I-T Departmentreport blows lid off dodgy dealings

Behind the glitzy silver screen lies a dark secret. A recent report of the Income Tax Department wipes the gloss off Mumbai’s film industry, exposing its bad tax conscience: a combination of dodging and economic offences.

Tax avoidance, evasion and dodgy financial dealings seem to be more the norm than the exception with producers, distributors, exhibitors, and artists who evade with ease the regulatory framework under the Income Tax Act, 1961, the report reveals.

This assessment by tax sleuths was carried out to map challenges they face when assessing Bollywood files. It more than exposes industry’s penchant for money laundering, hawala transactions and hot-money routes to fund cinema.

Leading actors and actresses, it reveals, together account for “the bulk of black money in the movie industry.” “Bulk of the receipts goes unaccounted in their case, given the access to highly paid professional advice that they utilise in managing their finances.”

The first-of-its-kind analysis establishes major evasion practices such as suppression of receipts from movies, ancillary sources, inflation of expenses and a huge amount of out-of-books payments/receipts, all a “well-established practice rampant in Bombay (sic) film industry.”

Past cases

The report is based on past cases, existing audit books and several assessment orders passed under section 14A. It documents how violation of section 44AA (mandatory maintaining of books of accounts), section 44AB (mandatory audits of books), and section 285-B (statements of payments over Rs. 50,000 made by the producers) has become rampant.

“It [tax evasion] is usually done by understating collections, fictitious expenses, showing invisible commission to multiplexes, unaccounted royalties, and foreign earnings. One of the major issues is involvement of black money and underworld links of industry, thus making the issue complex and risky.”

The IT Act, 1961 provides for different sections and rules to impose tax on revenue sources of the industry: Sections 44AA, 44AB, and 285-B, Rules 9A and 9B for producers and distributors respectively, and the TDS provisions of Sections 192, 194 C and 194 J are also to be used when making payments to/for actors, directors, editors, special effects experts, logistics contractors, and recording and dubbing studios, among others.