Tax trouble in tinseltown

Income tax officials explain how they monitor stars and producers, and what the department does with the cash it seizes

Movie star Rashmika Mandanna, often described as “Karnataka’s crush” and now a major attraction in Telugu cinema, was the subject of multiple income tax raids earlier this month.
Last year, producers Rockline Venkatesh, Vijay Kiragandhur of ‘KGF’ fame, and C R Manohar, were among those who faced tax raids. Among the actors, Puneeth Rajkumar, Shivarajkumar, Sudeep and Yash faced raids.

In Rashmika’s case, the purchase of large coffee estates and payment in cash were what drew the tax department’s attention, according to an official source.

“We also found that there was a discrepancy between the amount projected and the amount paid. The family had plans to open an international school and a petrol bunk as well. All these require huge investments,” he told Showtime.

Officials sifted through documents related to a marriage hall owned by her father. “We scanned the booking records, cash receipts and mobile numbers to understand what kind of payments had been made,” he says.

Rashmika subsequently issued a statement, putting to rest speculation about her income crossing the seven-figure mark: “I am not the highest-paid actor. When people say I am the highest-paid actor in Sandalwood, I wonder where the news is coming from. I don’t have any money in the bank. I still feel like a debutant.”

But all said and done, raids on actors and producers are what the department calls low-priority operations.

“They conclude quickly and don’t need much time. Besides, the Kannada film industry is still small and the remuneration of the actors is not that high. The newly rich entering the industry spend lavishly and end up on our radar. We swoop down on them. The raids are like a message to the industry that their business is being watched,” he explains.

A year ago...
2019 was a year of IT raids on actors in the Kannada film industry. The searches began on January 3 and concluded on January 6.

“Search operations were conducted at 21 premises and surveys at five places. We had involved 180 officials from the Karnataka and Goa region. The department conducted discreet enquiries for more than three months and identified the modus operandi. The key persons handling the unaccounted transactions were identified and we swung into action in the wee hours of January 3. Actors not available in Bengaluru were summoned for questioning,” says an official in the investigation wing.

The search operations covered film production companies, producers, financiers and actors. The tax authorities say they found unaccounted cash expenditure and suppression of income from the sale of rights. Theatre collections were in cash and taxes evaded. “We found evidence of unaccounted professional receipts by artistes, and cash investments in properties and jewellery,” the official says.

Pre-search preparation
Months of preparation go into an IT raid, officials say. “After we zero in on a person, we collect his or her IT returns data, bank statements, and information regarding assets. There are many layers of investigation because people hoarding huge amounts of cash usually have “cash handlers” at three or four levels. We also get a hold of benami assets,” says a source.

Tax evaders usually open multiple bank accounts in the names of trusted people and deposit cash there. “The cash or gold is kept in the locker of a confidant. The top rung of all banks are aware of such transactions but don’t talk about it,” he says.

Land connection
Real estate and the film industry go hand-in-hand. Most producers have real estate businesses. Money is hidden in the most unlikely places: at girls’ hostels, inside temples, beneath bathroom tiles (opened with hidden switches) and behind wooden panels, says the source. “Unaccounted money is diverted to buy land. Black money is also converted to white through agencies that work only for this purpose. Money moves from India to banks in Mauritius, Singapore, Dubai and London. They use what is called a participatory note where you will not know the real owners,” he says.

The tax investigation wing uses the services of Central Reserve Police Force (CRPF) and policemen, their numbers sometimes going up to 150.

“In case of Sudeep, we had a lot of his anxious fans gather outside his residence. We asked him to say a few words to calm his fans which he promptly did. That gave the actor extra publicity and the fans were reassured,” says the source.

When Yash’s home was raided, he was in Goa. “He was quietly brought down to Bengaluru without much fuss,” the official adds.

Big budget films attract raids
Producer C R Manohar’s house was raided when his film ‘The Villain’ had just hit the screens. The film brought big actors Sudeep and Shivarajkumar together for the first time. It was also shot at exotic locations. “IT raids always happen when big budget films are made. There’s nothing to worry as long as you have your documents in place,” he says.

What happens to the cash?
Cash seized from movie stars and producers goes into a public deposit account with the SBI. “If the cash is more than Rs 10 crore, we ask the SBI to bring their money counting machine. They count and take the cash in their vans. They later give us a DD which we deposit in the public deposit account,” explains the source.

Actors are targeted
A top producer, whose house was raided, suspects actors and producers are targeted because of envy. “The tip-off is always from an insider or someone who is close to the star or producer who is raided. There’s a lot of revenge and jealousy associated with raids on actors,” he says. He also feels some IT officials “dance to the tunes of politicians and influential people”.

Warning for defaulters
Shivarajkumar, whose papers were found to be clean, later said, “There is nothing wrong with IT raids on us because they are doing their job. It is a big message to society that one must pay taxes and be accountable. It is also a warning for defaulters.”

‘Lots outside the books’
Philip Cherian, chartered accountant, answers quick questions on taxation and the movie industry.

Why does black money thrive in the cinema industry?
The producers usually have a lot of unaccounted money which they spend on the production. Part of it is given to the actors outside the books. And the financiers who help the producers deal in black. The chain of transactions takes place in black. Only a portion of it is accounted for.

How do they evade taxes?
Black money is prevalent in real estate transactions and real estate is the primary funding for films. About 30 to 40 per cent of the deals are outside the books. A large chunk of money earned in black is invested in land and buildings. The land is purchased at a certain sum but what is officially shown is lower, and taxes are paid only for that amount. Actors sometimes buy old buildings and show renovation charges.

Other means?
Smuggled gold is easy to transport. And this can be caught only through tip-offs. Benami property is another way. The hoarder holds properties in the names of people who are trusted. The truth comes out only when there is some friction between them.