Case Law Details
Fr. Sabu P.Thomas Vs Union of India (Kerala High Court)
The receipts in question, in the instant cases, are amounts by way of salary and pension. These payments accrue to the individuals concerned, who have rendered service in their individual capacity and based on the educational qualifications and skills possessed by them as individuals. The right to receive payments by way of salary or pension also, consequently, accrues or arises to them as individuals and not to the congregation of which they are members. No doubt, the precepts of Canon Law might require them to entrust the amounts so received to the religious congregation of which they form a part, but in my view the said obligation of the member, which is only an obligation based on personal law, would not clothe the religious congregation with a legal right to receive salary/pension payments directly from the Government/Employer, and without involving the member. Consequently, the entrustment of the amounts received by the member, to the congregation, would tantamount only to an application of income by the member in favour of the congregation. It will not be a case of diversion of income by way of overriding title.
The concept of diversion of income by overriding title to apply, the diversion of income must be effective at the stage when the amount in question leaves the source, on its way to the intended recipient. At that stage, on account of a pre-existing legal obligation, the amount should be diverted to another, who can claim it as of right, based on the pre-existing legal arrangement. The person to whom the amount is diverted should have a legal right that entitles him to claim the amount directly from the source, and without the intervention of the person who would have received the amount but for the said legal arrangement. The nature of the receipt would also have a bearing on the issue of whether the amount in question reached the member of the congregation or was diverted to the congregation, without reaching the member, by way of overriding title.
Thus, while there may be instances where the receipt of fees or other earnings by members of religious congregations do get diverted by overriding title to the congregation, the proposition is by no means an absolute one that is applicable in all cases of earnings by a member of the religious congregation. The applicability of the concept would have to be tested on the facts of each case, by examining the nature of the receipt by the assessee. Viewed in that light, the impugned instructions of the Income Tax officers, in these cases, to deduct tax at source from payments by way of salary and pension to members of the religious congregations, cannot be said to be contrary to the Circulars and Instructions issued by the CBDT. They are simply instructions issued in situations not covered by the CBDT Circular/Instructions. Further, the CBDT Circulars/Instructions cannot be treated as encompassing receipts by way of salary and pension, as that would render the said Circulars and Instructions contrary to the law declared by the Courts on the concept of diversion of income by way of overriding title.
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