Supreme Court Upholds TDS on Salaries of Missionary Teachers

In a significant ruling, the Supreme Court of India on Friday upheld the deduction of tax (TDS) from the salaries of nuns and priests serving as teachers in government-aided Christian missionary schools, even if they have taken a vow of poverty. The decision was made by a bench comprising Chief Justice of India D.Y. Chandrachud and Justices J.B. Pardiwala and Manoj Misra, who dismissed appeals from nearly 100 dioceses and religious congregations based in Tamil Nadu and Kerala.

Background of the Case

The appeals challenged previous rulings by the Madurai Bench of the Madras High Court, which had denied their requests for exemption from income tax. Historically, missionary schools had enjoyed a tax exemption since 1944 under a Central Board of Direct Taxation (CBDT) circular, which stated that fees earned by missionaries for services rendered and subsequently transferred to their society should not be taxed. This was reinforced by a 1977 circular. However, in December 2014, the Income Tax Department mandated that TDS be applied to salaries paid to members of religious congregations in government-aided institutions.

The Argument of the Petitioners

Senior advocates Arvind Datar and S. Muralidhar represented the dioceses, arguing that the salaries received by nuns and priests were not their personal income but rather belonged to the religious congregation operating the school. They highlighted that, under the vow of poverty, nuns and priests do not have personal income or property. All financial compensation, including salaries and accident compensation, is directed to the congregation or diocese.

Datar explained, “These sisters dedicate themselves as servants of God and spend their lives for charitable purposes, such as education, health, and helping the poor. They live in abstinence, leading ascetic lives.”

Supreme Court’s View

Despite the unique context of the petitioners’ argument, the Supreme Court concluded that the source of the salaries—government grants—justified the application of TDS. The bench noted, “Regardless of the vow of poverty, when salaries are paid out of government funds, they are subject to taxation. Once there is an income, tax must be levied.”

Implications of the Ruling

This ruling marks a shift from a longstanding policy that had provided tax relief for religious individuals working in educational roles. For decades, the practice of transferring earnings directly to religious congregations had not been taxed, ensuring that such income was used for communal and charitable purposes.

The 2014 decision to reintroduce TDS was a policy change that aimed to ensure greater tax compliance across various sectors, including religious and educational institutions. The Supreme Court’s dismissal of the appeals reinforces the government’s stance on uniform tax application.

Conclusion

This ruling underscores the principle that income received from government sources, even by religious functionaries who take vows of poverty, falls under the purview of taxation. While this decision might impact the financial practices of religious congregations, it emphasizes compliance with the broader framework of income tax laws applicable to all salaried professionals in government-aided institutions.