Shah Rukh Khan in Tax Trouble

King Khan might have been Bollywood’s highest advance tax payer last year. But the I-T department has not forgotten that the man still owes them money from nearly ten years ago.

The Bombay High Court on Thursday admitted an appeal, by the I-T department, challenging an order of the Income Tax Appellate Tribunal (ITAT), which had ruled in the star’s favour in June 2008.

In the first of its appeals, the I-T department seeks to claim a sum of Rs 19.43 lakh from the actor, out of a total exemption of Rs 72.67 lakh for the assessment year of 1998-1999.

“The appeals for the remainder of the amount will come up for hearing in separate cases over the next few weeks,” a source in the I-T department disclosed.

Shah Rukh had declared his total income for the financial year 1998-99 as Rs 2.01 crore, the appeal filed in the HC states. Out of this, Rs 72.67 lakh was shown as earnings from international advertising and endorsements.

The aforementioned Rs 19.43 lakh was shown in his filings of that year as advance received “towards royalty” from Jeanne Arthes Perfume for fragrances named after him.

For this, SRK had sought deductions under section 80RR of the I-T Act, by claiming it to be professional receipt from a foreign source.

Section 80RR of the Income Tax Act, 1961 covers Indian residents who earn foreign currency, and are subjected to tax deductions. This category includes professionals such as film personalities, sports persons, authors and musicians. These individuals are allowed tax deductions of 75 per cent of the income received in the form of foreign currency, provided they earn it by virtue of their profession.

In this case, however – the I-T department argues – SRK earned the sum by endorsing a brand, and not in his capacity as an actor.

The Assessment Officer studying SRK’s case had concluded that “the said receipts had not been derived from the exercise of his profession – ie, acting – but from a commercial venture in which the actor had commercially exploited his brand equity, popularity and mass appeal”.

The AO therefore restricted the deduction to 5 per cent, whereas Shah Rukh had claimed a deduction (u/s 80RR) of 75 per cent.

The star had then approached the Chief of Income Tax (CIT) against the AO’s order, which – in April, 2002 – partly allowed his appeal.

Both parties then moved to the ITAT, as they were dissatisfied with the CIT’s order.

The ITAT – in June, 2008 – had partly allowed both the appeals. The department has now filed various appeals in HC against the ITAT’s order, which partly ruled in favour of the star.

The Earnings Of A Superstar
In the year 2006-07, King Khan paid Rs 18 crore in tax. The following year – in January 2008 – he paid advance taxes of Rs 27 crore till December 15, 2007, and declared his income for 2007-08 at over Rs 100 crore.