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Taxman's brush with fine art of evasion
July, 02nd 2007
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 markets 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 artand 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 departments interest in art has not flagged. Art being a ruse to evade taxes was discussed at the meeting of I-Ts 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.
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