Art, An­tiques Bought Via Cos to Face I-T Scru­tiny Costly paint­ings, an­tique jew­ellery, vin­tage cars to come un­der tax scru­tiny

The Economic Times - - Companies: Pursuit Of Profit - Sachin.Dave@ times­

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

Govern­ment has

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