respondent Assessee in the present case before us as firstly, it is not a case of Partnership before us as the concept of mutuality and partnership has been specifically negatived and excluded in the Agreement dated 30/10/2007 between the parties before us and secondly, there is no such "diversion of profits at source" by a overriding contractual obligation. It is more of a self agreed swipe of profits from CHAMUNDI to DIAGEO, retaining only the portion of the profits in the name of the bottling charges at the rate of Rs. 45/-per Case and therefore, the said judgment is of no help to the Assessee in the present case. 63. In another Division Bench decision of the Karnataka High Court relied upon by the Assessee in the case of Commissioner of Income-Tax v. Nagarbail Salt-Owners Co-operative Society Ltd. [2017] 291 CTR 287 (Kar.), a Co-operative Society manufacturing and selling Salt on lands belonging to the land owners who were known as "Maliks" and who are the Members of the Society where the activity of manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arity) with sale price of goods, with great respect, is not at all applicable to the facts involved in the case before us, dealing with receipt of salary as remuneration for the services rendered by the Teachers for the whole month and therefore, the salary income received by the Nuns or Missionaries cannot be said to have been diverted at source or inception of its accrual to them because of services as Teachers in favour of the Institution. The Institution or the Church cannot be said to have a right to receive that salary even before it reaches the Teachers, who are Nuns or Missionaries. The facts, as pointed out, that some of the receipts of salary were credited to a common bank account of the Institution and at some places, instead of Teachers signing the receipt in the Registers maintained by the Institution only the word 'Religious' was printed there, does not alter the character of salary receipts in their hands as taxable income, much less it would prohibit the deduction of tax at source under Section 192 of the Act, by the Payer, i.e. State Government. As already stated above, it is the nature and character of receipt as salary at the time of payment which is impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation fees or any other kind of fees received by the Missionaries and in view of their surrender to the Church or Religion was stated to be exempt subject to conditions laid down in Section 4(3)(ia) of the old Income Tax Act, 1922. 45. The 1977 Circular which was strongly relied upon by the learned counsel for the Assessee, though in the subject caption refers to the words "Taxes on Salaries", but in the body of the Circular, it only talks of "fees or earnings" in the hands of the Missionaries and referring to the old Circular of 24th January, 1944, again reiterates that the same would not be taxable in the hands of the Missionaries, as there is an overriding title to such fees which would entitle the Missionaries to exemption from payment of income tax. It does not, in so many words discuss the salary received by Nuns and Missionaries as Teachers to be exempt from payment of Income Tax under 1961 Act. Therefore, read in the context of medical fees or other earnings starting from 1940 Circular with 1944 Circular, this Court does not find it clear and categorical stand of the Department in the contemporary period about the exemption being available to the Missionaries with respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the instant cases, are amounts by way of salary and pension. These payments accrue to the individuals concerned, who have rendered service in their individual capacity and based on the educational qualifications and skills possessed by them as individuals. The right to receive payments by way of salary or pension also, consequently, accrues or arises to them as individuals and not to the congregation of which they are members. No doubt, the precepts of Canon Law might require them to entrust the amounts so received to the religious congregation of which they form a part, but in my view the said obligation of the member, which is only an obligation based on personal law, would not clothe the religious congregation with a legal right to receive salary/pension payments directly from the Government/Employer, and without involving the member. Consequently, the entrustment of the amounts received by the member, to the congregation, would tantamount only to an application of income by the member in favour of the congregation. It will not be a case of diversion of income by way of overriding title." 47. About the Circulars and Instructions, the learned Single Judge of the Kerala High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax officers, in these cases, to deduct tax at source from payments by way of salary and pension to members of the religious congregations, cannot be said to be contrary to the Circulars and Instructions issued by the CBDT. They are simply instructions issued in situations not covered by the CBDT Circular/Instructions. Further, the CBDT Circulars/Instructions cannot be treated as encompassing receipts by way of salary and pension, as that would render the said Circulars and Instructions contrary to the law declared by the Courts on the concept of diversion of income by way of overriding title. 21. For reasons that I have already stated, I am of the view that the payments involved in the instant cases accrued to the members of the religious congregations as their income and the subsequent diversion of that income to the religious congregation concerned was only a case of application of that income. The impugned instructions of the Income Tax Officers, that direct the persons responsible for paying Salary and Pension to members of religious congregations, to deduct tax at source in accordance with Section 192 of the IT Act, cannot be said to be illegal. The writ petitions, in thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and therefore, they cannot take a stand for not making the tax deduction at source in view of the Canon Law. 51. Therefore, in our opinion, with great respects, the learned Single Judge has taken an impermissible route of Canon Law to interpret the provisions of Income Tax Law and holding such Tax Law to be of secondary importance, vis-a-vis the Canon Law applicable to the individual Teachers belonging to the class of Nuns, Missionaries or Sisters. Therefore, we are of the considered opinion that the present writ appeals filed by the Union of India deserve to be allowed and the order of the learned Single Judge under the appeal deserves to be set aside. We accordingly allow the said appeals of the appellant Union of India and set aside the order passed by the learned Single Judge. No costs. 51. Being conscious of the fact that our reversal of the order passed by the learned Single Judge may result in practical complications for the past period for the Educational Institutions as well as Teachers belonging to said class and also the State Government and Income Tax Department on the other side, we direct that this judgment shall be applied prospectively and not for the past perio ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
