IT Department moves Madras High Court against clean chit given to A.R. Rahman by ITAT

The Income Tax Department has moved Madras High Court against a clean chit given to Oscar winning musician A.R. Rahman by the Income Tax Appellate Tribunal (ITAT) with respect to assessment of his declared income of ₹15.98 crore in the assessment year 2011-12.

A division Bench of Justices T.S. Sivagnanam and V. Bhavani Subbaroyan on Friday ordered notice to the music composer on the appeal preferred by Principal Commissioner of Income Tax (Appeals) against ITAT’s September 18, 2019 Order in favour of Mr. Rahman.

The composer had filed his income tax return for the Assessment Year 2011-12 on September 25, 2011 and declared total income of ₹15,98,04,415. The Assessment Officer completed the assessment on March 3, 2014 and passed an Order accepting the return.

Subsequently, the assessment was reopened under Section 148 of the Income Tax Act of 1961 on the ground that ₹3,47,77,200 received by him from U.K. based Lebara Mobile and another ₹54 lakh from Photon Kathas Production Private Limited, had escaped assessment.

During the course of re-assessment proceedings, the assessee stated that Lebara Mobile had paid ₹3.47 crore not to him but to A.R. Rahman Foundation (ARRF) which works towards educating children from economically backward and underprivileged backgrounds.

He also said that ARRF was assessed to tax separately as an independent entity and that post facto approval had also been obtained from the Union Ministry of Home Affairs for the contribution made to it by the British telecommunications company.

As a quid pro quo for the generous contribution made by Lebara Mobile to ARRF, he had agreed to compose ringtones for the telecom company without charging any money for a period of three years and accordingly they entered into an agreement, Mr. Rahman explained.

The Assessment Officer accepted the explanation and closed the re-assessment proceedings on March 23, 2016. However, on February 13, 2018, the Principal Commissioner exercised his power of revision under Section 263 of the IT Act and issued a showcause notice to the composer seeking explanation as to why the re-assessment order should not be set aside.

The Principal Commissioner was of the view that the clauses of the agreement between Mr. Rahman and Lebara Mobile clearly establish that ₹3.47 crore was paid as remuneration for the professional services rendered by him but the Assessment Officer had failed to examine those clauses in the right perspective.

Immediately, Mr. Rahman moved the ITAT which held that the Principal Commissioner was “not justified” in exercising the power of revision especially when the money had been assessed to tax by ARRF and when the Home Ministry too had accorded post facto approval for the contribution made by Lecra Mobile.

“Therefore, there is nothing on the record suggesting that it is taxable in the hands of the assessee [Mr. Rahman]. In these circumstances, we are of the considered opinion that the re-assessment order cannot be held to be erroneous and prejudicial to the interest of the Revenue,” the ITAT Bench comprising judicial member George Mathan and accountant member Inturi Rama Rao held.

Assailing the ITAT’s order before the High Court, T.R. Senthil Kumar, senior standing counsel for the IT Department, said the Department would have had no objection if the composer had paid income tax for the amount in his individual capacity and then routed the money to ARRF. He said there was overwhelming evidence to prove that it was the composer’s professional income.

According to the counsel, Lebara Mobile had also sponsored the trips of Mr. Rahman to U.K. Assessing the money at the hands of ARRF would not benefit the Revenue, since the Foundation was entitled to tax exemptions under 11 different heads, he said and insisted on setting aside ITAT’s order.