ITAT Grants Relief to Shah Rukh Khan: Deletes Penalty on his Bona Fide belief of Non-Taxability of Dubai Villa [Read Order]

The Mumbai bench of Income Tax Appellate Tribunal (ITAT) recently granted relief to Bollywood Film Actor Shah Rukh Khan by removing the penalty imposed by the Assessing Officer (A.O.) under Section 271(1)(c) of the Income Tax Act, 1961 as, the assessee had in bona fide belief didn’t offer tax on his Dubai Villa.

Shah Rukh Khan owned a Villa in UAE. It was gifted to him by Nakheel, a property developer based in Dubai. During the concerned assessment year, Shah Rukh Khan in his return of income had on his own estimated the ratable value of villa at Rs.20,00,000/- and offered an amount of Rs. 14,00,000/- towards notional income of the villa under the head house property. However, in the course of the assessment proceedings, the assessee taking support of the provisions of Article 6 of the India-UAE tax treaty and the protocol thereto, requested the assessing officer not to tax the notional income of the villa owned by him at Dubai.

According to the assessee, the provisions of the India-UAE tax treaty and especially sub-clause (ii) of the protocol, notwithstanding the provisions of Article 6 and Article 23 of the India-UAE tax treaty, the residential property owned by a national of a contracting state and occupied for self-residence in the other contracting state was exempt in the other contracting state from the taxes covered by the tax treaty. It was thus in the backdrop of his aforesaid conviction, that the assessee had claimed that the notional income of the villa owned by him at Dubai was not liable to be taxed in India. However, the A.O made additions and the order was upheld by all the appellate authorities. Thereafter, the A.O initiated penalty proceedings against Shah Rukh khan. CIT(A) deleted the penalty imposed. Aggrieved revenue appealed before the ITAT.

The bench comprising of Judicial Member Ravish Sood and Accountant Member N.K. Pradhan found that as per the advice his counsel, the assessee remained under a bona fide belief that the notional income of the villa owned by him at UAE could not be brought to tax in India. They noted that a perusal of Article 6 of the tax treaty between India-UAE dealing with the taxability of the income of a person from immovable property situated in the other contracting state, read along with the protocol on the one hand, and the Notifications issued by the CBDT on the other hand, revealed that the issue as regards the taxability in India of the notional income of the villa owned by the assessee at Dubai was not free from doubts and debates.

Upholding the decision of the CIT(A), the bench observed “We thus, in terms of our aforesaid observations conclude that no penalty under Sec. 27(1)(c) of the Act could have been imposed on the assessee in respect of the addition of an amount of Rs. 47,66,952/- made by the A.O towards notional income of the villa owned by the assessee at Dubai. The order of the CIT(A) deleting the penalty imposed by the A.O under Sec. 271(1)(c) is upheld.”