Shah Rukh Khan wins big in ITAT ruling: Understanding foreign tax credit rule

Shah Rukh Khan secured a major win as the Income Tax Appellate Tribunal (ITAT) ruled in his favor, overturning the reassessment proceedings and order initiated by the tax authorities for the 2011-12 financial year.

Against an income of Rs 83.42 crore declared by the actor in his income-tax (I-T) return, the tax officer denied his claims for foreign tax credit (for taxes paid in the UK) and reassessed the income as Rs 84.17 crore. 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, marking a crucial win for the actor in his prolonged battle over foreign tax credit claims.

The litigation related to taxation of Khan's remuneration for the movie 'RA One.' As per the agreement between the actor and Red Chillies Entertainments (a film production and distribution company founded by Khan), 70% of the film's shooting was to take place in the UK and therefore 70% of the income would accrue overseas (which would be subject to UK tax including withholding tax). The actor's remuneration, in this regard, was routed through Winford Production, a UK entity. Tax authorities contended that such an arrangement of payment, caused a revenue loss to India. The I-T officer denied the actor's claim for foreign tax credit, that was made in his original I-T return.

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In a comprehensive ruling, the ITAT bench, consisting of