In a major victory for Bollywood superstar Shah Rukh Khan, the Income Tax Appellate Tribunal (ITAT) has ruled in his favor, quashing the proceedings and order initiated by tax authorities for the financial year 2011-12. The order alleged that the actor had failed to pay taxes in India on the fees he earned from his film “Ra.One”. This development marks a significant win for Shah Rukh Khan, who has been embroiled in a long-standing dispute over foreign tax credit claims.
The case dates back to 2012-13, when Shah Rukh Khan filed his income tax return, declaring an income of Rs 83.42 crore. However, the income tax department raised doubts that the actor had suppressed some income and not disclosed complete information, prompting a re-examination of the case. The ITAT has now deemed the reassessment made by the income tax department as legally invalid, handing the actor a decisive victory in his protracted battle.
Shah Rukh Khan gets relief from ITAT
At the heart of this dispute is the fee Shah Rukh Khan received for “Ra.One”, a film that was partially shot in the UK. According to the agreement between the actor and Red Chillies Entertainment, 70% of the film’s shooting was to take place in the UK, with the corresponding income to be earned abroad, while the remaining 30% would be earned in India. The actor received Rs 10 crore for his work on the film, paid through a UK-based company. Red Chillies deducted Rs 1 crore as TDS (Tax Deducted at Source) and remitted the amount to the UK company, which then deducted Rs 1.40 crore as Foreign Exchange Equalization (FEU) and paid Shah Rukh Khan Rs 7.6 crore.
Shah Rukh Khan declared this amount as income earned in the UK and paid tax of Rs 2.70 crore there. However, the assessing officer treated this as tax evasion and initiated an investigation, reasoning that the payment arrangement resulted in a loss of tax revenue for the Indian government. The income tax officer rejected the actor’s claim for foreign tax credit, which was reflected in his income tax return.
Investigation into the matter
As an Indian tax resident, an individual is required to pay tax in India on their global income. In its order, the ITAT bench comprising Sandeep Singh Karhail and Girish Agarwal ruled that the proceedings against Shah Rukh Khan were invalid. The tribunal observed that the assessing officer failed to provide any evidence to justify the reassessment, despite having four years to do so.
This outcome brings to a close a long and contentious chapter for Shah Rukh Khan, one of India’s most iconic and enduring film personalities. With the ITAT’s ruling, the actor has secured a significant victory, underscoring the importance of adherence to tax laws and regulations, while also upholding the rights of taxpayers to claim legitimate credits and deductions. As the entertainment industry continues to evolve, this case will likely serve as a benchmark for tax disputes and foreign income, providing clarity and guidance for celebrities and taxpayers alike.