Coaching institute wins ₹9.48 lakh TDS case as ITAT says attendance alone does not make teachers employees

The Income Tax Appellate Tribunal (ITAT), Cochin Bench, has quashed a tax demand of ₹9.48 lakh raised against Kerala-based Brilliant Study Centre Pvt. Ltd., ruling that contractual teachers cannot be treated as employees merely because they are required to follow attendance, working hours and leave procedures.

In its order dated 16 June 2026, the tribunal held that such administrative supervision is necessary for the smooth functioning of an organisation and does not, by itself, establish an employer-employee relationship. The original order was passed in Brilliant Study Centre Pvt. Ltd. vs Income Tax Officer (TDS), Ward TDS, Kottayam.

The dispute arose after a TDS survey conducted under Section 133A in December 2023. The Income Tax Department found that the coaching institute had deducted tax at source under Section 194J, applicable to professional fees, instead of Section 192, which applies to salaries.

The tax department argued that the teachers functioned as employees because they had fixed working hours, attendance was monitored, leave required prior approval, they were restricted from teaching at competing institutes and received annual increments. Based on these factors, the institute was treated as an assessee in default under Sections 201(1) and 201(1A), resulting in a demand of about ₹9.48 lakh. The Commissioner (Appeals) also upheld the department’s view.

Why ITAT ruled in favour of the coaching institute

The tribunal overturned the lower authorities’ decisions, observing that the decisive test is not administrative control but whether the institution controls how professionals perform their work.

ITAT noted that the faculty members were free to teach in their own manner, subject only to the prescribed curriculum. It also found that there were no appointment letters or employment contracts, and the teachers were not entitled to statutory employee benefits such as provident fund, gratuity, ESI or leave encashment. These factors indicated a professional engagement rather than an employment relationship.

Another significant factor weighed by the tribunal was that the Income Tax Department had accepted the teachers’ own income tax returns, where the receipts were offered as professional income under Section 44ADA. ITAT observed that the department could not simultaneously treat the same payments as salary in the hands of the payer while accepting them as professional receipts in the hands of the recipients.

Relying on judicial precedents, including the Madras High Court’s ruling in the Dr. Mathew Cherian case, the tribunal held that professionals do not become employees merely because an organisation prescribes administrative guidelines. Accordingly, it ruled that the coaching institute had correctly deducted TDS under Section 194J and quashed the ₹9.48 lakh demand raised under Sections 201(1) and 201(1A).