Experts TNM contacted said that pretending to be a money lender is a way of âcreative accountingâ that is practiced by some people.
Over the past few days it has been revealed that the Superstar and aspiring politician Rajinikanth are having an “oops!” moment with the income tax department about fifteen years ago. And while the income tax was determined to make him pay some Rs 66 lakh all these years, the case was withdrawn, and Rajini is presumably free of any debt with regard to the public treasury. However, it now appears that around the same time as his misadventures with the IT department, Rajinikanth also became a self-proclaimed lender.
Mohamed Imranullah S wrote exclusively in The Hindu that Rajinikanth had claimed to be in the “money lending business”, according to tax assessment reports to which the newspaper had access. Apparently, the actor told the IT department that he loaned money to his friends for interest and claimed the income and losses from that business. Additionally, he told the IT department that he was lending money at an 18% interest rate. However, the income tax department, in 2005, did not accept his claim that it was a business and suspected that he was only pretending to be a money lender in order to cancel âbad debtsâ.
So was Rajinikanth a money lender or not? The actor has yet to comment on the matter, and since the Income Tax Department has decided to withdraw their case against him, we may not have a statement from them either. However, TNM spoke with experts about what it means to be a money lender, in terms of the tax benefits. And while these experts cannot comment on what Rajinikanth is or is not, they have said that sometimes âmoney-lendingâ activities fall under the realm of creative accounting.
A senior accountant, speaking on condition of anonymity, said: âWe don’t know the details of Rajinikanth’s case, of course, but in some cases when people suffer losses – either because ‘they have given someone money personally or for some other reason they are trying to make up for the loss by calling it a business loss. Basically, if you are losing money as an individual, it is just money that you have lost. But if you are a money lender and you have lost money, it is a business loss, which can be taken into account when filing the returns.
“It is not tax evasion, but it could be considered tax avoidance,” said another tax expert, while reiterating that he did not know the details of this particular case.
‘18% interest rate’ triggers the line
Meanwhile, the report that Rajinikanth told the Income Tax Department that he was lending money at an 18% interest rate shocked many people and outraged others. Many people tweeted with # à®à®¨à¯à®¤à¯à®µà®à¯à®à®¿ – roughly translating to âshark lender Rajiniâ – to express their disapproval of the interest rate allegedly charged by the aspiring politician. Kandhu Vatti, or high interest rate loans, is a big deal in Tamil Nadu, where a family of four committed suicide outside a collector’s office because they were being bothered by loan sharks.
The reference to Kanthu Vatti meanwhile prompted another hashtag from Rajini supporters, who tweeted with # à®®à®à¯à®à®³à¯à®à¯à®à®¾à®_à®°à®à®¿à®©à®¿, or âRajini for the Peopleâ.
What is it about
The Income Tax Service suspected in 2004 that Rajinikanth had not declared all of his income for the 2002-03, 2003-04 and 2004-05 tax years. In February 2005, they investigated his properties and found that even though he had recognized a loss of costs as a business expense, less than a tenth of his properties were actually used for his profession.
Also, when the IT department asked Rajinikanth if he lends money, he initially denied it. Later however, he wrote to the Income Tax Department and stated that he was indeed a money lender and had lent money at an interest rate of 18% as source of income.
As a result of the investigation, Rajinikanth was forced to file revised returns for the three years in question and reported higher income than before. But the IT department argued that since he only filed revised statements after questioning him, he should be penalized – an amount of Rs 66 lakh is what the department wanted as a fine. Rajinikanth and his lawyers disputed this, and this week the IT department reversed the amount of the fine.
Coincidentally, 2004 was only two years after Baba, the big-budget film, produced by Rajinikanth himself, spilled over at the box office. Rajinikanth also took a brief break after playing.