Salman  Khan has won a tribunal relief from the Income Tax Appellate Tribunal on a penalty of Rs.14 Lakh which he claimed as deduction from his professional income for legal fees he spent to fight his criminal cases.

Facts of the case:

The Income Tax Department had levied the fine, saying the actor had furnished inaccurate particulars of income. For computing tax, Salman had claimed as deductions from his professional income the legal fees he spent to fight his criminal cases.

The I-T department told the Mumbai bench of the tribunal that this amounted to furnishing “inaccurate particulars…” and so the penalty was justified. Disagreeing with the department’s contention, the tribunal said the actor had incurred legal expenses and they were not bogus. “A wrong claim based on a different interpretation of the nature of the expense does not amount to furnishing inaccurate particulars of income, “the tribunal said. Incidentally, the imposition of the penalty by the I-T department was consequent to an earlier order of the tribunal.

During the financial years 2002-03 and 2003-04, the actor had shown a taxable income of Rs.3.74 Crore and Rs.4.32 Crore. He had claimed deduction of Rs 12.9 Lakh and Rs 33.75 Lakh in legal expenses on defending himself against criminal charges related to his alleged involvement in the black buck shooting incident.

It was held that:

The commissioner of income-tax (appeals), the first level of appeal available to a taxpayer, had agreed with the argument that if the legal expenses were not incurred, the actor would have had to absent himself from film shootings, which would impact his professional earnings and also cause losses to film producers.

The department took the matter to the tribunal, which had then denied the deduction by holding the expenses to be personal in nature. Thereafter, the department issued notices to Salman, imposing the Rs 14 Lakh aggregated penalty for the two years—this penalty was computed in respect of the legal charges that were wrongly claimed. Calling Salman’s claims as based on a “different view of the matter”, the tribunal in its order passed on July 30 said it did not amount to furnishing inaccurate particulars of income.

It thus cancelled the penalty that was imposed by the tax department. After having learnt that the legal expenses were treated as personal in nature by the tribunal in its earlier order, the actor had for subsequent years, from 2004-05 onwards, not claimed these as a deduction from his professional income. This step also helped substantiate that the actor’s intent was bonafide.