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TMI Blog2021 (8) TMI 435X X X X Extracts X X X X X X X X Extracts X X X X ..... ble, 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 up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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. 22. Section 14 of the Act deals with Heads of Income andclause A is the head "Salaries". Section 15(a) of the Act provides that any salary due from an employer to an assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r '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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gion, 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. Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eath 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 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 ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntradistinction 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 the Act. A reading of section 119 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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