2019 (9) TMI 41 - AT - Income Tax

TDS u/s 192 or 194J - non-deduction of tax at source on payments made to employees u/s 194J - Default u/s 201(1)/ 201(1A) - HELD THAT - The assessee has appointed teachers/ lecturers and staff for full time employment as per terms of appointment letter issued by the college. The assessee is paying monthly fixed salary as per the terms of employment of service. The appointment is made under an employer-employee relationship between the college and the teachers/lecturers/ staff - the college authorities has full control over the teachers/ lecturers/ staff as per their working hours and working days fixed by the employer and they were also supposed to do other work related to the college activities as and when required. Since there was employee and employer relationship between the college teachers/lecturers/staff, therefore, tax on the salary paid to them was correctly deductible u/s 192 - As found that in order to establish employee and employer relationship between the college teachers/lecturers/staff, the assessee also produced salary registers and appointment letters before the lower authorities. Payments made to teachers/ lecturers/ staff by the assessee is covered u/s 192 of the Act and not covered u/s 194J of the Act. - Decided in favour of assessee.

Summary

Issues:
- Appeal against orders of CIT(A) regarding treating assessee in default under sections 201(1)/201(1A) for non-deduction of tax at source under section 194J.

Analysis:
1. Issue of Default under Sections 201(1)/201(1A):
- The assessee appealed against orders of CIT(A) for treating them in default under sections 201(1)/201(1A) of the IT Act for not deducting tax at source under section 194J on payments to employees.
- The AO contended that the employees paid by the assessee did not have an employer-employee relationship, thus tax under section 194J should have been deducted instead of section 192.
- The ITAT found that the assessee, a college, had appointed teachers and staff under an employer-employee relationship, issuing appointment letters and maintaining salary records, thus correctly deducting tax under section 192.
- The ITAT referred to a similar case decided by ITAT Chandigarh Bench, where it was held that payments to teaching staff below the taxable limit did not require tax deduction at source under section 194J.
- Consequently, the ITAT allowed the assessee's appeal, concluding that the payments to teachers/staff were covered under section 192 and not section 194J, based on the established employer-employee relationship.

2. Misclassification as Professional Services:
- The AO erroneously categorized the payments to teachers/lecturers/staff as professional services, citing definitions from legal notifications.
- The ITAT clarified that the payments were covered under section 192 and not section 194J, as per the decision of ITAT Chandigarh Bench and the established employer-employee relationship.
- The ITAT emphasized that the nature of the payments made by the assessee did not fall under the definition of professional services as per the relevant legal provisions.
- By aligning with the decision of the Chandigarh Bench, the ITAT dismissed the AO's classification and upheld that the assessee was not in default under section 201(1) and 201(1A) of the IT Act.

3. Conclusion:
- The ITAT allowed the appeal of the assessee, setting aside the orders of CIT(A) and the AO, based on the established employer-employee relationship and correct tax deduction under section 192 for payments to teachers/staff.
- The judgment emphasized the importance of maintaining accurate classification of payments and adhering to the provisions of the IT Act while determining tax deduction obligations.
- The decision provided clarity on the applicability of tax deduction provisions concerning payments to employees in educational institutions, ensuring compliance with the legal requirements and avoiding unnecessary tax liabilities.