The Supreme Court has dismissed 93 appeals challenging the applicability of Tax Deduction at Source ( TDS ) on the salaries of nuns and priests working in government-aided schools, affirming the judgment of the Madras High Court. It was ruled that the salaries of nuns, priests in the aided schools were subject to income tax to be deducted at source.
The bench of Chief Justice of India DY Chandrachud and Justices JB Pardiwala and Manoj Misra, upheld the High Court’s ruling that TDS must be deducted from the salaries of religious personnel working as teachers in these institutions.
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The appellants argued that, due to their vow of poverty, nuns and priests surrendered their salaries to their respective dioceses or convents, leaving them with no personal income.
However, CJI Chandrachud emphasised that the salaries are initially received in their individual accounts, raising the question of taxability. The CJI stated that While they may not retain the salary due to their religious commitments, TDS must still be deducted.
Senior Advocate Arvind Datar, representing the appellants, highlighted that these religious workers, though receiving salaries, effectively transfer the amounts to their dioceses, which are treated as charitable trusts. Therefore, they neither retain the income nor file tax returns.
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He argued that taxing them would disregard their unique status and lifestyle, rooted in religious renunciation. Datar also noted that previous exemptions had been acknowledged by a CBDT circular, and taxation could impact over 4,000 priests and nuns.
Despite these arguments, the Supreme Court found no grounds for exemption without statutory backing, asserting, “Without a statutory exemption, taxation cannot be avoided.”
The Madras High Court’s Division Bench had earlier overturned a single-bench decision that exempted the salaries from TDS, ruling that the income accrued to the religious individuals personally before being surrendered.
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The High court held that subsequent transfers to religious institutions constituted an “application of income,” not a diversion at the source. The court referenced a Kerala High Court judgment, underscoring that for a true “diversion of income by overriding title” to occur, there must be a legal entitlement that redirects income from the source itself—a condition not met in this case.
In 2019, the Supreme Court stayed the High Court’s decision but, in its recent judgment, refused to entertain the submissions further, affirming the applicability of TDS on the salaries of nuns and priests in aided schools.
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