Shah Rukh Khan wins tax case as ITAT dismisses dispute over RA.One earnings

The Income Tax Appellate Tribunal bench held that reassessment of Bollywood actor Shah Rukh Khan's case by the income-tax department was not legally justified

Bollywood actor Shah Rukh Khan has secured a significant legal victory in a long-running tax dispute, as the Income Tax Appellate Tribunal (ITAT) ruled in his favour, dismissing the reassessment proceedings and order initiated by tax authorities for the financial year 2011-12.

 

The ITAT bench held that reassessment of Khan’s case by the income-tax department, initiated beyond the four-year statutory limit under Section 147 of the Income Tax Act, was not legally justified, said media report.

 

Taxation case involving Shah Rukh Khan

According to media reports, the dispute was related to the taxation of Shah Rukh Khan’s remuneration for the movie Ra.One, which was released in 2011.

 

In the litigation over his income-tax return, the tax officer argued that Khan’s declared income of Rs 83.42 crore for the assessment year 2012-13, rejecting his claims for foreign tax credit (FTC) for taxes paid in the United Kingdom. As a result, the officer reassessed the actor’s income at a higher amount of Rs 84.17 crore. This reassessment took place more than four years after the relevant assessment year, 2012-13.

 

Under Khan’s agreement with the Red Chillies Entertainment (a film production and distribution company founded by Khan), 70 per cent of the film’s shooting was to take place in the UK and so, an equal percentage of his income would be subject to UK taxes. To facilitate this arrangement, his remuneration was routed through Winford Production, a UK entity.

 

The IT Department argued that this arrangement led to a revenue loss for India and rejected his claim for a foreign tax credit. In its recent ruling, the ITAT bench stated that the assessing officer had failed to demonstrate “any fresh tangible material warranting a reassessment beyond the four-year statutory period”.

 

Understanding foreign tax credit rule

An Indian resident taxpayer is liable to pay tax in India on their global income. However, foreign tax credit enables taxpayers to offset income tax paid in another country against their tax liability in India to prevent double taxation of the same income.

 

India has signed Double Tax Avoidance Agreements (DTAAs) with most countries and limited agreements with eight nations. These treaties determine which income is taxable in each contracting state, based on mutual agreements, as well as the conditions for taxation and exemptions.

 

According to tax treaties, individuals must obtain a Tax Residency Certificate of being a resident of the other country or specified territory and submit Form 67 along with their income tax return (ITR) by the due date to claim this benefit.