CASE BRIEF
Appellant– Shri Shah Rukh Khan
Respondent- Deputy Commissioner of Income Tax
Date of pronouncement: May 21, 2018
Statutes Referred: Income Tax Act, 1961
Facts:
In this case, the Assessee was Shahrukh Khan who is a famous film actor. On September 30, 2010, he had filed his return of income for A.Y 2010-11 and declared total income as Rs.46,91,80,367.
In his return of income, he had shown income from house property, profession, capital gains and other sources. The case of the assessee was taken up for scrutiny assessment under Sec. 143(2) of the Act.
The assessee owned a property, “Signature Villa”, in Dubai and estimated its rateable value at Rs. 20,00,000 and offered the house property income of Rs. 14,00,000 in his return of income.
During the assessment proceedings, the assessee was called upon to give the reason that why the deemed annual value of the villa owned by him at Dubai may not be brought to tax as per the provisions of Sec. 23(1) (a) of the Act.
The assessee replied that the villa was received by him as a gift. The assessee submitted that the property is situated in Dubai and Article 6(1) of the India-UAE tax treaty vested an exclusive taxing right with the state of source and the state of residence was not empowered to levy any tax, even if the state of source did not exercise its power to levy tax.
It was thus the claim of the assessee that the income from an immovable property could be taxed only in the state of source and that too, to the exclusion of the property used for self-occupation.
It was observed by the A.O that the submissions put forth by the assessee were not found to be in conformity with the provisions of Sec. 5(1) of the Act. The A.O held a conviction that Sec. 5(1) of the Act covered the incomes of a person who was a resident of India and the income of the assessee could not be related to any exception carved out under the statute.
The A.O further adverting to the contentions raised by the assessee as regards the manner in which the term “may be” was used in Paragraph 1 of Article 6 of the India-UAE Tax Treaty, observed that the Central Board of Direct Taxes had clarified the import of the term “may” vide its Notifications, viz.
- Notification No. 90/2008 (i) [(S.O 2124)(E)] [(F.No. 500/82/2004-FTD-1)], dated 28.08.2008; and
- (ii) Notification No. 91/2008 [(S.O. 2123)E] [(F.No. 500/82/2004-FTD-I)], dated 28.08.2008.
The A.O relying on the aforesaid notifications concluded that the claim of the assessee that the notional income of the villa owned by him at Dubai was not liable to be brought to tax in India, thus, did not hold the ground anymore.
Then, the assessee carried the matter in appeal before the CIT(A). But the CIT(A) upheld the view taken by the A.O. Then, the assessee carried the matter in appeal before the Tribunal but the Tribunal dismissed the appeal of the assessee and upheld the action of the lower authorities.
The A.O after the culmination of the assessment proceedings, called upon the assessee to explain as to why the penalty may not be imposed on him under Sec. 271(1)(c) of the Act. The A.O after deliberating on the contentions advanced by the assessee was however not persuaded to be in agreement with the same.
On basis of various judicial pronouncements rendered on the issue under consideration, as well as the relevant amendments made in the Income tax Act, 1961 to curb the concealment of income by the assessee, concluded that as the assessee in the case before him had purposively furnished inaccurate particulars and concealed his income, therefore, he was liable for imposition of penalty for furnishing inaccurate particulars of his income within the meaning of Sec. 271(1)(c) of the Act.
The A.O on the basis of his aforesaid deliberations imposed a penalty of Rs.16,36,085 on the assessee for furnishing of inaccurate particulars of the income of Rs.68,26,952.
The assessee carried the matter in appeal before the CIT(A). The CIT(A) was of the considered view that because of the provisions of the DTAA, two possible opinions about the taxability of the income from the property under consideration did emerge.
Therefore, the assessee could not be held liable for penalty under Sec. 271(1) (c) in respect of deemed income from the property under consideration, for the reason that the same had been brought to tax under Sec. 23 (a) of the Act. The CIT(A) taking support of certain judicial pronouncements, observed that where a deduction claimed by an assessee was legitimate and bonafide and the entire facts stood disclosed, then merely because of a different view taken by the A.O on the basis of the disclosed facts would not lead to the imposition of penalty under Sec.271(1)(c).
Then the revenue approached the Hon’ble Income Tax Appellate Tribunal.
Issues:
- Whether the penalty under Section 271(1)(c) of the I.T Act can be imposed upon the assessee or not.
Contentions by parties:
- A.R’s (Authorized Representative) Arguments:
- The ld. A.R taking support of the decision of the CIT(A) submitted that the issue as regards the taxability of the notional income of the villa owned by the assessee at Dubai was not free from doubts and debates. As the assessee had relied on one set of possible view, therefore, no penalty under Sec. 271(1)(c) was liable to be imposed in his hands.
- The India-UAE tax treaty had been drafted in order to regulate the interests of the two countries. Article 6(1) of the India-UAE tax treaty and the protocol could not be superseded by any such unilateral amendment made to the treaty.
- The mistake on the part of the assessee to compute the capital gains on the sale of the 0% debentures was clearly in the nature of a bonafide mistake. Therefore, no penalty on account of such bonafide mistake on the part of the assessee was liable to be imposed
- Respondent’s Arguments:
- The ld. D.R submitted that the assessee himself had accepted the annual lettable value of the villa as per the aforesaid valuation report at Rs.88,09,932 which after the claim of deduction under Sec.24(a) was computed at Rs.61,66,952 as his income from house property. The addition made in respect of the variation of the annual lettable value of the property was on the basis of the figure provided by the assessee on the basis of a valuation report procured by him. Therefore, neither the issue nor the quantification of the ALV was a debatable one.
- The assessee had wrongly computed the capital gain on the sale of 0% debentures after claiming indexation on the same. Therefore, the A.O had rightly imposed penalty under Sec. 271(1)(c) for furnishing of inaccurate particulars of income in respect of the addition of Rs.20,60,000 made on account of the long-term capital gain on sale of the aforementioned structured product.
Judgement:
The court concluded that the issue under consideration was not free from doubts and debates. Thus, the assessee could not be subjected to levy of penalty under Sec. 271(1) (c). The claim raised by the assessee that the notional income of the villa was not liable to be taxed in India was clearly backed by a bonafide belief on his part. Therefore, on the said count too, no penalty under Sec. 271(1) (c) could have been validly imposed on the assessee.
The court said that the assessee had inadvertently computed the LTCG after indexing the cost of acquisition of the same. The court observed that the bonafide of the assessee can safely be gathered from the fact that when he learnt about his mistake in computing the LTCG, he by his letter dated 26/02/2013 submitted before the A.O that he had no objection to the reworking of the LTCG as per Sec. 112 of the Act. So, it can safely be concluded that the assessee cannot be subjected to penalty under Sec. 271(1)(c) for furnishing of inaccurate particulars of income.
Conclusion:
The court in this case held that the assessee cannot be subjected to penalty under Sec. 271(1)(c) in any way and uphold the order of the CIT(A) in the context of the issue under consideration.
Prepared by Priya Kumari
