In a relief to actor Shah Rukh Khan, the Income Tax Appellate Tribunal has overturned an order of the tax authorities to add Rs 2.28 crore he had lent his wife as interest free loan to buy flat and jewellery to his net wealth.
The superstar's wife Gauri had used Rs 1.65 crore (Rs 16.5 million) of the loaned amount to buy a house in Delhi and Rs 63 lakh for jewellery. Commissioner of Income Tax (Appeals) had ordered adding the amount to Khan's net wealth for Assessment Year 2005-06 on the ground that it amounted to transfer to assets.
The Mumbai bench of ITAT held on Wednesday that the Commissioner of Wealth Tax (Appeals) was not justified in confirming the addition of Rs 2.28 crore (Rs 22.8 million) to the actor's net wealth and had erred in holding that the house and jewellery purchased by his wife was an indirect transfer of assets.
The Income Tax authorities had held that the loan advanced by Shah Rukh Khan was an indirect transfer of assets by the assessee to his wife. Accordingly, the loan amount of Rs 2.28 crore was added to the net wealth of Rs 2.75 crore (Rs 27.5 million) declared by the actor for Assessment Year 2005-06.
Khan's lawyer Hiro Rai argued that that the assessee had extended a loan to his wife which cannot be said to be a transfer of assets. He cited a Karnataka High Court Judgement to support his argument that the loan given by Shah Rukh to his wife was recorded in the books of account and cannot be treated as transfer of assets from husband to wife.
Income Tax counsel Jitendra Kumar argued that the loan amounted to indirect transfer of assets within the meaning of section 4(1)(a)(i) of the Wealth Tax Act.
ITAT, however, held that extending a loan to wife does not fall within the definition of 'Asset' under the provisions of the Wealth Tax Act and therefore it cannot be said that there was a transfer of asset from husband to wife as argued by the Income Tax authorities.
"We are not agreeing with the Assessing Officer since there is no 'transfer of asset' by the assessee rather an asset has been purchased in the form of a residential house after taking an interest free cash loan from the assessee. In our view, there is no transfer of asset by the assessee, as has been canvassed by IT Counsel and also held by IT Assessing Officer and IT Commissioner (Appeals)," ruled D Karunakara Rao and Joginder Singh, members of ITAT.
Wealth Tax is levied at one per cent on the net wealth (of an assessee) exceeding Rs 30 lakhs in a year. Net wealth includes residential houses (with one house getting exemption) and jewellery.