Brilliant Study Centre Faculty Are Independent Professionals, Not Employees For TDS: ITAT Cochin

The Income Tax Appellate Tribunal (ITAT) at Cochin has recently held that faculty members engaged by Brilliant Study Centre Pvt. Ltd., a well-known Kerala coaching institute that prepares students for NEET, JEE, and other medical and engineering entrance examinations, were independent professionals and not employees.

It consequently set aside a demand of Rs. 9.48 lakh raised against the institute after the Income Tax Department treated it as an assessee in default for allegedly short-deducting tax at source.

At a virtual hearing held in Bengaluru, A coram comprising Vice President Prashant Maharishi and Judicial Member Soundararajan K allowed the institute's appeal. It held that the engagement of the faculty was in the nature of a contract for service rather than a contract of service. Relying on a Madras HC ruling that settled a similar issue, the tribunal held,

"Thus respectfully following the decision of the honourable madras High Court and in view of the above facts it is clear that the above decision of the honourable madras High Court squarely covered the issue in favour of the assessee holding that where the identical terms and conditions, these teachers could not be held to be the employees of the assessee and tax deduction at source could have been forced under section 192 of the act. Therefore we do not find any infirmity in assessee treating them as professional and deducting tax at source on their payment under section 194J of the act.",

The Income Tax Department conducted a survey at the institute's premises in December 2023 to verify compliance with tax deduction at source provisions. It found that the institute had deducted tax on payments made as professional fees to 121 teachers engaged to coach students preparing for NEET, JEE and other entrance examinations.

The department treated the teachers as employees. It relied on factors such as fixed working hours, attendance requirements, prior approval for leave, and restrictions on teaching at other coaching institutes. It therefore concluded that tax ought to have been deducted under the provisions applicable to salary payments.

Brilliant Study Centre, however, maintained that the teachers were engaged on an hourly basis as independent professionals. It submitted that they received no statutory employment benefits such as a provident fund or gratuity and were paid professional fees.

The institute also pointed out that the teachers had disclosed the receipts as professional income in their tax returns and that those returns had been accepted by the Department. It further relied on the Mumbai Bench of the ITAT's ruling in ITO (TDS) (OSD)-1(2) v. Entertainment Network (India) Ltd., where payments to radio jockeys were treated as professional fees.

While relying on the Madras High Court's decision in Dr. Mathew Cherian v. Assistant Commissioner of Income-tax, the tribunal reproduced the following observation:

"The regulations, restrictions, guidelines and control exercised in regard to logistical and administrative functions of the workforce are not unique to a reduction organisations and it is difficult to identify any establishment that does not exercise some degree of control over the administrative and logistical functioning of the workforce, be they salaried or otherwise called as a consultant."

The tribunal noted that the institute did not exercise any control, intervention, or direction over the teachers' professional duties. It found that they were free to teach in their own way, subject to the curriculum.

It also noted that there were no written agreements or contracts, either of employment or of professional engagement. Another factor that weighed with the tribunal was that the teachers had returned the receipts as professional income and the Department had accepted those returns.

Holding that "these teachers could not be held to be the employees of the assessee," the tribunal set aside the orders of the Assessing Officer and the Commissioner (Appeals)