The Hindu Business Line : Taxing professionals as teachers

Educational institutions (engineering and medical colleges, schools of management, etc.,) engage the services of professionally qualified persons — engineers, chartered accountants, cost accountants, doctors, so on —to teach. The contract between the institution and the individual is to teach at the institution.

Is teaching a profession?

Teaching is not a profession. Way back in 1959, the Supreme Court held in P. Krishna Menon v. CIT (1959; 35 ITR 48; SC) that teaching is a vocation.

Requirements of TDS

These persons do not become employees of the organisation. They cannot claim any benefits as employees of the organisation. Since these persons are not employees of the institution, the remuneration paid to them does not qualify to be salary. Hence, the provisions of TDS from salaries do not apply to them.

A teacher is not covered by the provisions of Section 194C of the I-Tax Act. A duty is cast upon managements by Section 194J to deduct tax at source from fees for professional services. The Section reads as under.

“Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of

(a) Fees for professional services, or

(b) Fees for technical services,

(d) Any sum referred to in clause (va) of Section 28.”

Explanation to Section 194J (1)

(a) “professional services” means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section;

(b) “fees for technical services” shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;

Section 44AA and also Explanation 2 to clause (vii) of sub-section (1) of Section 9 are reproduced for immediate reference.

Section 44AA:

“Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette...”

It is pertinent to note that the Section has specifically mentioned the professions and has an extension by saying any other profession as is notified by the Board in the Official Gazette...”

The Government of India has, from time to time, issued notifications in this regard as under:

Notified professions: Following notifications are issued by the Government of India in this regard.

(a) The profession of authorised representative and (b) the profession of film artist (actor, cameraman, director, music director, art director, dance director, editor, singer, lyricist, story writer, screen play writer, dialogue writer and dress designer) — Notification: No. SO 17(E), dated 12-1-1977.

Profession of Company Secretary — Notification: No. SO 2675, dated 25-9-1992

Profession of Information Technology — Notification: No. SO 385(E), dated 4-5-2001.

Fees for technical services

The term technical services has been explained as under:

Explanation [2] to Clause vii of sub0section 1 of Section 9: For the purposes of this clause, “fees for technical services” means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction72, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “Salaries”.]

Another provision stated in Clause (d) of Section 194J(1) is Clause (va) of Section 28 which deals with any sum in cash or kind under an agreement restraining from carrying out a particular activity. Though out of context, the Section reads as:

(va) any sum, whether received or receivable, in cash or kind, under an agreement for

(a) not carrying out any activity in relation to any business; or

(b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services:

Further down, Explanation 2 offers the following description to the term “services”

(ii) “service” means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial nature such as accounting, banking, communication, conveying of news or information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging.

Applicability of law

At no place in any of the relevant provisions as discussed above, teaching is mentioned. No doubt, the faculty members drafted from a cross-section of society are professionally qualified, but the crux of the matter of the agreement between the management and the individual concerned is teaching and not for rendering professional services in their professional capacity.

These faculty members are not paid for professional services as understood within the meaning of the sections, clauses and explanations discussed above. They are paid for teaching at the respective institutions and teaching is not covered by any of the above provisions.

Dual responsibilities

However, if a doctor is employed in a hospital attached to a medical college and is obliged to take classes in the college, the remuneration cannot be split between that and working in the hospital. He is clearly an employee of the organisation and is bound by the terms of employment to so take classes. Tax is deductible at source at the rates applicable to salaries. He is not within the ambit of Section 194.

On the contrary, if the auditor of the educational institution takes classes at the educational institution, he is not an employee of the organisation and the above provisions of salary do not apply to him. His remuneration for all the professional work undertaken as an auditor is subject to TDS under Section 194J(1). But there is no specific provision for deducting tax at source from his remuneration (by whichever name called) for teaching.

Service tax

Certain professionals such as chartered accountants are covered by the provisions of the Service Tax Act. In case a chartered accountant takes classes in an educational institution, he is not carrying out his profession in the class room.

The Chartered Accountants Act, 1949 lays down the areas of profession of a chartered accountant in practice. Teaching at any educational institutions is not a part of the profession.

On the other hand, the member is required to seek specific permission from the Council before accepting such engagements. Also, he cannot engage himself for more than 25 hours per week so as to continue to be a member in practice.

He is not justified in charging service tax from the educational institution where he is teaching, since teaching is not a chargeable service under the Service Tax Act.