26. TDS – Payment of salary to priests and nuns of catholic institutions – Ultimate beneficiaries congregation or dioceses with benefit of exemption from tax – No liability to deduct tax at source

Holy Cross Primary School vs. CBDT; 388
ITR 162 (Mad):

The assessee filed writ petition for
quashing of the letter dated 07/10/2015 of the Income-tax Department and the
Circular of the Director of Treasuries dated 26/10/2015 insisting in deduction
of tax at source from the salaries of the religious nuns and priests in the
service of the assessee school contending that, the concerned religious priests
and nuns did not take the salaries, but were ultimately depositing it with the
concerned diocese or congregation or institution only which are exempt from tax.

The Madras High Court allowed the writ
petition and held as under:

“Tax need not be deducted at source in so
far as the payments of salaries of the religious priests and nuns of the
catholic institutions who were attached to the respective congregation or
dioceses who were already exempted from the purview of the income tax liability
as on the date of the order.”