In a landmark judgment, the Supreme Court on Thursday upheld the Madras High Court's ruling that salaries paid to priests and nuns working as teachers in church-run, government-aided schools are subject to income tax. The court dismissed arguments that religious vows of poverty and the charitable status of dioceses exempted these earnings from Tax Deducted at Source (TDS).
A single-judge bench of the Madras High Court initially sided with the priests and nuns, ruling that, per canon law, their income was intended solely for the diocese and not for personal benefit, exempting it from TDS. However, in 2019, a division bench overturned this decision, asserting that salaries paid to individuals - even if not retained personally - were still taxable.
Chief Justice of India D.Y. Chandrachud, along with Justices J.B. Pardiwala and Manoj Misra, explained that the funds for these salaries are paid as grants to the schools, not the diocese, and therefore do not qualify for exemption. CJI Chandrachud stated, "The law is common for everybody," emphasizing that employment earnings, regardless of religious vows or charitable distribution, are subject to standard taxation procedures.
Senior Advocates representing the appellants argued that priests and nuns, as per canon law, experience “civil death” upon taking religious vows and therefore should be exempt from taxation. However, the Supreme Court clarified that employment income, once allocated to the teachers, attracts tax liability, despite the ultimate destination of funds. The bench advised that priests and nuns, if eligible, could claim a refund on TDS deductions.
This ruling has set a precedent for tax obligations on religious individuals employed in government-aided roles, signaling a significant shift in interpreting the interplay between religious orders and income tax laws in India.
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