Rs 9.48 lakh income tax demand on coaching centre quashed: ITAT explains why attendance alone doesn't make contractual teachers employees

A popular coaching centre in Kottayam, Kerala, known for preparing students for medical and engineering exams like NEET, JEE, GATE, hired teachers on a contract basis and deducted 10% TDS from their pay.

However, these teachers never received any appointment letters, or employment contracts and nor did they get any PF, gratuity or other employee benefits. On this ground, the coaching centre classified them as hired professionals rather than employees.

On December 18, 2023, a survey was conducted under Section 133A(2A) at the business premises of the coaching centre's main Branch at Kottayam and other centres located across Kerala. The purpose of the survey was to check compliance with tax deduction at source regulations for the financial years 2018 - 19 to 2023 - 24.


During the survey, under Section 131, summons were issued to various teachers and the managing director of the company. During the survey it was observed that teachers were compensated under professional services, with TDS applied according to Section 194J, instead of being classified as salary. On this issue, proceedings under Section 201(1) & 201(1A) was initiated and a notice was issued on June 5, 2024.

The Income Tax Department ultimately rejected the coaching centre's contentions and said that teachers were actually employees because:

• They had fixed working hours.
• Attendance was monitored.
• They needed prior approval for leave.
• They could not teach at rival coaching institutes.
• They received annual increments and other facilities.
• The coaching institute exercised significant administrative control over them.

Feeling aggrieved, the coaching centre filed an appeal first with CIT (A) and then with the Income Tax Appellate Tribunal (ITAT) Cochin. The Assessing Officer held that the coaching institute should have deducted TDS under Section 192 (salary) instead of Section 194J, treated it as an assessee in default, and raised a demand of about Rs 9.49 lakh, including interest. The Commissioner (Appeals CIT A) upheld this view.

On June 16, 2026, ITAT Cochin ruled entirely in favour of the coaching institute. Chartered Accountant Venkitachalam M.S. represented the coaching institute.

ITAT Cochin observed that:

• Administrative supervision over timings, attendance and leave does not automatically create an employer-employee relationship.
• The crucial factor is whether the institute controls how the teachers perform their professional work. Here, teachers were free to teach in their own manner subject to the curriculum.
• The teachers were not entitled to statutory employment benefits like PF, gratuity or leave encashment.
• The Income Tax Department had itself accepted the teachers' returns treating the receipts as professional income under Section 44ADA, making its stand inconsistent.

ITAT Cochin also relied heavily on the Madras High Court's decision in the Dr. Mathew Cherian case, where consultant doctors were similarly held to be independent professionals rather than employees.

What is TDS rate and what is the difference in framework of TDS u/s 194J & u/s 192?

Under Section 194J, TDS is deducted on payments to resident professionals/consultants, including fees for professional services, technical services, royalty, directors' remuneration and non-compete fees. The rate is 10% for professional fees subject to the prescribed threshold of Rs. 50,000 p.a.

Under Section 192, there is no fixed TDS rate. TDS is deducted by the employer on salary at the average rate of income tax, based on the employee's estimated taxable salary for the financial year and applicable slab rates.

Thus, Section 192 applies only where an employer-employee relationship exists and the payment is salary, whereas Section 194J applies where the recipient is engaged as an independent professional/consultant and the payment is in the nature of professional or technical fees. In the Brilliant Study Centre case, the ITAT held that the teachers were engaged as professionals and, therefore, TDS under Section 194J was appropriate, not Section 192.

Also read: Will new TDS rules change your take-home salary from April 1, 2026? Key income tax-related changes in new financial year (FY26-27)

Summary of the judgement

Chartered Accountant Suresh Surana explained to ET Wealth Online: The Cochin ITAT, in the case of Brilliant Study Centre Private Limited, dealt with the issue of whether payments made by a coaching institute to teaching professionals were liable for TDS under Section 192 as salary or under Section 194J as professional fees.

The assessee was engaged in providing coaching for medical and engineering entrance examinations and had engaged certain faculty members/teachers on a professional basis. The assessee deducted tax at source under Section 194J, treating the payments as professional fees.

However, following a TDS survey, the Assessing Officer held that the teachers were effectively employees of the assessee, and therefore tax ought to have been deducted under Section 192. Accordingly, the assessee was treated as an assessee-in-default under Sections 201(1) and 201(1A).

The Income Tax Department's case was primarily based on factors such as fixed working hours, attendance requirements, leave intimation, restrictions on teaching at other institutes, administrative supervision, annual increase in remuneration and other internal controls. On this basis, the Assessing Officer and CIT(A) concluded that an employer-employee relationship existed between the assessee and the teachers.

The assessee contended that the teachers were independent professionals engaged for specialised teaching services and were paid professional fees, partly linked to lectures/classes.

It was also submitted that there were no appointment letters evidencing employment, no written employment contracts, and no statutory employee benefits such as provident fund, gratuity, bonus, ESI or leave encashment. Further, the teachers themselves offered the receipts as professional income under Section 44ADA in their returns of income, which had been accepted by the Revenue (the tax department).

The ITAT Cochin accepted the assessee's position and held that the teachers could not be regarded as employees merely because the assessee exercised administrative control over timing, attendance, leave, scheduling or other logistical matters.

Surana says: "The Tribunal observed that such controls are necessary for the efficient functioning of any organisation and do not, by themselves, establish a master-servant relationship."

What was relevant was whether the assessee controlled the manner in which the teachers discharged their professional teaching functions. Since the teachers were free to teach in their own manner, subject to the curriculum, and there was no evidence of control over their professional judgment, the relationship was in the nature of a contract for service and not a contract of service.

The Tribunal cited judicial precedents, including the Madras High Court decision in the Dr. Mathew Cherian case, where it was held that professionals cannot be treated as employees merely because the institution imposes administrative guidelines or operational restrictions.

The ITAT further noted that Revenue had accepted the same receipts as professional income in the hands of the teachers, and therefore could not take an inconsistent position in the hands of the payer.

Accordingly, the ITAT held that the assessee had correctly deducted TDS under Section 194J and not under Section 192. The order treating the assessee as an assessee-in-default under Sections 201(1) and 201(1A) was quashed.

Surana says: "The taxpayer won the case because the overall facts demonstrated a professional engagement rather than an employer-employee relationship, and the Revenue failed to establish that the assessee exercised control over the manner of performance of teaching services."