Film industry gets a surprise call from Income Tax Department

At the crack of dawn in early December, about 800 personnel of the Income Tax Department, half of them officers, had assembled outside the massive sandstone Ayekar Bhavan at Bombay's Marine Lines. They were handed sealed envelopes containing addresses of the premises to be raided, with strict instructions not to open the envelopes until a certain fixed hour. The huge contingent was then loaded into a convoy of buses-chartered from the Bombay Electricity Supply and Transport (best) that lumbered northwards, towards Bombay's suburbs where most of the film world lives and the Cine laboratories concentrated in Tardeo. Similar operations were mounted in New Delhi, Bangalore and Madras, all aimed at the Indian film industry. The raiding parties, in every city, struck at precisely the same time.Planned under the supervision of K. Raghavan, director (Intelligence) of Income Tax, in New Delhi, the raids in Bombay were coordinated by Kamlesh Argal, an assistant director in the fact-finding Intelligence branch of the Income Tax Department. The "search and seizure" parties soon fanned out and sealed off the residences and office premises of almost 60 film industry bigwigs. Prominent producers like G. P. Sippy, Manoj Kumar, Gulshan Rai and the Nadiadwalas, a number of large financiers like Balkrishna Shroff, and virtually every film processing laboratory in the city, including the Film Center had become the targets of the taxmen. Promptly splashed across the front pages of Bombay's dailies, the three-day operation sent the entire industry into an almost total panic with a number of film personalities going underground to avoid the taxmen's dragnet. On the third day Shreeram Bohra, president of the Indian Motion Picture Producers Association, declared with characteristic flamboyance that the raids were just a "gimmick".Attacking Sources: Although in the past many raids on film personalities turned out to be duds, there is every indication that this time it will not be so. Film land figures have always been a prime target of income tax raids. Its dual benefits are the actual recovery of undeclared incomes and the attendant publicity for the Government.In the past most raids on the industry have been directed against film producers and stars, most of whom have a much-publicised reputation for high living and conspicuous consumption. But the concerted tax raids of last month represented a significant break with tradition; the main aim, this time, was to locate and nullify the sources of black money, rather than the money itself. The major thrust of the operation, consequently, was to collect evidence against film financiers, who, as the bankers for the film industry, are responsible for generating large amounts of black money in the form of undisclosed advances and loans. Film producers and processing laboratories, in fact, were only raided in order to collect documents and information to establish cases.Newspaper snippets about the tax raids: film world makes headline newsAlthough a major portion of any film's finances are undeclared, the lack of records had previously made it impossible for the Income Tax Department to crackdown on black money transactions. Financiers, in addition, rarely had money hoarded away, since the finances were constantly recycled into the industry. The conventional raid, aimed at discovering hoards of undisclosed cash and jewellery, was thus out of the question. Planning instead to collect and collate evidence from the producers and laboratories, who have dealings with financiers, and from the financiers themselves, the Department's Intelligence wing reportedly spent three months perfecting the plan.Incriminating Documents:The final plan, though elaborate in its execution, was remarkably simple in principle. Four types of securities are taken by a financier when he advances a loan for film production; written agreements, promissory notes, postdated cheques for the loaned amount, and laboratory confirmation letters. While written agreements are used almost exclusively for "book" transactions in white money, the other three are common to both "No I" and "No 2" advances.However, by impounding all the documents relating to a film from the financier, producer and laboratory, the Department hoped to prove the exact amount that was unrecorded. Thus, with postdated cheques, which are used as security for both white and black transactions, the actual cheque in the financier's possession would show a much higher figure than the recorded cheque in the producer's books.Used as an additional* security, the laboratory confirmation letter is an agreement that the laboratory will not release a film in certain territories without the express permission of the film's financier, who can withhold release if his loan is not repaid. But a laboratory confirmation for an undeclared advance would relate to territories other than the ones mentioned in the official agreement. By raiding the laboratories the taxmen were thus able to lay their handsi on confirmation letters which neither the producer nor the financier have on their records.In terms of the official agreements, too, the Government has been able to gather a number of incriminating documents. While there is always an official agreement relating to the recorded advance, financiers often take a modified, one-sided agreement for 'No. 2' finances. Although this agreement is not legally valid and is normally ambiguously worded, in conjunction with the postdated cheques and lab letters it can be used as evidence against the financiers.Motives: Opinions about the success of the raids, however, were sharply divided. Most members of the film world insisted that the raids would fizzle out "once these taxwallas stop getting publicity out of them". But a producer who was raided disagreed. "This attack by the Income Tax Department will cripple the industry for some months," he said,Various theories about the motive of the raids were offered by different groups including one school of thought that claimed the raids were politically motivated. "How else would you explain the fact that big shots like Tarachand Barjatya have not been raided?" queried a financier.Regardless of the reasons for the raids or their eventual effectiveness, the Income Tax Department has already got an unexpected bonanza out of them. In the course of collecting information against the financiers, over Rs 35 lakh worth of undeclared incomes and jewellery were discovered in the premises of film producers, and some houses were found to be furnished and stocked with assets far in excess of the incomes declared by the owners.The processing laboratories, in addition, yielded large amounts of undeclared silver recovered from processing. Although tax sources refused to disclose the exact amount of silver found, news reports claim that the recovery from one lab was valued at Rs 6 lakh, and similar quantities were found in most of the other labs. Another financial inconsistency discovered was that the laboratories had amassed huge quantities of raw film which were not mentioned in their books. But the ultimate result will be known when the sackfuls of documents and papers seized from all the three sources are processed and evaluated.Meanwhile film industry men in Bombay are planning to mount a campaign to recover the seized documents through their lobbies in New Delhi. "This is sheer nonsense", said Atmaram, a Bombay producer, adding that even though less than 1 per cent of the black money in the country was in the film industry, "they keep picking on this orphan." The orphan, meanwhile, has gone back to its premieres and high living.Published By: AtMigration Published On: Nov 28, 2013 11:16 IST--- ENDS ---

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Film industry gets a surprise call from Income Tax Department

Promptly splashed across the front pages of Bombay's dailies, the three-day operation sent the entire industry into an almost total panic with a number of film personalities going underground to avoid the taxmen's dragnet.

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