Kerala's Catholic Groups Prepare To Challenge High Court Order That Says Nuns, Priests Have To Pay Income Tax

Last week, a divisional bench of the Kerala High Court upheld the ruling of the Single Bench of the same High Court which made priests and nuns of religious congregations liable to have their income taxes deducted at source (TDS) for their income earned from the government exchequer.

"Render unto Caesar the things that are Caesar's, and unto God the things that are God's," the High Court said, quoting the Bible.

Now, catholic religious congregations in the state are preparing to challenge this order in the Supreme Court.

“We have now decided to appeal against the order before the Supreme Court of India,” Father Jacobi Sebastian, president of the Kerala Conference of Major Superiors, has been quoted as saying in news reports.

Background Of The Case

An income tax circular of 2014 had ordered district treasury officers to ensure that TDS is implemented for nuns or priests of religious congregations. This circular was challenged by 49 appellants in the Kerala High Court on several grounds which include infringement of freedom of profession, practice and propagation of religion, which is a fundamental right guaranteed under Article 25 of the Indian constitution and the precedence of canon law (Christian personal law) under which members undergo a “civil death”.

The appellants also sought protection under earlier circulars of 1944 and 1977 of the Central Board of Direct Taxes (CBDT).

The highlights of the judgement

1. Statutory Law over Canon Law

The appellants had argued that when a member joins a religious congregation, then according to Canon Law, they have to take certain vows. Upon taking these vows, the new members undergo a “civil death” due to which any income earned by the members would automatically accrue to the religious congregation and not to the individual member. Because of this, an individual member was “invisible” to be liable for TDS.

The High Court, while dismissing their stand, categorically stated that the law of the land had primacy and supremacy over any personal law. The Income Tax Act, 1961, would, therefore, have precedence over canon law. The Income Tax Act did not recognise the concept of “civil death”.

The court also highlighted that despite undergoing a civil death, such members still indulged in regular activities like any other individual and that they too enjoyed all the rights conferred to them by the Constitution.

They had the right to franchise, right to practice the profession of law, medicine or teaching; they also managed institutions and entered into contracts like any other person.

Moreover, the bench stated that Section 192 of the IT Act does not contemplate any exemption from the liability of TDS on the basis of the nature of calling, profession, or vocation of the person who receives the salary.

If income was received under the head “salaries”, then it was subject to TDS. The court further opined that the only utilisation of the salary could be subject to Income Tax returns at the end of the Financial Year.

2. No Infringement of Fundamental Rights

The High Court clarified that Article 25 does not provide any immunity from taxation on the basis of religion. It further stated that Article 25 was subject to public order. Public Order includes the law of the land. Since the Income Tax Act of 1961 was a valid legislation, collection of income taxes would not be in contravention to any fundamental right.

3. Clarification with regards to earlier circulars of CBDT

The appellants argued that the circulars of 1944 and 1977 exempted such members from TDS. The circular of 1977 of CBDT mentions “Fees of members of religious congregation” as opposed to salaries received by nuns or priests in their “individual capacity”. Further, another clarificatory circular had been issued by CBDT in 2016 which stated that the 1977 circular did not apply to the “salaries and pensions received by nuns or priests.”

Therefore, the High Court stated that the circular of 1977 was not valid in this circumstance. Moreover, the court also argued that any rules or directions issued under the provisions of any statutory law could not override the principle law itself.

It also mentioned that Section 119 of the IT Act, under which such rules can be issued, explicitly stated that such rules could be issued only for the “Proper Administration of the Act”.

Therefore, such circulars did not have the power to exclude certain categories of persons from paying taxes. Such type of exclusion can be done only by means of the principal law.

Since the IT Act does not exempt any person from paying income tax, any subsequent circular issued could also not make such exceptions.

The Madras High Court in 2019 had also given a judgement on similar lines which was subsequently stayed by the Supreme Court. The religious congregations of Kerala have decided to approach the Supreme Court on this matter.