Is gift receipt of Dubai villa worth Rs 17 Crore by Shah Rukh Khan tax free?

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    shah-rukh-khan-income-taxMedia widely reported today that income tax department has rejected the claimed of Shahrukh Khan  of receipt of gift of villa worth Rs 17 Crore from  a Dubai based company. Shahrukh Khan , had in its return claimed , that the said gift was tax free . An interesting poll on the issue is being run here.

    Here is the media news , as it appeared in Indian Express

    Shah Rukh Khan once again seems to have come under the scan of the Income Tax (I-T) Department, this time for his sprawling Signature villa at the Palm Jumeirah in Dubai. While the actor has claimed he received the villa as a gift from Nakheel Public Joint Stock Company (Nakheel PJSC) three years ago, the I-T department believes it was given as an endorsement fee for promoting said company.

    Khan’s Signature villa is pegged at a whopping Rs 17.84 crore. For the assessment year 2008-09, Khan had, in April 2009, filed returns declaring income of Rs 126.31 crore, which included his house, property, profession, capital gains and other sources.

    The I-T department, however, assessed that the Villa was taxable and accordingly issued a notice to him. When the actor sent a reply to the notice, he had said that the gift did not constitute his income from business or profession. Nakheel, had also supported Khan and clarified to the I-T department that Khan had not provided any service for it and had attended an Annual day function of his company as a gesture of friendship.

    Is receipt of villa really tax free?

    Since facts are not available, it is assumed that teh said gift of villa was received by Shahrukh Khan before 1st day of October, 2009 because any gift in form of money received by an individual before that day from non relative and certain specified kinds of trust and institution was taxable under Income Tax Law.

    However , from 01/10/2009 , apart from sum of money , other form of gifts have also been braught within taxing  provision under section 56(2) (vii). So from 01/10/2009 , following kinds of gifts are to be treated as taxable if received from any non relative or unspecified persons.

    (a)       any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;

    (b)       any immovable property, without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;

    (c)       following property, the aggregate fair market value of which exceeds fifty thousand rupees,

    (i)  immovable property being land or building or both;

    (ii)  shares and securities;

    (iii)  jewellery;

    (iv)  archaeological collections;

    (v)  drawings;

    (vi)  paintings;

    Inserted from 01/06/2010

    (vii)  sculptures; 

    (viii)  any work of art; [or]

    (ix) bullion;

    So, had Shahrukh Khan received the Villa after 01/10/2009 , the value of the villa would  have been taxed as per provision. However, before 01/10/2009 , the words like immovable property was not used , buy only words used  was any sum of money. That was interpreted that the gift in form of moeny is only taxable and not other form.

    So, on what ground A.O has taxed claimed gift as income?

    From media reports , it emanates that the A.O has questioned the love and affection by a company towards King Khan. As per A.O how can a company having no feeling like a human being , can have love and affection for a living man.

    Further it appears , that A.O has also brought circumstantial evidence against Super Star that his image was already being used for promoting villas built by same company.

    What about wealth tax ?

    It is not reported whether Shahrukh Khan files includes the value of gifted villa in his wealth tax  which is prima facie includible whether or not same is taxable under I T Act.

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