Taxman's brush with fine art of evasion

CA Nikita , Last updated: 03 July 2007
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Tax evasion, some say, has become a fine art in India. So, it was
perhaps a matter of time before fine art came under the I-T scanner.
It would certainly be hard for taxmen to ignore this phenomenon,
with the Indian art market currently valued at $350 million and
sales and auctions routinely raking in crores.

With the income-tax department also deciding to venture into `non-
traditional areas' to track tax evasion, art has become a high-
priority area, a government source said. Little wonder then, that I-
T sleuths are turning their magnifying glasses on precious
canvasses.

The Indian art market's size may be small compared to western art
(or even Chinese, which is roughly thrice the size of the Indian
market), but it has seen a stratospheric rise compared to a decade
ago. As part of its new interest in buying art—and the art of
buying — the I-T investigation wing had on April 17 searched 14
galleries in Mumbai and 11 in Delhi, and checked out some art funds
too.

Since then, the department's interest in art has not flagged. Art
being a ruse to evade taxes was discussed at the meeting of I-T's
investigation wing recently. The searches in Mumbai and Delhi were
in the nature of an art appreciation class — I-T department-style.
It is learnt the taxmen descended on the galleries to gain
an `understanding' of the world of art and the way it operates. And
it does require some study.

The art mart in India is still largely unorganised and unregulated.
Middlemen bring buyers and artists together and rake in big bucks as
commission. Transactions, however, mostly go undocumented or under-
reported, according to sources.

Under-invoicing is particularly rampant, price tags rarely listed
and actual deal amounts are hardly put in the books.

Ledger values and sale amounts are often ambiguous and under-
reporting of inventory in the books is common, sources confirm. For
instance, a recent search of an art gallery revealed massive
concealment of inventory of imported prints.

But errant art galleries are not the only target. Enforcing
transparency in art gallery accounting would also help taxmen keep
track of high spenders who are not paying the correct amount of tax
on their art acquisitions. The large number of "anonymous" buyers
(often bidding via telephone) may have more to do with cashfulness
than bashfulness, the sleuths feel.

To get the true picture of the art mart, the department may also
take the help of experts at National Gallery of Modern Art, the
National Museum and other reputed art repositories. That would add
another twist to the world of artful dodging.

Published by

CA Nikita
(Chartered Accountant)
Category Income Tax Report

Taxman's brush with fine art of evasion

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