Shah Rukh Khan got notice from Income tax department

By | July 26, 2016
Amid New Delhi’s high-pitched hunt for hidden assets of the rich and famous, actor Shah Rukh Khan has received a notice from the income-tax department. About a fortnight ago, the tax office asked Khan to spell out details of his investments in offshore destinations. The tax office sought details of Khan’s investments in destinations such as Bermuda, British Virgin Islands (BVI) and Dubai.
While tax authorities are sitting on a mountain of information on offshore investments by a large number of Indians, it is unclear whether the department has any prima facie evidence to believe that Khan’s overseas assets reflect his undisclosed wealth.
The notice was sent under Section 131 of the Income-Tax Act, which empowers tax authorities to conduct enquiries, a person aware of the development told ET. The department, it appears, is going beyond the actor’s disclosed ownership of shares of companies in tax havens to fish out information such as activities of these outfits, the decision-makers, directors, etc.
ET’s email to Karuna Badwal, Khan’s business manager and coproducer at Red Chillies Entertainment, went unanswered till the time of going to press.
According to industry sources, besides Khan, a few industrialists who have structured investments through Singapore have received similar notices. It happens at a time the government -driven by its promise to unearth black money -is going after many wealthy Indians who did not declare overseas bank accounts and assets such as properties and stocks in the quasiamnesty scheme last year. The notices to celebrities (like Khan) may be aimed at reminding the rich that they should come clean under the ongoing Income Declaration Scheme (IDS), which is being aggressively marketed by the finance ministry as an opportunity to declare undisclosed local assets.
“The government is making all efforts to make IDS a success. Notices are being issued to assessees to send the message that the government is serious and those who once again refuse to declare concealed income would face the music,“ said senior chartered accountant Dilip Lakhani. According to Mitil Chokshi, senior managing partner at audit firm Chokshi & Chokshi LLP, “There’s no doubt that those assessees who have been issued notices or subjected to investigation cannot opt for IDS. But such actions -like prosecution initiated against many assessees, charges slapped on many professionals for aiding and abetting, and information obtained from other jurisdictions -would make assessees think twice before evading tax. It would surely go to make many new assessees.“
Neither Lakhani nor Chokshi is an adviser to Khan.
Many businessmen, top-notch professionals and actors have used the liberalised remittance scheme of the Reserve Bank of India to buy apartments and stocks abroad. Many , in order to escape estate duty, bought into shell companies in Jersey to invest in London’s property market. The scheme allows investment in almost all markets barring countries such as Mauritius, Iran and Afghanistan. Some businessmen have used their companies in India to invest abroad as rules allow a local company to invest up to 400% of its net worth in an overseas joint venture or wholly owned subsidiary .
“A lot depends on how investments are structured. A professional in showbiz who parks a slice of his earnings from overseas shows in an offshore account may appear to be violating the law. But if he organises his business smartly -by giving the rights of organising such shows to a firm in BVI or Dubai and hires directors who execute the decisions -he may still be within the tax rules. He is liable to pay tax only if he receives dividend from such overseas companies he has floated,“ said a person who provides such advice.
A few years ago, taxpayers were told to share information of overseas investments in their tax returns. “But even if one shares such information, the tax department would not know the nature of the company and its structure. Now, they are trying to find out more. But there’s very little the department can do if the investments are legal,“ he said. – [25-07-2016]

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