Art, Antiques Bought Via Cos to Face I-T Scrutiny Costly paintings, antique jewellery, vintage cars to come under tax scrutiny
Mumbai: A recent tweak in tax rules is worrying a billionaire Indian promoter who purchased four expensive paintings from a private seller earlier this year. The buyer had paid about 80% of the price in cash and the remaining through one of his companies, according to a person in the know. The promoter had been advised by a tax expert that paying for expensive art through a company would help avoid tax scrutiny on that amount. The seller, on the other hand, showed only 20% of the actual income and paid tax.
Such manoeuvres, however, will no longer escape taxation. From the next financial year, such deals will start coming under income tax scrutiny — expensive paintings, antique jewellery, vintage cars, real estate or any art bought by companies will now face income tax scrutiny and tax will be demanded if real price or fair value has not been paid.
“In certain cases, many individuals would form a company specifically or deal through their existing companies while buying expensive art and immovable properties, as these items were not treated as ‘property’ for the purpose of applicability of Section 56(2)(vii) (of the Income Tax Act). The existing provisions applicable to the companies were only for acquisition of shares and the tax department could not tax the difference between the fair value and the purchase cost, except in the case of acquisition of shares,” said Dilip Lakhani, senior tax expert, Lakhani & Co LLP.
In this year’s Budget, the government has changed this provision and now even art bought through companies can be taxed. Industry trackers said the tax department can scrutinise and tax art bought at a lower
brought purchase of art, valuables, property, vintages at lower than market price under its gamut
bought through companies can be taxed
department is looking to rope in art valuers who could work out the market price of expensive art collections
can also question increase in current price of some art purchased earlier price. The amendment in the recent budget has dealt with this loophole, they said. The tax department is looking to rope in art valuers who could work out the market price of expensive art collections. To challenge the value of any art, the department will need an alternative view from a credible source. “If the income tax department intends to challenge the valuation of art bought by companies, then credible valuers will have to be roped in who could opine on market price of such purchases. We see that many such purchases that were done at a price less than the perceived fair market value through companies will now have to be done at their fair market value,” said Amit Maheshwari, partner, Ashok Maheshwary & Associates LLP.
In another case, a businessman had contacted his tax advisor on whether his vintage cars could attract attention of the tax department. Many such people with expensive hobbies are now worried that tax officials could be at their door to ascertain the current value of old purchases. This might just happen in the coming year or so.
“‘Value lies in the eye of the beholder’ is apt for art where it’s extremely difficult to arrive at the fair price for an art piece as the perceived value of an art differs from person to person. The rapid increase in value in some pieces of art is also likely to be questioned,” said Maheshwari.
Apart from art and vintage cars, commercial and real estate properties were also purchased through such companies. Many companies that have huge real estate properties on their balance sheets, vis-a-vis their market capitalisation, could also see an intense scrutiny by the income tax department in the coming days, experts said.
Even art The tax Tax man