Benami – Masking of the Real Beneficiary

1. Introduction and Objectives of Benami Law

Benami Transaction (Prohibition) Amendment Act, 2016 came into force w.e.f 01-Nov-2016.

This Act was amended to curb black money transactions to ensure that all transactions are conducted in the name of the actual owner and needs to be paid from his accounted sources. The amendment in benami law will majorly impact the real estate sector because the number of transactions in real estate had increased astronomically.

This unified Amended law was introduced with more rigorous penal provisions, line of authority and the most importantly with Benami Property Transaction Rules 2016. Title of this Act starts with the word “Benami” and the word is no where defined under this Act. Tracing the literal meaning or dictionary meaning of Benami is “without a name”.

This write up endeavors to give you a panoramic view of what exactly does this legislature entails and how strictly this act would be when implication of this legislature starts by the concerned authorities. This Act contains three important caption and it’s the need of an hour to understand the same before jumping on to next page and the same is enumerated as under:

♣ Property Sec 2 (26)

There is always a myth and misconception among people that Benami relates only with Immovable property and in order to overcome the same, legislator illustrate the term property as under:

Sec 2 subsection (26) defines property as “Property 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 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 the proceeds from the property”

The entire extract itself suggests that the umbrella of property encompasses not only immovable property it consists of movable, tangible intangible, or any right, interest, legal document or instruments which create any interest in any property and includes the amount received from sale/alienate of such property.

♣ Benami Property Sec 2 (8)

“Benami property means any property which is the subject matter of Benami transactions and also includes the proceeds from such property”. To determine any property to be a Benami property it is pertinent to know what exactly the meaning of Benami Transactions.

Sec 2 Subsection (8) of an Act put his sword on the shoulder of Sec 2 Subsection (9) i.e. any property treated to be a benami property if that property concerns with Benami Transactions. Now, Let us dig into the meaning of Benami transactions.

♣ Benami Transactions Sec 2 (9)

Sec 2 Subsection (9) stipulates the meaning of Benami Transactions, and the definition is divided into four parts enumerated as :

A) Any Transaction or Arrangement

(i) Where a Property is transferred to or held by a person and consideration for such property paid by another person :

For Ex: Mr A of Delhi purchased his Bungalow in the city of Nainital in the name of his servant Mr B. The entire consideration for such Bungalow was paid by Mr. A of Delhi but the Bungalow was held by his servant.

(ii) Property held for immediate or future benefits of the person who is the real beneficiary i.e. who has provided the consideration.

For Ex: In the above Example, Mr A of Delhi purchased the Bungalow for his present or future business prospect that after certain period of time he will carry his business in such bungalow as letting out of such property.

Exception to the above transaction

• • • Property Held by Karta or any member of HUF and the consideration for such property paid from known sources of HUF.
    • Consideration paid by any person standing in a fiduciary capacity for benefit of another person i.e. trustee, executor, partner or director.
    • Property purchased in the name of his Spouse or any Child and consideration for such property paid by individual.
    • Property purchased in the name of his brother, sister, lineal ascendant or descendent and the name of individual appears as joint owners in any documents and consideration for such property paid by such individual.

B. Transaction or Arrangement

Transaction or arrangement carried out by any person in fictious name i.e. not in real name.

For Ex: Mr Ram did entry in books of accounts that Rs 50 Lakhs payable to Mr. Shyam and Mr Shyam is a fictious name/person in the books of accounts of Mr Ram. Therefore, Rs. 50 Lakh treated to be as benami transactions.

C. Transaction or Arrangement

Where real owner of the property in any transactions and arrangements denies ownership of such property then such arrangement considered to be as benami transactions.

For Ex: During the time of Demonetization, Mr A Factory owner deposits Rs 10 Lakh in Jan Dhan Bank Account of Mr B a labourer. Mr B denies knowledge of Rs 10 Lakh in his bank account. Bank Balance of Rs 10 Lakh is to be treated as Benami transactions.

D. Transaction or Arrangement

Any person (beneficial Owner) who provides the consideration for any transactions or arrangement and such person (beneficial owner) is not traceable at all.

2. Implications of entering into a Benami Transaction

Transactions Entered on or After 01-Nov-2016

Sec 53 stipulates that any person

(i) Enters into any benami transactions in order to defeat the provisions of any law,

(ii) Avoid Payment of statutory dues,

(iii) Avoid Payment to creditors,

(iv) Abets or induces any person to enter into the benami transactions

shall be held guilty of the offence of benami transaction and shall be punishable with rigorous imprisonment for a term which shall not be less than one year but which may extend to seven years and shall also be liable to fine which may extend to 25% of the fair market value of the property.

3. Certain Points to Ponder:

(i) Any property which is a subject matter of any benami transactions then the same shall be liable to be confiscated by the central government

(ii) No Person being a benamidar shall re- transfer the benami property held by him to the beneficial owner.

(iii) No Suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held.

Disclaimer: The information contained in this document is intended solely for dissemination of information and doesn’t aim at soliciting work in any manner. Though meticulous care has been taken but the author assumes no liability in respect of any loss/damage incurred while acting on the basis of information provided.