ITAT rules in Shah Rukh Khan's favor: Foreign tax credit rule in India
New Delhi, Mar 10, 2025
Khan's UK earnings were taxed in the UK, and India's DTAA with the UK allowed him to offset this tax against his Indian liability. The ITAT ruling upheld this right, preventing unfair double taxation
Bollywood actor Shah Rukh Khan secured a significant victory as the Income Tax Appellate Tribunal (ITAT) ruled in his favour, overturning the reassessment proceedings and order initiated by tax authorities for the financial year 2011-12. The dispute was related to the tax of his movie RA.One, which was released in 2011.
What was the case?
Shah Rukh Khan faced a tax dispute over his 2011-12 income, where he declared at Rs 83.42 crore, including earnings from RA.One, taxed in the UK. The tax department denied his foreign tax credit (FTC) for UK taxes paid, increasing his taxable income to Rs 84.17 crore, and initiated reassessment beyond the four-year statutory limit. The dispute stemmed from 70 per cent of his pay being routed through UK-based Winford Productions, as 70 per cent of the film was shot in the UK. Tax authorities argued this led to a ‘revenue loss’ for India, disallowing his FTC claim.
The Income Tax Appellate Tribunal (ITAT), Mumbai quashed the reassessment, ruling in Khan’s favour with the following observations:
- Time barred and no new discoveries/disclosures.
- No fresh information.
- Bar on reassessment based on mere change of opinion by the Assessing Officer.
This means Khan’s original returned income (with the foreign tax credit) stands accepted, bringing an end to the prolonged dispute over his UK income credit.
Tushar Kumar, advocate, Supreme Court of India, explains how is foreign income taxed in India?
The taxation of foreign income under Indian law is a subject of considerable legal nuance and is primarily governed by the residency status of the individual. Under Section 5 of the Income Tax Act, 1961, a Resident and Ordinarily Resident (ROR) is liable to pay tax on their global income, encompassing earnings accrued both within and outside India. In contrast, individuals classified as Resident but Not Ordinarily Resident (RNOR) or Non-Resident (NR) are taxed only on income that is received, accrues, or arises in India. The legal framework further provides relief against the perils of double taxation through India’s extensive network of Double Taxation Avoidance Agreements (DTAAs) with various nations. These bilateral treaties ensure that taxpayers do not suffer the burden of being taxed twice on the same income, offering mechanisms such as the exemption method and tax credit method to mitigate potential financial and legal hardships. Furthermore, the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, imposes stringent penalties on the concealment of foreign assets, highlighting the necessity for absolute transparency and compliance in foreign income disclosures. The jurisprudence surrounding international taxation in India thus seeks to balance the sovereign right to tax with equitable principles that prevent undue fiscal oppression on those legitimately earning abroad.
Alay Razvi, managing partner, Accord Juris explains key Learnings from the Case
Tax authorities cannot reopen assessments beyond 4 years unless there is undisclosed income. Mere change of opinion is not a valid reason for reassessment.
If foreign tax has already been paid and properly disclosed, it cannot be taxed again in India. Foreign Tax Credit (FTC) claims are legally protected, ensuring global taxation fairness.
Taxpayers should maintain records of foreign income, tax payments, and DTAA provisions to defend their claims. Filing Form 67 on time is critical to claim FTC benefits.
[The Business Standard]
