The Comptroller & Auditor General of India (CAG) has audited the cases of persons engaged in film and television industry for the Financial Year 2009-10. This examination has exposed that persons in this industry are not being subjected to proper taxation of their incomes.
The perception is that these sectors are earning substantial income – India is the largest film production country in the world with more than 1,066 feature films being made a year on an average. The industry registered a growth of 9.7 per cent an annum during 2005-09 and generated revenues of around Rs 9,500 crore in 2009.
The TV industry grew at 16.9 per cent during the same period generating revenue of Rs 26,550 crore in 2009. By the end of 2009, there were 12.9 crore households, with 8.9 crore subscribers to pay channels. The film and TV industry is expected to grow at 16.5 per cent/annum in the next 5 years to reach Rs 65,850 crore revenue by 2014.
Industry under-assessed
The industry with such potential can contribute substantially to the revenues of the Central government.
However, the CAG report shows that the Income-Tax assessments of the persons engaged in this industry suffer from many deficiencies, leading to substantial loss of revenues.
The major deficiencies pointed out by the CAG in its report are:
(1) Linkage issue — The industry suffers from proper linkages with other sectors such as advertising. intellectual property and from royalty payers. There is lack of coordination between the I-T Department and State Revenue Departments.
There is under-reporting by cable operators, resulting in serious loss of tax and penalties. No co-relation is made of the assessees' returns with the information available from other sources and
(2) System failures — The concept of separate Film Circles has failed.
Many persons, associated with the film industry, are being assessed outside such Circles. Wide differences have been noticed between number of film personalities and those on the record of the I-T Department. There is lack of coordination in the different wings of the I.T. Department itself like TDS Circles and Assessing Circles; and
(3) Form 52A deficiencies — A number of deficiencies have been found concerning Form No.52A providing for furnishing particulars of all payments over Rs 50,000. The Form 52A does not provide for mentioning the PAN. Form 52A has been held to be not applicable to serial producers on a wrong interpretation of the phrase ‘cinematograph film'.
There is no system of monitoring information in Form 52A for proper use in making assessments.
No action is being taken for non-filing/late filing of Form 52A, such as levy of penalties. Assessments have been made even without the receipt of Form 52A.
There is no system of co-relation of information in Form 52A with the assessment records of the assessees.
Also TDS is not deductible from payments relating to film distribution rights. This is a lacuna in law.
Tax arrears
Outstanding demand in respect of Mumbai Film Circle increased 60 per cent during the period 2006-07 to 2009-10. In Chennai Film Circle, it increased by 161 per cewnt during 2007-08 to 2009-10.
Search & survey operations, meant for checking tax evasion, have been sparingly used. During the period under review, only 19 searches were conducted on film-related assessees, leading to addition of Rs 72.54 crore to the income. Only 5 surveys were conducted in the media ranges during the period from 2006-07 to 2009-10.
In the absence of specific provisions in the Act with regard to taxation of Foreign Telecast Companies (FTCs), many vexatious issues have arisen requiring clarity.
This has led to substantial litigation. There has been under-assessments and no assessments under the Wealth Tax Act because of non-co-relation of the records with the I-T records.
The I-T Department rarely used information given by the assessees during assessment to cross-verify the correctness of the information given.
A number of errors were noticed in the assessments made. The film and television sectors are generating substantial incomes and there seems to be no reason why these should remain neglected from the side of the I-T Department.
The CAG has given a number of useful suggestions to improve and these should be taken in the right earnest to remedy the ailments from which the I-T assessments are suffering.
(The author is a former chairman of CBDT.)