TDS amount not income for relevant year per ITAT; A.O. to verify refund inclusion in subsequent year.

The ITAT held that the TDS amount should not be considered as income for the relevant year, in line with a High Court judgment. The case was remanded to the A.O. to verify if the TDS refund was included as income in a subsequent assessment year. The appeal was allowed for statistical purposes, rendering the lower authorities' findings on the TDS amount's treatment as an application of income irrelevant.

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Issues Involved:
1. Consideration of TDS amount as application of income under section 11(1)(a) of the Income-tax Act, 1961.
2. Treatment of TDS refund not offered to tax in the relevant assessment year.

Issue-wise Detailed Analysis:

1. Consideration of TDS Amount as Application of Income under Section 11(1)(a):
The primary issue revolves around whether the TDS amount of Rs. 13,28,823/- can be considered as an application of income under section 11(1)(a) of the Income-tax Act, 1961. The assessee, a trust registered under section 12A, claimed this TDS amount as an application of income. The Assessing Officer (A.O.) rejected this claim, stating that the TDS amount, being deemed income, was not received by the trust during the year in question. As per Explanation 2(i)(a) of Section 11(1), the trust had the option to apply this income in the year it was received or the following year, provided the option was exercised in writing before the deadline for filing the return. The trust failed to exercise this option, leading the A.O. to recast the taxable income at Rs. 14,92,760/-.

The CIT(A) upheld the A.O.'s decision, stating that TDS deduction could not be considered as an application of income. However, the ITAT found substantial merit in the assessee's reliance on the judgment of the Hon'ble High Court of Calcutta in CIT vs. Jayashree Charity Trust (1986) 159 ITR 280 (Cal), which held that TDS amounts should not be treated as income for the purposes of Section 11. The High Court reasoned that since the TDS amount is not available for application or accumulation, it should not be included in the income for Section 11 purposes. The ITAT agreed with this view, stating that the immunity from taxation granted to the income of a charitable trust cannot be denied on the ground that the deemed income under Section 198 (TDS) was not actually spent for charitable purposes during the year.

2. Treatment of TDS Refund Not Offered to Tax in the Relevant Assessment Year:
The second issue pertains to the treatment of the TDS refund. The CIT(A) noted that the appellant had not offered the TDS refund to tax in the relevant assessment year, although it was offered for taxation in A.Y. 2014-15. The ITAT examined the claim that the TDS amount of Rs. 13,28,823/- was received as a refund on 20.03.2014 and was shown as income in A.Y. 2014-15 for computing exemption under Section 11. The ITAT set aside the matter to the A.O. for verification. If the claim was found to be accurate, the TDS amount should not be treated as income for A.Y. 2012-13.

Conclusion:
The ITAT concluded that the TDS amount should not be considered as income for the year under consideration, aligning with the High Court's judgment. The matter was remanded to the A.O. for verification of whether the TDS refund was included as income in A.Y. 2014-15. Consequently, the appeal was allowed for statistical purposes, rendering the lower authorities' observations on whether the TDS amount constituted an application of income moot.

Final Order:
The appeal of the assessee was allowed for statistical purposes, with the order pronounced in open Court on April 11, 2018.

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