Shah Rukh Khan Wins Tax Case: ITAT Rules in Favor of Foreign Tax Credit Claim

Bollywood superstar Shah Rukh Khan has secured a significant legal victory in a long-standing income tax dispute. The Income Tax Appellate Tribunal (ITAT) ruled in his favor, dismissing reassessment proceedings related to his 2011-12 income, specifically earnings from his blockbuster film 'Ra.One'. A major portion of this income was taxed in the United Kingdom (UK), leading to a dispute over Foreign Tax Credit (FTC).

Case Overview

• Income Declaration: Khan declared a total income of ₹83.42 crore for AY 2012-13, including earnings from 'Ra.One'.
• FTC Claim: He sought credit for UK taxes paid on the portion of the film shot there.
• Tax Department's Stance: The authorities denied his FTC claim, reassessing his income at ₹84.17 crore and initiating reassessment beyond the four-year statutory limit.
• ITAT's Ruling: The tribunal dismissed the reassessment, citing the lack of fresh evidence and confirming Khan's right to FTC under Indian tax laws.

What is the Foreign Tax Credit (FTC) in India?

Under Indian tax laws, residents are taxed on their global income. To prevent double taxation, the Foreign Tax Credit (FTC) mechanism allows taxpayers to claim a credit for taxes paid abroad against their Indian tax liabilities.

• Eligibility: FTC applies when the same income is taxed both in India and a foreign country.
• Documentation: Taxpayers must file Form 67 with their income tax return, providing details of foreign income and taxes paid.
• Limitations: The credit is limited to the lesser of the foreign tax paid or the Indian tax payable on the same income.

Impact of the Ruling

The ITAT's decision sets an important precedent for taxpayers with foreign income:

• Reinforces the right to claim FTC when properly documented
• Prevents double taxation for Indian residents earning abroad
• Limits arbitrary reassessments by tax authorities
• Emphasizes adherence to statutory timelines

Conclusion

Shah Rukh Khan's victory in the ITAT underscores the importance of correctly applying FTC provisions and maintaining compliance with documentation requirements like Form 67. This ruling serves as a reminder for taxpayers with foreign income to ensure proper filings to avoid disputes and safeguard their tax benefits.