TDS on Faculty Payments: Salary Under Section 192 or Professional Fees Under Section 194J? ITAT Cochin Clarifies the Law
Keywords: TDS on faculty payments, Section 192 vs Section 194J, coaching institute TDS, consultant vs employee, employer-employee relationship, professional fees under Section 194J, ITAT Cochin judgment, faculty consultants income tax, contract of service vs contract for service, TDS on teachers.
Does Attendance and Fixed Working Hours Make a Consultant an Employee?
Many educational institutions, hospitals, coaching centres and professional organisations engage experts as consultants while prescribing attendance timings, leave procedures and workplace discipline.
The Income Tax Department often argues that such administrative controls create an employer-employee relationship, thereby requiring tax deduction under Section 192 instead of Section 194J.
However, in a significant judgment, the Income Tax Appellate Tribunal (ITAT), Cochin Bench, has clarified that administrative supervision alone does not convert an independent professional into an employee.
The Tribunal held that the real test is whether the organisation controls the manner in which the professional services are performed, and not merely whether attendance registers or office timings exist.
The ruling is likely to have far-reaching implications for coaching institutes, hospitals, educational institutions, consulting firms and other organisations engaging professionals on a consultancy basis.
Background of the Case
In Brilliant Study Centre Pvt. Ltd. v. Income Tax Officer (TDS), Kottayam (ITA No. 545/Coch/2026, order dated 16.06.2026), the assessee operated a coaching institute preparing students for competitive examinations such as:
• NEET,
• JEE,
• GATE,
• and similar entrance examinations.
The institute engaged approximately 121 faculty members and deducted tax at source under Section 194J, treating them as independent professional consultants.
Why Did the Department Raise a Demand?
During a survey under Section 133A(2A), the Department noticed several features, including:
• attendance registers,
• prescribed working hours,
• leave regulations,
• restrictions on teaching in competing institutions.
Based on these factors, the Department concluded that the faculty members were actually employees.
Accordingly, it held that tax ought to have been deducted under Section 192 as salary.
Since tax had been deducted under Section 194J instead, the assessee was treated as an assessee-in-default under:
- Section 201(1), and
- Section 201(1A).
The Assessee’s Defence
The coaching institute strongly disputed the Department’s conclusion.
It pointed out that:
• the faculty members were engaged as consultants,
• there were no employment contracts,
• they received professional fees rather than salary,
• remuneration comprised fixed as well as performance-linked components,
• they were not entitled to provident fund,
• no gratuity was payable,
• no bonus was paid,
• no leave encashment or other statutory employee benefits were available.
Importantly, the faculty members themselves had offered these receipts as professional income under Section 44ADA, and the Department had accepted those returns without objection.
The Core Legal Test
The Tribunal emphasised that every case must be examined by applying the classic legal distinction between:
Contract of Service
This indicates an employer-employee relationship.
The employer controls:
• what work is done,
• how it is done,
• when it is done,
• and the manner of performance.
Payments are generally treated as salary under Section 192.
Contract for Service
This refers to an independent professional or consultant.
The organisation may specify the assignment or expected outcome, but the professional retains autonomy regarding the manner in which the services are rendered.
Payments are generally liable for TDS under Section 194J.
Attendance and Timings Are Not Conclusive
The Tribunal rejected the Revenue’s assumption that attendance registers and office discipline automatically establish employment.
It observed that organisations frequently prescribe:
• reporting timings,
• attendance requirements,
• leave procedures,
• confidentiality clauses,
• non-compete obligations,
even for independent consultants.
These administrative controls are introduced to ensure organisational efficiency and coordination.
They do not, by themselves, create an employer-employee relationship.
Control Over Professional Judgment Is the Real Test
According to the Tribunal, the decisive question is:
Did the organisation control the manner in which the faculty members actually taught?
The answer was No.
The faculty members enjoyed complete freedom regarding:
• teaching methodology,
• academic approach,
• classroom delivery,
• professional judgment.
This autonomy clearly demonstrated that they functioned as professionals rather than employees.
Department’s Own Conduct Weakened Its Case
An important factor considered by the Tribunal was the Department’s own treatment of the recipients.
The faculty members had declared their receipts as professional income under Section 44ADA.
The Income Tax Department had accepted those returns.
Having accepted the receipts as professional income in the hands of the recipients, it could not simultaneously contend that the very same payments represented salary in the hands of the payer.
Judicial Precedents Relied Upon
The Tribunal relied upon several important judicial decisions, including:
• Dr. Mathew Cherian v. ACIT
• Punjab and Haryana High Court in CIT v. Ivy Health Life Sciences Pvt. Ltd.
• Karnataka High Court in CIT v. Manipal Health Systems Pvt. Ltd.
• Bombay High Court in CIT v. Grant Medical Foundation
• Andhra Pradesh High Court in CIT v. Yashoda Super Speciality Hospital
• Sushilaben Indravadan Gandhi v. New India Assurance Co. Ltd.
These authorities consistently recognise that professional consultants do not become employees merely because they are subject to administrative supervision or organisational discipline.
ITAT’s Decision
The Tribunal concluded that:
• the faculty members were independent professionals,
• tax had correctly been deducted under Section 194J,
• there was no obligation to deduct tax under Section 192,
• and the orders passed under Sections 201(1) and 201(1A) were liable to be quashed.
Accordingly, the entire demand raised against the coaching institute was set aside.
Why This Judgment Matters
The ruling is relevant not only for coaching institutes but also for:
• hospitals engaging consultants,
• educational institutions,
• law firms,
• chartered accountancy firms,
• engineering consultants,
• architects,
• software consultants,
• management consultants,
• training organisations.
Many organisations prescribe attendance, office timings and administrative rules.
This judgment clarifies that such controls alone do not determine the nature of the legal relationship.
Practical Takeaways
Before deciding whether TDS should be deducted under Section 192 or Section 194J, organisations should examine:
• whether there is an employment contract,
• whether statutory employment benefits are provided,
• whether professional autonomy exists,
• whether the organisation controls only administrative discipline or also professional judgment,
• how the recipient reports the income in their own tax return.
The substance of the relationship, rather than its administrative features, will determine the correct TDS provision.
Conclusion
The ITAT Cochin’s decision in Brilliant Study Centre Pvt. Ltd. v. ITO (TDS) provides much-needed clarity on one of the most litigated issues under the TDS provisions of the Income-tax Act.
The Tribunal has reaffirmed that attendance requirements, fixed working hours, leave rules and organisational discipline are not sufficient to establish an employer-employee relationship. The decisive consideration remains whether the professional retains independence in rendering the services.
Where consultants enjoy autonomy in performing their professional functions, receive no statutory employment benefits and are treated as professionals both contractually and tax-wise, TDS under Section 194J is the correct legal position.
The judgment is likely to serve as an important precedent for educational institutions, hospitals and businesses across India that regularly engage independent professionals.
The copy of the order is as under:
