In a landmark judgment, the Supreme Court on Friday ruled that there is no issue with the income tax department deducting tax (TDS) from the salaries of nuns and priests employed as teachers in government-aided Christian missionary schools, even if they have taken a vow of poverty.
The court, led by Chief Justice D Y Chandrachud and Justices J B Pardiwala and Manoj Misra, dismissed appeals from nearly 100 dioceses and congregations in Tamil Nadu and Kerala. The bench noted that whether or not the individuals have taken a vow of poverty, their salaries are funded by government grants, and any form of income is subject to tax.
The petitioners contended that the congregation submits tax returns as required, challenging the Madurai bench of the Madras High Court’s earlier denial of a tax exemption—an exemption that missionary schools had enjoyed since 1944 until the central government imposed TDS in December 2014.
Representing the dioceses, senior advocates Arvind Datar and S Muralidhar argued that the salaries of nuns and priests are transferred to the congregation running the school, and the teachers themselves do not retain the funds. Datar further explained that if a nun or priest dies in an accident, any compensation goes to the parish, not the family, as they sever ties with relatives upon taking their vows.
However, the court noted that since salaries are grouped under income, they ought to be taxed.
The 1944 Central Board of Direct Taxation (CBDT) circular exempted missionary income transferred to their society from income tax. This exemption was reaffirmed in 1977, but in December 2014, the income tax department directed state educational authorities to deduct TDS from the salaries of all religious congregation members paid by government grants.
