In a significant ruling, the Madras High Court has held that the provisions of the Income-Tax Law are apolitical and areligious in character, and salaries and grants-in-aid to nuns and missionaries are liable to attract tax deducted at source (TDS).

“In our opinion, the provisions of Income-Tax law are dry, plain and simple, apolitical and areligious in character,” said the two-judge bench of the Madras High Court, in a recent order on a writ appeal filed by the Union of India and the Income-Tax Department against the Society of Mary Immaculate and the State’s Directors of Treasuries and Accounts, School Education and Elementary Education.

The bench, comprising Justices Vineet Kothari and CV Karthikeyan, also set aside a previous 2016 ruling by a Single Judge of the Madras High Court on a writ petition by the Institute of the Fransican Missionaries of Mary against the Union of India and others, which had allowed the writ petitions, and had said TDS was not applicable on salaries and other benefits given to nuns and priests working in teaching institutions.

“In our opinion, with great respect, 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 individual teachers belonging to the class of nuns, missionaries or sisters,” the High Court held, adding that this judgment would be applied prospectively and not for the past period.

Christian religious institutions run and control a large number of educational institutions, convents and schools in Tamil Nadu. It was contended that nuns, sisters, and priests who teach in these schools that receive grants-in-aid from the State government to the extent of their full salary cannot be taxed as they are bound by the Canon Law for their vows of poverty and have suffered a civil death and renounced the world. The receipt of salary in their hands entirely belongs to the institution, church or the religion.

The Madras HC also held that there is no iota of doubt that the provisions of the Sections 15 and 192 of the Act have nothing to do with religion or any other special status of the person receiving the income described to be salary by the payer of the same.

‘No diversion of income’

Further, referring to the old circulars, it said there was no diversion of income by overriding title, and once it is paid by the State to teachers, it might have paid or made over to the church or diocese or institution run by them.

Tax experts said the ruling is important as it gives primacy to the Income-Tax Act. “The ruling involves interpretation of an exceptional and interesting issue dealing with ascertainment of character of not only a provision but the Income-Tax law. The court gave emphasis to the rules of liberal interpretation for deciding that mechanics under Section 192 and chargeability under Section 15 does not give reference to the religion, caste, colour or creed of the recipient of the salary,” said Rakesh Nangia, Managing Partner, Nangia Advisors (Andersen Global).