the benami property Act

The Benami Property Act, 2016


 A few main priorities of Modi Government‘s as per Budget 2017 are

  • To eliminate the black money component from the economy;
  • To make the taxation rates more reasonable;
  • To make tax administration to be more fair and simpler;
  • And to expand the tax base for the country as a whole.

Various steps taken for removal of unaccounted assets by Government are

  • Black Money Foreign Income and Asset Act, 2015
  • Income Disclosure Scheme 2016
  • Demonetization of high denomination currency
  • Prime Minister Garib Kalyan Yojna
  • Various amendments in Income Tax Act
  • Amendments in Money Laundering Act
  • Appointment of SIT
  • Implementation of GST
  • Promotion of cash less economy
  • Introduction of GAAR
  • RERA
  • Benami Act

              Let us understand all the important provisions like benami property, benami transaction, exceptions to them, penalty, prosecution, adjudication authorities etc in detail under Prohibition of Benami Property Transaction Act in detail.

 

Prohibition of Benami Property Transaction Act,  1988  

&

 The Amended Act, 2016

Question : Is the Benami Act a new enactment?

Answer : No, the law has been amended instead of enactment of a new law altogether. The 1988 law        had only 9 sections while the amended law has 72 sections.

Question : Will  the new law  apply retrospectively ?

Answer : Yes, it would have applicability retrospectively.

Question : How was the Benami Act developed ?

Answer : Benami act was developed in following manner

  • Recommendation of law commission in 1973
  • Amendment in section 281 A of the Income Tax Act by Finance Act 1984
  • Ordinance in parliament in the year 1988
  • Recommendation of Law Commission in 2015
  • Parliamentary Debate
  • The Amendment in 2016
  • Enactment of Rules

Question : What does Benami mean in normal parlance ?

Answer : Benami is derived from persian language, where “Be “ means without and “nami” means name. that means “without name”.

Question : Define Benami Property?

Answer :  As per section 2(8) of the Prohibition of Benami Property Transaction Act, it means  any property which is the subject matter of a benami transaction and it also includes the proceeds from such property.

Question : What does property mean?

Answer : Property u/s 2(26)  means assets of any kind, whether movable or immovable,  tangible or intangible,corporeal or incorporeal and includes any right or interest or legal documents or instruments evidencing to title to or interest in the property and where the property is capable of conversion into other form, then the property in the converted form and also includes proceeds from the property.

Question : Define Benami Transactions?

Answer : As per section 2(9) of the Prohibition of Benami Property Transaction Act

(A) A transaction or an arrangement

 (a) Where a property is transferred to, or held by, a person, and the consideration for  such property has been provided, or paid by other person : and

(b) The property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration.

(B) A transaction or an arrangement in fictitious name

(C) A transaction or an arrangement where the owner of the property is not aware of or denies knowledge of such ownership

(D) A transaction or an arrangement where the person providing the consideration is not traceable or is fictitious.

further explanation to Section 2(9)

> For the removal of doubts, it is hereby declared that benami transaction shall not include any transaction involving the allowing of possession of any property to be taken or retained in part performance of a contract referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882), if, under any law for the time being in force,

> consideration for such property has been provided by the person to whom possession of property has been allowed but the person who has granted possession thereof continues to hold ownership of such property;

> stamp duty on such transaction or arrangement has been paid; and

> the contract has been registered; 

(For example; Property is transferred to or held by  “Mr. B” whereas consideration is provided / paid by another person “Mr. R’  & Property  is held  for directly or indirectly for immediate or Future benefit of “Mr. R”)

 

 

Question : What are the exceptions to Benami Transactions?

Answer :  Following transactions will not be regarded as Benami transactions :

  • HUF paid for Karta or a member of HUF.
  • A person is standing in fiduciary capacity for the benefits of others like trustees, executors, partner, director, a depository.
  • In the name of spouse or child out of known sources.
  • In the name of brother , sister, lineal ascendant or descendent and the individual is joint owner and the consideration has been provided out of known sources.

Question :Who  will be the Adjudicating Authorities and their jurisdiction?

Answer : As per section 2(18) of  Prohibition of Benami Property Transaction Act

Sr No. Designation Powers
1 The Initiating officer ACIT or DCIT
2 The Approving Authority Add. CIT 1(1), of the state
3 The Administrator Income Tax Officer
4 The Adjudicating Authority A chair person and  atleast 2 other members
5 Appellate Tribunal Members appointed by Ministry

Question : What will be the adjudication process under Benami Act ?

Answer : As per section 26 of  Prohibition of Benami Property Transaction Act

Section Action
26(1) On receipt of reference u/s 24(5), the adjudicating authority issue notice  within 30 days from the date of reference to

a)Benamidar

b)Beneficial owner

c)Any interested party including banking company

d)Any person who has made claim of property

26(2) If the property is held jointly, notice to all such persons
26(3) After affording opportunity to various parties pass such order in writing
26(5) Power for enhancement
26(7) The time limit of passing of order is within one year from the end of the month in which the reference was made

Question : Explain the procedure for confiscation under  Benami Act ?

Answer : As per section 27 of Prohibition of Benami Property Transaction Act

Section Action
27(1) Where u/s 26(3) the order is passed holding any property as benami property , the AA will make an order for confiscating
27(2) Section 1 will not apply where the property held/ acquired prior to notice u/s 24(1) by IO for adequate consideration  
27(3) Where an order of confiscation has been made , all rights and title shall vest absolutely with Central Government
27(4) Any right created of any third party to defeat the purpose of this act shall be null and void.

Question : Will the matter be heard/trial in special courts under this Benami Act ?

Answer : Yes, the provision relating to trial before special courts have been given u/s 50 & 51 of the Benami Act

Section Action
50(1) Special Courts shall be constituted for trail of an offence punishable under this act.
51(1) Application of Code of Criminal Procedure, 1973 shall apply to proceedings before Special Court
51(2) Public Prosecutor shall be allowed to conduct the matter

Question : Explain the penalty & prosecutions provisions as per Benami Act ?

Anser : The provision relating to penalty & prosecutions u/s 53, 54 & 55 of the Benami Act are as follows

Section Action
53(1)

Purpose

Where a person enters into benami transactions

  • In order to defeat law
  • To avoid payment of statutory dues or
  • To avoid payment to creditors
53(1)

Persons Guilty

  •  The beneficial owner
  •  Benamidar
  •  Any other person abets or induces to enter such transaction
53(2) Person found guilty shall be punishable with rigorous imprisonment for a term which may not be less than 1 year but any extend to 7 years and shall also be liable for fine which may extend to 25 % FMV of  benami property
54 Penalty for false information , documents 6 months to  5 years
55 Previous sanction of CBDT for prosecution u/s 3, 53 & 54

 

Question : What is the impact of other laws like PMLA, Income Tax etc. , where immunity is granted for prosecution or any other offence under central law ?

Answer :

  • Settlement Commission u/s 245H grants immunity under FEMA, PMLA and Income Tax Act but there is no immunity under Benami Properties Act.
  • Section 67 of the Benami Properties Act has  over riding effect over any other laws.

 

A few examples & explanations to understand the Benami law better 

  • Test to determine benami transaction
    • The source of purchase relating to the transaction,
    • Possession of the property,
    • Position of the parties and their relationship to one another,
    • Circumstances, pecuniary or otherwise, of the alleged transfer,
    • The motive for the transaction,
    • The custody and production of the title deeds, and
    • The previous and subsequent conduct of the parties
    • Combination of some or all of them and a proper weighing and appreciation
    • Every benami transaction the intention of the parties is the essence,
    • The look through test whether is colorable.
    • Relevant Case Law –  M.R. Dhanlaxmi 112 ITR 413 ( Mad. )

 

  • If the amount is paid by husband for the property purchased in the name of wife
    • -Section 2(9) exception category
    • Any person being an individual in the name of his spouse or child of such individual
    • Consideration for such property has been paid out of known sources of individual.

 

  • Mrs. B is partner in M/s A to Z partnership firm, a search u/s 132 of the Act is carried out at the residential premises of partner , Mrs. B is not aware about her investments in partnership firm.
    • Section 2(9) (C ) would apply
    • Owner of the property is not aware about or denies knowledge of ownership
    • Lack of knowledge v/s denial of ownership
    • Statement during the search has to be taken along with other facts
    • Assessed since past many years
    • Relevant case law –  Gaurishanker Omkarmal  37 TTJ (Ahd.) 353

 

  • A search u/s 132 has been carried out at the premises of Mr. B on 15/05/2017, on 01/07/2017 he sold one plot of land for Rs. 5 crore, the IO issued notice for Benami transaction for this plot on 01/09/2017, can this plot be provisionally attached.
    • Section 24(1) can issue notice to Mr. B
    • Section 27(2) cannot apply if adequate consideration is paid and the transferee is not having knowledge of benami property
    • Section 57 , transfer is null and void if transfer takes place after notice issued u/s 24.

 

  • Mr. R acquired agriculture land in the name B, who is agriculturist , since Mr. R cannot acquire such land in his name , does this transaction would qualify for Benami Transaction
    • -Section 2(9) A transaction or arrangement
    • Where a property is transferred to, or held by, a person, and the consideration for such property has been provided, or paid by other person and
    • The property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration

 

  • The Bank has made payment for the purchase of house by Mr. R , can this transaction be regarded as Benami Transaction
    • -Section 2(9) A transaction or arrangement
    • Where a property is transferred to, or held by, a person, and the consideration for such property has been provided, or paid by other person and
    • The property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration.

 

  • Investments in IPO by the mode of fictitious / benami Demat Accounts
    • The excessive shares are acquired, which would affect retail investors
    • The demat accounts were fictitious or benami
    • The funding was done by someone else for IPO
    • The shares were finally sold to respondent company
    • More than 500 demat holders sold shares at much below market value to the respondent company
    • The fact that such shares might have been purchased before listing was also not accepted.
    • Relevant case law – M/s Opee Stock-Link Ltd. Civil  Appeal no. 2252 of 2010 (SC)

 

  • Bail and other important aspects
    • Well known politician MP was charged with corruption
    • The MP was founder of Jagathi Publication Ltd.
    • Most of the share holders were alleged as bogus and ill-gotten money was transferred in their name
    • The share holders were allotted SEZ lands, irrigation projects etc.
    • As quid pro quo , the bribe was transferred by share holders to the alleged company.
    • The income tax investigation shows huge amount of cash credit in the various group companies
    • There was also investments from Mauritius route
    • Therefore the MP is key person to whole conspiracy
    • Even CA is also having key role in the whole activities
    • The bail granted by lower authorities was cancelled
    • Relevant case law – S. Jaggan Mohan Reddy 730 of 2013 ( SC. )

 

  • Following transactions may be regarded as benami transactions
    • Cash deposits in the bank account of driver
    • Purchases of property in the name of employees
    • Partnership / proprietary concern in the name of employees
    • Tender applied in the name of employees
    • Shares acquired in the pool account of broker , tagged as being purchased by broker and the considered is provided by third party
    • FDR / other investments in the name of various individuals (not related ) , funded by third party etc.

 

This article has been shared by CA Kalpesh Doshi. The author can be reached on  kdoshi@ksdassociates.com

 

 


 

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