By TIOL News Service

CHENNAI, JUNE 10, 2016: THE issue before the Bench is - Whether when salaries paid by Govt to priests and nuns were actually income of religious institutions they represented, any TDS obligation arises in such a case even if their income is exempt. NO is the answer.

Facts of the case

All these petitioners are in Catholic Institutions, religious Priests and Nuns who were employed in the respective Schools/Colleges owned and administered by Dioceses, Congregation or institutions. Whenever salaries were directly paid by the Government to the concerned religious Priests or Nuns, who were working in the schools owned by Catholic Dioceses and Congregation, TDS was sought to be deducted, whereas the concerned religious Priests and Nuns did not take the salary as their individuals salaries instead they were depositing the same to the concerned Diocese or Congregation or institution only. Therefore, they had no personal link in so far as the salary received from the Government was concerned. Some of the Institutions, Congregations or Dioceses were already exempted by the Income Tax Department from payment of income tax. Therefore, the salaries given to the Priests and Nuns when they were added to the income of the said Congregation or Diocese was not taxable where such income from the religious Priests and Nuns now, added to the congregation income they become non-taxable. Whereas, when it was received by the concerned Priests or Nuns in their individual name, TDS was sought to be deducted by the institution but ultimately the income was being only added to the Diocese which was exempted from income tax. Therefore, it went without saying that the ultimate beneficiaries were the congregation or Diocese, since payment of Tax had been exempted for them the salary of the Priests and Nuns received from government should not be deducted towards TDS u/s 40.

On appeal, the HC held that,

++ in this connection, a reference is also made to a Division Bench judgment of the Kerala HC in an identical matter wherein also interim order has been passed but a reference has been made to place this matter before the CBDT but no further orders have been brought to the notice of HC. But as he stated even the CBDT itself way back in the year 1977 have considered such an issue and come to the conclusion that it is not taxable for the Nuns. In view of the same, to set at naught all the anomalies, this Court passes order that every individual viz., Priests or Nuns has to specifically give an undertaking affidavit to the Income Tax Department that his/her entire salary as a teacher/non teaching staff or in any other capacity has to be paid by the Government directly to the Congregation or Diocese, to which he belongs which has already been exempted from payment of income tax. Similar affidavit will also be filed before the Government of Tamil Nadu, Joint Director of Collegiate Education, District Education Officer, District Elementary Education Officer, and Pay and Accounts Officer, by the congregation and the individuals and the affidavit to be filed within a period of two weeks from the date of receipt of a copy of this order. It is also made clear that this order will only enure to the benefit of those Congregation or Diocese who have already obtained exemptions from the Income Tax Department. In the said affidavit, they will also state that all the payment made by the Government directly to the Congregation or Diocese is in full satisfaction of their salary as claimed by the schools and they will not have any further claim insofar as the payment of salary to them as it is directly made to the Congregation or Diocese. As according to them, it is the ultimate, final beneficiary which is receiving the salary. It is made clear because the the Government is paying authority, the Income Tax Department on receipt of such affidavit and on their satisfaction would give a certificate or a letter to the Government of Tamil Nadu that they need not deduct TDS insofar as the Priests and Nuns are concerned because they are not paying salary to the individual which are now being paid only in the name of the Congregation or Diocese only. In view of the above, all the Writ Petitions are allowed as stated above. No costs. Consequently, connected Miscellaneous Petitions are closed.

(See 2016-TIOL-1115-HC-MAD-IT)