However, the ITAT bench comprising Amit Shukla and G.S. Pannu ruled that the credit for taxes Shah Rukh paid in the UAE, if any, would be allowed as per the law.
The actor had submitted before the tibunal that since income from his immovable asset in Dubai would be taxed in the UAE as per the India-UAE tax treaty, he did not offer it for taxation in India.
Rejecting his claim, the ITAT asked the IT Department to rework Shah Rukh's final liability under the head 'Income from house property'.
In 2007, the developers of the famous Palm Jumeirah project had gifted to Shah Rukh the luxurious sea-front villa on a 14,000 square feet plot in Dubai.
A year later, Shah Rukh took possession of the property, comprising the 8,500 square feet six-bedroom villa with an exclusive beach and a private pool.
For the FY 2008-2009, the IT Department estimated the deemed rental value to be around Rs 9.6 million and after the standard deduction of 30 per cent, Shah Rukh was taxed for nearly Rs 60.72 lakh.
When Shah Rukh challenged this, the IT Commissioner (Appeals) upheld the department's action on the basis of a clarification issued by the Central Board of Direct Taxes vide a notification dated August 28, 2008.
The notification said that when a tax treaty entered into by India states that income of a tax resident of India 'may be taxed' in the other country, such income shall be first included in his taxable income in India.
Subsequently, relief could be granted for taxes, if any, paid overseas, according to the notification.
Shah Rukh filed an appeal with the ITAT, which has now been rejected.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)