Shah Rukh Khan secured a significant victory as the Income Tax Appellate Tribunal (ITAT) ruled in his favour and quashed reassessment proceedings and order initiated by the income-tax authorities for financial year 2011-12 (assessment year 2012-13). The income-tax officer had denied the superstar’s claims for foreign tax credit (for taxes paid in the UK) and reassessed the income as Rs. 84.17 crore instead of Rs. 83.42 crore declared by him. Such reassessment was done beyond four years from the end of the relevant assessment year (2012-13).
The ITAT bench held that reassessment of the case by the income-tax department was not legally justified.
The litigation related to taxation of Shah Rukh’s remuneration for Ra.One. As per agreement between the actor and producers Red Chillies Entertainment, 70% of the film’s shooting was to take place in the UK and, therefore, 70% of the fees would accrue overseas (which would be subject to UK tax including withholding tax, as per the India-UK tax treaty). In this regard, SRK’s remuneration was routed through Winford Production, a UK entity. The Indian tax authorities contended that such an arrangement of payment caused a revenue loss to India. Hence the income-tax officer disallowed the actor’s claim for foreign tax credit which was made in his income-tax return.
An Indian resident taxpayer is subject to tax in India on his global income. In other words, foreign tax credit provisions contained in tax treaties enable an Indian taxpayer to deduct tax paid in the foreign country from his Indian tax liability. This prevents double taxation of the same income. The ITAT bench ruled that the reassessment proceedings were invalid. The Tribunal noted that the assessing officer had failed to demonstrate any fresh tangible material warranting a reassessment beyond the four-year statutory period. It further observed that the disputed issue had already been examined during the initial scrutiny assessment of the case.
Citing multiple judicial precedents, the ITAT emphasised that reassessment under section 147 can be done after the expiry of 4 years from the end of the relevant assessment year, only if certain conditions were met. For instance, if the income had escaped assessment due to the taxpayer’s failure to file an I-T return or respond to a notice or failure to fully and truly disclose all material facts during the original assessment. The Tribunal found no evidence of such failure on Shah Rukh Khan’s part.
The ITAT bench, therefore, concluded that the reassessment proceedings were bad in law on more than one count and were not in conformity with the provisions of section 147 of the Income-Tax Act and quashed the same.
