A. Background:

Corruption has been a social evil which has been bothering the world at large in various degrees. India has also not been spread by the sigma of corruption. After Independence the euphoria that had been generated in the fight against the British, gradually decreased and the ability to wield power at all costs started taking roots. Power could only be had by the principle of give and take and gradually money and muscle power seeped into the conscience of the powers that be.

It even percolated down to various levels of government, business and common people and it almost became an existential habit and the society as such started accepting the culture of corruption as a fait accompli. The concept of license raj also contributed in no small measure.

The corruption permeated into the vitals of the economy and attacked the social equality that was the cornerstone of our constitution. The gap between the rich and the poor widened because of parallel economy.

The government of the day becoming alive to the twin menace of corruption and Black money brought in the Benami Transactions (Prohibition) Act, 1988 to control the damage caused.

B. Legislative History:

Though the Benami Transaction (Prohibition) Act, 1988 was passed in 1988, it was not implemented in all seriousness. It was mainly due to the fact that the necessary rules and regulations were never formulated.

The Benami Transactions (Prohibition) Bill, 2011 was introduced on August 18, 2011, in Lok Sabha, replacing the existing Benami Transactions (Prohibition) Act, 1988.

The magnitude of the problems posed by black money made the Central government to pass the Benami Transactions (Prohibition) Amendment Act, 2016. This amendment put in place the necessary rules and regulations to deal with the Benami Properties, since the money which was generated through the corruption ultimately found it way in investment in property under other means.

C. Key terms under the Act:

The word benami means without a name. Under Hindu Law it is meant to mean a property that has been held under the fictitious name. In India this concept has existed since ancient times.  It was customary to buy property in Father’s name, Mother’s Name, Son’s Name.

Following are some of the important definitions in the Act:

1. “Benami property” means any property which is the subject matter of a benami transaction and includes the proceeds from such property;

The term ‘property’, for the purposes of Benami, is all pervasive and includes assets of ‘any kind’; whether movable or immovable, tangible or intangible, right in a property and all the derivates of such right in property.

2. “Benami transaction” means,

A. a transaction or an arrangement—

a)  where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and

b)  the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration, a transaction or an arrangement in respect of a property carried out or made in a fictitious name; or

B. a transaction or an arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership;

C. a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious;

Thus, a Benami Transaction, in common parlance, refers to a transaction in which a property is transferred in the name of a person, whereas the consideration for the same is paid by some other person.

3. “Benamidar” means a person or a fictitious person, as the case may be, in whose name the benami property is transferred or held and includes a person who lends his name.

4. “Beneficial owner” means a person, whether his identity is known or not, for whose benefit the benami property is held by a benamidar.

5. “Board” means the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963.

6. “Initiating Officer” means an Assistant Commissioner or a Deputy Commissioner as defined in clauses (9A) and (19A) respectively of section 2 of the Income-tax Act, 1961.

D. Nodal Authority for Overseeing the Act:

The Central Board of Direct Taxes has been entrusted with the responsibility of implementing the provisions of the Act.

E. Officer Responsible for Implementation:

The Act establishes four authorities who will be able to conduct inquiries regarding  benami transactions.

SI.no Name of Authority Post of Authority Responsibility
1. Initiating Officer AC/DC of Income-Tax Notice and attachment of property
2. Approving Authority AC(Adl.CIT) or JC (JCIT) Notice to furnish evidence
3. Administrator ITO Possession and management of          properties confiscated
4. Adjudicating Authority Officers Drawn from ITD Confiscation and vesting of property

G. Important provisions of the Act:

Let us understand the key provisions by way of frequently asked questions.

a. To whom does the provisions of the Act apply? 

The following are the persons covered under the Act.

Section 2(24) “person” shall include—

(i) an individual;

(ii) a Hindu undivided family;

(iii) a company;

(iv) a firm;

(v) an association of persons or a body of individuals, whether incorporated or not;

(vi) every artificial juridical person, not falling under sub-clauses (i) to (v);

b. Are there any exemptions to holding properties in others name without   attracting the provisions of the Act?

Yes. The explanation to section 2(9) provides following exemptions:

i. Where the property is held by a Karta or member on behalf of Hindu Undivided Family for his and the family’s benefits.

ii. Property held by a person standing in a fiduciary capacity-and incudes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 and any other person as may be notified by the Central Government for this purpose.

iii. Property held in the name of spouse, children, etc. and the consideration for such property has been paid out of the known and proven sources of the individual;

iv. Property held in the name of brother, sister, lineal ascendant, etc., where the names of such persons and the individual is appearing as joint owners in any document, and the payment or such property has been made out of the known sources of the individual.

v. Possession taken or retained in part performance of a contract- under any  law for the time being in force, if 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 under a registered contract on  which stamp duty has been paid.

vi. Property purchased under a bona fide loan/financial arrangement.

c. Can I purchase a property in the name of my father and mother? 

Purchasing property in the name of parents will not attract the provisions of the act, where the names of such persons and the individual is appearing as joint owners in any document, and the payment for such property has been made out of the known sources of the individual.

d. What will happen if I engage in a benami transaction prohibited under the Benami Act?

As per Section 3 whoever enters into any benami transaction on and after the date of commencement of the Benami Transactions (Prohibition) Amendment Act, 2016, shall, notwithstanding anything contained in sub-section (2), be punishable in accordance with the provisions contained in Chapter VII.

e. Will the Benami Properties be Confiscated if caught by the authorities?

As per Section 5 Any property, which is subject matter of benami transaction, shall be liable to be confiscated by the Central Government.

f. Can the Benami Properties be retransferred to Benamidar?

i. As per Section 6(1) No person, being a benamidar shall re-transfer the benami property held by him to the beneficial owner or any other person acting on his behalf.

ii. As per Section 6(2) Where any property is re-transferred in contravention of the provisions of sub-section (1), the transaction of such property shall be deemed to be null and void.

iii. As per Section 6(3) The provisions of sub-sections (1) and (2) shall not apply to a transfer made in accordance with the provisions of section 190 of the Finance Act, 2016.

g. What are the penal provisions? 

Section 53 deals with penal provisions for benami transactions.

53(1) Where any person enters into a benami transaction in order to defeat the provisions of any law or to avoid payment of statutory dues or to avoid payment to creditors, the beneficial owner, benamidar and any other person who abets or induces any person to enter into the benami transaction, shall be guilty of the offence of benami transaction.

53 (2) Whoever is found guilty of the offence of benami transaction referred to in sub-section (1) 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 twenty-five per cent. of the fair market value of the property.

Not only the initiating person but also the person who abets, participates, advises for such a transaction is also liable for such penalty.

h. What other penal provisions are there?

Section 54 deals with Penalty for false information;

Any person who is required to furnish information under this Act knowingly gives false information to any authority or furnishes any false document in any proceeding under this Act, shall be punishable with rigorous imprisonment for a term which shall not be less than six months but which may extend to five years and shall also be liable to fine which may extend to ten per cent. of the fair market value of the property.

i. Can I regularize the benami property?

No, there are no provisions to regularize the benami property since the option was closed on 31-03-2017. The money from these transactions should have been disclosed under the Income Disclosure Scheme, 2016 and deposited in Prime Minister Garib Kalyana Yojana.

j. Whether any compensation shall be paid by the Government for properties attached under the said Act?

No compensation shall be paid by the Government for attaching the properties under the provisions of the Act.

k. If once the notice of attachment is issued can I transfer the property mentioned in the notice?

No. The provisions of section 57 deals with such situations. They are as under:

Notwithstanding anything contained in the Transfer of the Property Act, 1882 or any other law for the time being in force, where, after the issue of a notice under section 24, any property referred to in the said notice is transferred by any mode whatsoever, the transfer shall, for the purposes of the proceedings under this Act, be ignored and if the property is subsequently confiscated by the Central Government under section 27, then, the transfer of the property shall be deemed to be null and void.

l. What is the status of the proceedings when the person dies during the course of action under the Act?

Section 66 of the Act deals with such circumstances. They are as below:

66(1) Where a person dies during the course of any proceeding under this Act, any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and may be continued against the legal representative from the stage at which it stood on the date of the death of the deceased.

66(2) Any proceeding which could have been taken against the deceased if he had survived may be taken against the legal representative and all the provisions of this Act, except sub-section (2) of section 3 and the provisions of Chapter VII, shall apply accordingly.

m. Can prosecution be launched automatically?

No. As per Section 55, No prosecution shall be instituted against any person in respect of any offence under sections 3, 53 or section 54 without the previous sanction of the Board.

n. What are the remedies available against attachment of properties under the Act?

Any person, aggrieved by an order of the Adjudicating Authority may prefer an appeal to the Appellate Tribunal against the order passed by the Adjudicating Authority holding the property to be Benami or not, within a period of forty-five days from the date of the order. Further the proceedings can also be continued in High Court.

o. On whom the burden of proof is cast?

The burden of proof is cast on the person who is asserting that the property is benami. The facts of case and documentary evidence in the case of Shri Akashdeep Vs Manpreet Estates LLP (Appellate Tribunal for PBPT Act) it was alleged that the burden of proving, that a particular property is Benami or a person is Benamidar/beneficial owner/interested party, is upon the Initiating Officer alleging the same and such burden has to be strictly discharged based on legal evidence. The burden of proof shall shift to the person who is taking contrary of within the meaning of section 91 and 92 of the Evidences Act, 1972.

p. Whether compounding of offences is permitted?

The new guidelines issued by Central Board of Direct Taxes (CBDT) with effect from 17th June,2019 {F.No.28S/08/2014-IT(Inv.V)/147}, relating to all applications for compounding received on or after the aforesaid date states that Offences are NOT to be compounded.

q. What are the Implications under Income Tax Act on Benamidar?

Since, Benamidar is the legal owner, the Benamidar shall be called upon to pay tax on income derived from such properties. The Benamidar has to account to the tax authorities for concealment of facts and any income that shall be generated on such investments has to be offered for tax and shall also be liable for penal provisions under the Income Tax Act, 1961.

r. What are the Implications under Income Tax Act on Beneficial Owner? 

The provisions of section 69 of the Income Tax Act, 1961 state that any investment made by a person which is not declared,  in his/her books and subsequently discovered , then the value of such investments shall be deemed to be the income of the person who makes such investments and same shall be taxed in the year of such investments.

The Income tax officer shall club such unexplained investments and levy tax on the same only after providing a reasonable opportunity to the person and after obtaining explanations for the same and taxed at special rates. If found guilty, the beneficial owner shall also be charged and penalized for concealment of income under the Income Tax Act, 1961.

s. Whether action under both Benami Transactions (Prohibition) Amendment Act, 2016 and Income Tax Act, 1961 be taken?

Yes, the penalties and prosecutions for entering into a Benami Transaction is dealt with Benami Transactions (Prohibition) Amendment Act, 2016 and Penalties and Taxes and for concealment of income is dealt with Income Tax Act,1961.Proceedings under one act will not save the person from the rigors of the other act.

G. Conclusion: 

The Benami Transactions (Prohibition) Amendment Act, 2016 has added lot of muscle and teeth to the original bill introduced in 1988. The act contains provisions to punish person engaged in Benami Transactions, comprising of the person initiating transaction, the Benamidar and also prescribes punishment to people who abate such transactions with the comprehensive punishment also severe.

In the fight against black money, which is running in the parallel economy, which defeats the basic principle of equality for all enshrined in the constitution, Honorable Prime Minister Narendra Modi  has brought in a series of measures to curtail them and among them this act takes the primacy of place.

By making the Income Tax Authority as the nodal authorities for overseeing the provisions of the Act, the reach of the Act has been widened. The same authority can take concerted action under Income Tax Act, 1961 and The Benami Transactions (Prohibition) Amendment Act, 2016 which may cause nightmare to persons engaging in such transactions.

Since inception of the Act, as per the information released by The Income Tax Department, it has stated that it has already attached and confiscated benami properties worth more than Rs 6,900 crore upto January 2019. Though the new Law has been in force only since 2016, the success seems quite good.

The success of the law shall be known, only when the convictions and prosecutions are obtained within a reasonable time and it should not be a long-drawn process.  If Legal proceedings take time, then the fear of perpetrators is lost.

The Act is still in the early years of implementation and is too early for one to know the effectiveness of it. A determined government under the Prime Minister Narendra Modi with latest data mining tools can bring the fight to the doorsteps of the perpetrators of benami transaction.

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Qualification: CA in Practice
Company: K S Sridhar and Associates
Location: Bangalore, Karnataka, IN
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One Comment

  1. nirupamohan says:

    If a person under scam booked during that period of earning all related binamis acconts, properties including driver,servents if it is abnormal earning must be seized

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