Introduction:
In a recent tax dispute between the District Intermediate Educational Office and the Income Tax Officer (TDS) [2023] 150 taxmann.com 439, the Hyderabad Tribunal has delivered a crucial judgment shedding light on the applicability of Section 194J in the context of payments made to contract teachers. The case revolved around whether the payments to teachers by the educational authority could be categorized as ‘fee for professional services,’ leading to tax deductions under Section 194J.
Background:
The assessee, in this case, was an authority functioning under the directives of the State Government. Its primary responsibility was to distribute honorarium and remuneration to teachers engaged in teaching activities aligned with the intermediate syllabus. However, during the assessment proceedings, the Assessing Officer (AO) argued that these payments fell within the purview of ‘fee for professional services’ under Section 194J.
AO’s Position:
The AO contended that the payments made to contracted teachers should be subject to tax deductions under Section 194J, treating the assessee as an ‘assessee-in-default’ for failing to deduct tax on these payments.
Tribunal’s Analysis:
The Hyderabad Tribunal, in its ruling, carefully examined the definition of ‘professional services’ as outlined in Section 194J. The Tribunal emphasized that the term “professional services” encompasses services provided in legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, advertising, or any other profession notified by the Board.
The Tribunal pointed out that Notification No. 88/2008 dated 28-01-2008 by the Central Board of Direct Taxes (CBDT) had specifically classified services related to sports activities as “Professional Services.” These services included those rendered by sports persons, umpires, referees, coaches, trainers, team physicians, physiotherapists, event managers, commentators, anchors, and sports columnists.
Exhaustive Definition:
The tribunal underlined that the exhaustive list provided in the notification and the words ‘fee for professional services means’ in Section 194J left no room for interpretation. The specified categories in the notification represented a comprehensive definition, and any service falling outside these parameters could not be considered as ‘fee for professional services.’
Contract Teachers Excluded:
Crucially, the tribunal observed that neither the Explanation to Section 194J nor the CBDT notification covered contract teachers. Despite being labeled as teaching professionals by the AO, contract teachers did not find mention in the exhaustive list of professions. Consequently, the payments made to these teachers did not meet the criteria for being classified as ‘fee for professional services,’ and hence, no TDS was applicable under Section 194J.
Conclusion:
The Hyderabad Tribunal’s ruling in the District Intermediate Educational Office v. ITO (TDS) case provides much-needed clarity on the interpretation of ‘professional services’ under Section 194J. By establishing the exhaustive nature of the definition, the tribunal has set a precedent that restricts the application of TDS to only those services explicitly mentioned in the relevant provisions or notifications. This decision not only safeguards educational authorities but also contributes to a more precise understanding of tax implications in similar contexts.
