The income-tax appellate tribunal (ITAT) has overruled the tax department’s view that a villa in Dubai gifted to Bollywood actor Shah Rukh Khan some ten years ago was a facade to evade income tax. The tribunal has taken the stand that the value of the villa cannot be treated as the actor’s taxable income.
The villa had been gifted to Khan under a formal gift deed in 2007, after he obtained the RBI’s approval.
IT authorities were of the view that the donor, Nakheel PJSC, a Dubai-based company known for the famous Palm Projects, had gifted the villa as it wanted to use the actor’s image and brand value to sell its properties. The actor is a globally known figure and has known to endorse various foreign brands for remuneration running into a few crores. Thus, the gift was seen as remuneration to Khan for utilising his brand image and in lieu of his stage performance at the company’s annual day event. It is in this light that the IT authorities sought to tax the value of the villa as income in SRK’s hands.
During the assessment for the financial year 2007-08, IT officials added the value of the villa — Rs 17.85 cr — to the income of Rs 126.3 cr declared by Khan in his IT return. The actor would have had to pay IT on this additional sum. At the first stage of appeal, the commissioner (appeals), agreed with the IT authorities. Based on a valuation report, though, he reduced the addition to Rs 14.7 cr.
Appealing before ITAT, Khan, through his counsel, said the chairman of the company, Sultan Ahmed Bin Sulayem, was his friend and thus wished to make the gift. Khan admitted to attending the annual day event, but said he merely addressed the employees and did not perform on stage, which would have amounted to brand endorsement. Regarding taxation of a gift in kind, ITAT pointed out that for the relevant financial year, gifts of immovable property made without any consideration were out of the tax ambit.