Consider the number of people walking around in "TAPOUT" tshirts at this very moment. Folks know to tap to get someone to stop hurting them. A few of the bad guys I've bounced have tried to tap out of immobilizations, but I tend to work a lot of cage fights. My best response is to let up a little bit on the pin, but keep it on enough to maintain control until the police arrive. If they keep trying to tap when I know the pin is slack enough to not injure, I will communicate with them, ask them what hurts, and how I can make them more comfortable, like maybe just switch to the cuffs or choke them out if they really want to be unpleasant about things....
Sounds like that instructor was trying to use a very valid point to cover a lapse in skill and judgement. Demonstrating in front of a class is very different than controlling an aggressor. It is a good idea to really practice awareness and zanshin while pinning someone out. It is a good idea to develop as much sensitivity to your uke's position, tensions, and attitude as possible, so that you can control an aggressor safely for both people.
You just reiterated my point. How many people are going to get into fights with martial artists or fighters who know how to tap? With the exception of cage fights, by their very nature have submissions and bouncers who have to subdue, again, how many aikido people are going to actually find themselves in this position that a highly ranked instructor needs to hurt someone to get the point across?