Central Board Of Direct Taxes & Others vs Correspondent & Others

Dr.Vineet Kothari, J

Both the learned counsel appearing for the appellants/respondents submit that the controversy in the present appeals is squarely covered by a recent decision of a Division Bench of this Court, rendered in Chennai, to which, one of us was a party (Dr.Vineet Kothari,J) in W.A.No.319 of 2019 and batch [Union of India Vs. The Society of Mary Immaculate (Tamil Nadu) and others], wherein this Court held that the State is liable to deduct income tax at source under Section 192 of the Income Tax Act, 1961, while making payment of salary from the Grant-in-Aid, to the Teachers in the respondents Societies/Schools, who may be Nuns or Sisters or Missionaries working as Teachers in such Institutions.

The relevant portion of the said judgment rendered on 20.03.2019 is quoted below for ready reference:

"49. On the basis of the aforesaid, we find that the salary in question was not directly received by the Congregation or Religion by overriding diversion of title, but were paid by the State to the Teachers who are Nuns or Missionaries and thereafter, it might have been applied or made over to the Church or Diocese or the Institution run by them. Merely by illustrative view of the entry shown as deposit of salary in common bank account or such Nuns or Missionaries not signing the receipt of salary in the Registers maintained by the Institution itself is not sufficient to prove such facts for all such persons belonging to the said class and the same cannot be taken as a proof of diversion of their salary income by overriding title in favour of the Institution or the Religion. The salary is paid under the contract of employment with which Educational Institution or the Church or Diocese is not even a privy to such contract of employment qua the State Government.

Moreover, the State Government as a Payer of salary under Income Tax Act is not bound by any Religious tenets or provisions of Canon Law. It has nothing to do with the Religious freedom as guaranteed under Articles 25 and 26 of the Constitution of India. In the present case, the State Government cannot be said to be bound to pay such salary in favour of the Church or Diocese in place of Teachers concerned who may be Nuns or Missionaries and who may even leave and come out of such Religious Order on their own volition. On the other hand, the State Authorities, if they do not deduct tax at source on such salary payments, may be held guilty of not following the provisions of Income Tax Act rendering them to pay penalty and even face prosecution. Therefore, neither the Income Tax Department nor the State Government have anything to do with the religiious character of the Institution, may be Teachers or Nuns or Missionaries and therefore, they cannot take a stand for not making the tax deduction at source in view of the Canon Law.

Therefore, in our opinion, with great respects, 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 the individual Teachers belonging to the class of Nuns, Missionaries or Sisters. Therefore, we are of the considered opinion that the present writ appeals filed by the Union of India deserve to be allowed and the order of the learned Single Judge under the appeal deserves to be set aside. We accordingly allow the said appeals of the appellant Union of India and set aside the order passed by the learned Single Judge. No costs.

Being conscious of the fact that our reversal of the order passed by the learned Single Judge may result in practical complications for the past period for the Educational Institutions as well as Teachers belonging to said class and also the State Government and Income Tax Department on the other side, we direct that this judgment shall be applied prospectively and not for the past period."

In view of the aforesaid judgment, the present writ appeals are disposed of on the same terms. The miscellaneous petitions are closed. There is no order as to costs.

In these appeals, there are some Respondents/Assessees, who are not represented by the learned Counsel before us. Though, prima facie, we find that those writ appeals are also covered by this judgment (and) we have disposed of those writ appeals also, we direct that a copy of the judgment may be sent to the Respondents/Assessees, who are not represented here before this Court and they are at liberty to apply to the Court by way of appropriate Miscellaneous Application, in case, the facts of their cases are different in nature, by pointing such difference of facts with reference to the aforesaid Judgment.