By CA Surekha S Ahuja
If Form 26AS could decide your tax liability, courts would be irrelevant.
Fortunately, law still prevails over algorithms.
A growing number of taxpayers are receiving CPC adjustments and scrutiny notices merely because their Form 26AS reflects TDS under Section 194J. The assumption is automated, mechanical, and deeply flawed:
“If TDS is under 194J, income must be professional. Apply Section 44ADA at 50%.”
This article explains—using clear statutory interpretation and binding ITAT rulings—why TDS under Section 194J does not determine the nature of income, and why eligible business assessees can lawfully opt for Section 44AD, even where tax is deducted under 194J.
This is not planning.
This is settled law.
Why Section 194J Cannot Decide Whether Income Is Business or Professional
What Section 194J Really Is (and What It Is Not)
Section 194J is a tax deduction at source provision, enacted to protect revenue by placing responsibility on the payer. It is intentionally broad and conservative.
Critically:
-
Section 194J is not a charging section
-
It does not classify income
-
It does not override Sections 28, 44AD, or 44ADA
Courts have consistently held that TDS provisions are machinery provisions, not determinants of income character.
“TDS under wrong section”
-
“Does 194J mean professional income”
-
“Form 26AS mismatch income nature”
Section 44AD vs Section 44ADA – The Legal Difference That CPC Ignores
When Section 44AD Applies
Section 44AD applies where the assessee:
-
Carries on business
-
Meets turnover limits
-
Is not engaged in a profession specified under Section 44AA(1)
There is no statutory requirement that:
-
TDS must be under 194C or 194H
-
194J disqualifies 44AD
Why Section 44ADA Is Not Automatic
Section 44ADA applies only if the assessee is engaged in a profession listed in Section 44AA(1).
That list is exhaustive, not illustrative.
If the assessee does not legally fall within Section 44AA(1), Section 44ADA cannot be forced, regardless of the TDS section used by the payer.
High-Intent SEO Keywords
-
“44AD vs 44ADA difference”
-
“Can I opt 44AD if TDS under 194J”
-
“CPC applied 44ADA wrongly”
Judicial Position: Substance Over TDS Form
Indian courts have repeatedly ruled that:
-
Income is taxed based on real activity
-
Payer’s TDS choice cannot bind the assessee
-
CPC cannot recharacterise income under Section 143(1)
Vishnu Dattatraya Ponkshe vs CPC (ITAT Mumbai)
The Tribunal categorically held that:
-
Section 44ADA applies only to professions under Section 44AA(1)
-
Educational qualification and statutory recognition are relevant
-
TDS under Section 194J is irrelevant for presumptive eligibility
The CPC adjustment applying Section 44ADA was deleted in full.
Arthur Bernard Sebastine Pais vs DCIT (ITAT Bangalore)
The Tribunal ruled that:
-
Section 194J has a wide payer-centric sweep
-
Section 44ADA has a narrow statutory gate
-
CPC exceeded jurisdiction by substituting 44AD with 44ADA
This ruling is now routinely relied upon in CPC rectification appeals.
SEO Case-Law Keywords
-
“ITAT on 44AD and 194J”
-
“CPC 143(1) wrong presumptive taxation”
-
“ITAT ruling 44ADA not applicable”
Recruitment, Manpower & Facilitation Services – Business Income by Law
Recruitment and manpower services involve:
-
Candidate sourcing
-
Screening and coordination
-
Operational execution
They:
-
Do not require professional qualification
-
Are not notified under Section 44AA(1)
-
Are business activities in substance
Even if corporates deduct TDS under Section 194J for compliance safety, the assessee remains eligible for Section 44AD.
Wrong TDS Section Does Not Harm the Assessee
Courts have consistently held that:
-
TDS credit must be allowed as per Form 26AS
-
Payer’s mistake cannot prejudice the deductee
-
Income need not be reclassified due to TDS error
SEO Keywords
-
“Wrong TDS section credit”
-
“TDS under wrong head treatment”
-
“Form 26AS error income tax”
Why CPC Adjustments Fail in Appeal
CPC can correct:
-
Arithmetical errors
-
Apparent inconsistencies
CPC cannot:
-
Decide business vs profession
-
Apply Section 44ADA by inference
-
Override judicial interpretation
Such adjustments are routinely struck down by CIT(A) and ITAT.
How to Defend Section 44AD When TDS Is Under 194J
A legally strong defence includes:
-
Service agreements showing execution-based work
-
Proof of absence of Section 44AA(1) qualifications
-
Correct business code in ITR
-
Turnover eligibility under Section 44AD
-
Binding ITAT precedents
Rectification under Section 154 is the first step. Appellate success rates are high where facts are properly documented.
Section 194J does not decide whether income is professional.
Section 44ADA does not apply by default.
Section 44AD remains available where the activity is business in substance.
This position is now judicially settled.
Automated CPC assumptions may continue—but they do not survive appellate scrutiny.
If Form 26AS could decide tax liability, courts would be redundant.
Thankfully, law still governs taxation—not algorithms.
