'Law Common For Everybody': Supreme Court Dismisses Plea By Christian Nuns, Priests Against TDS Deduction On Their Salaries

The Supreme Court on Thursday (8 November) upheld the Madras High Court's order which said that salaries paid to nuns and priests working as teachers in aided schools run by the church are subject to income tax.

A single judge-bench of the Madras High Court had earlier ruled in favour of priests and nuns, stating that their salaries should not be taxed since the funds go directly to the diocese, not to them.

According to the single-judge bench, canon law considers priests and nuns to have undergone "civil death," thereby exempting them from Tax Deducted at Source (TDS).

On appeal by the Income Tax Department, a High Court Division Bench reversed this decision in 2019 which was then challenged before the Supreme Court.

The Supreme Court's three-judge bench, led by Chief Justice D Y Chandrachud and also comprising Justices J B Pardiwala and Manoj Misra on Thursday (8 November) said the money is given to the school in the form of a salary grant and hence cannot be exempt from TDS.

“It’s a salary which is paid to one of the nuns or a father. They don’t take it in their own coffers. That’s all. Because they say we have taken a vow of poverty. So they would not retain the salary. The organisation bills the salary to the father or the nun, but pays it to either one of the sister organisations or whatever for charitable purposes. But TDS is to be deducted,” CJI Chandrachud said.

During the hearing, Senior Advocate Arvind Datar, representing the petitioners, said that the money is not paid to the schools, but goes directly to the diocese, which is then taxed as a charitable trust.

However, the bench disagreed with Datar, stating, “How will the government pay the diocese? The government will never pay the diocese … .They can’t contribute to a religion… The government will pay to the school”.

“What happens is it never comes to the account of the school… I can bring the account and show you… What used to happen is because of a CBDT circular, because these priests don’t pay provident fund, they don’t pay any kind of thing, the money goes to the diocese," Datar said,

He added: "The diocese is registered as a charitable trust under Section 11 of the Act. They have to disperse 75 per cent of whatever money they collect for charitable purposes. The priest gets nothing. For the last 85 years, the priests were never taxed".

However, CJI Chandrachud said, “There may be a priest, say a Hindu priest who says that, well, I will not retain the salary. I will give this money which I receive, you know, for doing puja to an organisation. But if the person is employed, he gets the salary, tax has to be deducted. The law is common for everybody. How can you say that it’s not subject to TDS?" Indian Express reported.

Datar also told the apex court that the petitioners were protected by circulars issued from 1940s and the tax department initiated proceedings in 2015.

During the hearing, Justice Pardiwala said, “These salaries are paid by the government to the aided institution. Therefore, it is a salary in its true sense.”

CJI Chandrachud added that even if there is TDS, they can always claim a refund. To which Datar said the priests and nuns are not even assessees.

The bench then went on to dismiss the appeals.

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