Tamil film star Rajinikanth, against whom the Income Tax Department on January 28 withdrew proceedings related to alleged concealment of income between the financial years 2002-2003 and 2004-2005, had claimed to be in the “money lending business”. Tax assessment orders accessed by The Hindu point out that the actor had claimed to have issued loans to the tune of ₹2.63 crore, received interest of ₹1.45 lakh for it in the assessment year 2002-2003 and earned a net profit of ₹1.19 lakh that year. After disclosing these details, the actor had also paid tax for the profit he had earned.Of the total quantum, he had offered a loan of ₹1.95 crore at an interest rate of 18% to K. Gopalakrishna Reddy; another ₹60 lakh to a financier named Arjunlal; ₹5 lakh to Sashi Booshan; and ₹3 lakh to Sonu Pratab. In the I-T returns filed for the year 2003-04, the actor had reportedly added a loan amount of another ₹10 lakh, given to Murali Prasad.In that year, he had claimed to have received interest of ₹1.99 lakh and declared a net profit of ₹1.64 lakh. However, in 2004-05, he had claimed to have written off loans to the tune of ₹1.71 crore after declaring them as “bad debts”. Due to this, he filed negative returns, claiming to have suffered a loss of ₹33.93 lakh that year.Suspecting that the actor had made the claim of being in the money lending business only to avail himself of the benefit of “bad debts” in the future, the I-T sleuths questioned him in February 2005. Mr. Rajinikanth had stated that he had not acted in any films from the financial year 2002-03 to 2004-05.He had said that he earned revenue from his Raghavendra marriage hall and Arunachala Guest House at Kodambakkam in Chennai. Further, he had started a production house, ‘Lotus International’, for producing his 2002 movie Baba, which bombed at the box office.To a question as to whether he had been engaging in the money lending business too, the actor had reportedly replied: “No. I might have given some loan and advances but this is not as a money lending business.” He also claimed that all those to whom he had lent money were his friends, and hand loans given to them would not amount to engaging in the money lending business. When confronted with the money having been lent to financier Arjunlal, he said: “This one transaction to a financier will not amount to money lending business.” On being questioned, the actor’s accountant T.S. Sivaramakrishnan had supposedly said: “As per books of accounts, he has given loan to six persons. I do not know whether it is money lending business.”On the basis of these material and after finding that the actor had not obtained a licence for conducting a money lending business, the Assessing Officers came to a prima facie conclusion that he had only offered hand loans to friends. But Mr. Rajinikanth later wrote to the department, claiming that he was indeed involved in money lending activity. “It was originally construed by me under a misconception that a money lending business should mean only pawn broking…On this understanding, I could not clarify in the manner required at the time of recording of my statement. Later, I was made to realise that what I have been doing… is nothing but money lending activity only,” he said.“I am carrying on this business of finance as any ordinary financier would, to start with, using my own funds which had arisen out of my tax paid incomes. Lending money and the rate of interest varied from person to person based on their association/past track record. I had lent money only by way of cheque and not otherwise,” he submitted.When things stood thus, he filed a revised return of income on February 14, 2005 and withdrew his previous claim of bad debts written off for a sum of ₹1.71 crore. Claiming that he was still making efforts to recover the loan amount, he insisted on reversing the premature claim of bad debts and declared that his income for 2004-05 was actually ₹1.46 crore. However, the Assessing Officers for all three financial years came to the conclusion that he was not in the money lending business and therefore, the income through his loans could not be assessed under the head of ‘business income’. They concluded that interest from hand loans could be assessed only as ‘income through other sources’.The actor then took the matter on appeal up to the Income Tax Appellate Tribunal and obtained an order in December 2009 that his income from money lending activity should be assessed as ‘business income.’ In the meantime, he also got the claim of bad debts allowed by the same appellate tribunal for the assessment year 2006-07.