(iii) the holder of an instructor certificate may log as PIC all flight time during which he or she acts as an instructor in an aircraft;
It says for ALL flight time during when he or she acts as an instructor.
If they are alone in the aircraft it is not an Instructional Flight. If they are accompanied in the aircraft it is still not an Instructional Flight unless the person accompanying them logs DUAL.
But what if the "student" needs to be the PIC for the flight because of not having full controls. Then this rule says ALL situations anyway. You have a situation if you strict follow the rules which ends up in both student and pilot logging PIC.
If the "student" does not log DUAL then they were not a student (under EASA).
The PIC of an aircraft does not need full controls, does not even need to be at the controls at all (think of the Captain (PIC) having a snooze in the back of a large jet whilst his First and Second Officers fly the plane).
Part-FCL Definitions: Pilot-in-command’ (PIC) means the pilot designated as being in command and charged with the safe conduct of the flight.
In GA the usual way for a PIC/Instructor to ensure they can make the plane do what they want is to sit at a full set of controls, 'Taking Control' if they wish/deem appropriate.
Bose-x has stated that, in certain, legally allowed, situations, where he trusts the student he will fly without a full set of controls in front of him - relying on the student to obey any commands he is given.
But, as he states, either he is PIC and the Student logs DUAL; or the "student" logs PIC and Bose is just a Passenger who can offer advice.