1. INTRODUCTION

1.1 The name of the Act itself suggests that the Act is enacted to prohibit the transactions which are ‘benami’ in nature.  The word “benami” is of Persianorigin made of two words‘be’ and ‘nam’, meaning “no name” or “without name”. The benami property transaction is the transaction of property where one person buys property in the name of another person or in the name of fictitious person.Another person or fictitious person does not pay consideration for the property.Such person is called as ‘benamidar’as he has only ostensible title in the property without beneficial interest therein.  The real owner is the person who provides the consideration for purchase of the property and for beneficial interest of such person,the property is held by the benamidar and such person is called as ‘beneficial owner’.

1.2 Generally,due to following reasons, people enter into benami transactions:

a) To invest unaccounted money.

b) To invest money earned from illegal means, that is, through corruption, etc.

c) To hide the ownership of the property from banks or creditors.

2. BACKGROUND

2 The Act was originally introduced in the name of “Benami Transaction (Prohibition) Act, 1988” which came into force from 19.05.1988.  The original Act consisted of only 9 sections.  The Act was just a skeleton and was not being acted upon at all as the Parliament found certain discrepancies and loopholes and also did not find the Act to be stringent and deterrent enough to achieve the object behind the enactment of it.  The Act was not effective enough to control the menace of benami properties being acquired in the country.  Therefore, with an intention to make the Act more effective, forceful and stringent, certain new amendments were proposed on 13.05.2015, in Lok Sabha. On 10.08.2016, proposed Amended bill received assent of the President and “Benami Transaction (Prohibition) Amendment Act, 2016 came into force from 01.11.2016.The original Act is neither repealed nor superseded by the amended Act.  The original act stands inclusive of the amended provisions.  In the amendment, the Act is renamed as “Prohibition of Benami Property Transaction Act, 1988” [“the Act”].

3. PROSPECTIVE / RETROSPECTIVE?

Question that may arise, whether the provisions of amended act are applicable with retrospective effect that is to the transactions prior to 01.11.2016?  The Hon’ble Supreme Court in case of Mangathai Ammal v. Rajeswari [(2019) 414 ITR 358 (SC)], held that the amended Act will not be applicable retrospectively.  Further, there are diverging views from different High Courts which are as follows:

a) High Court of Rajasthan in case of Niharika Jain v. UOI – [(2019) 107taxmann.com 272], in this case, during search proceedings by the Income Tax Department certain incriminating documents were found indicating several benami transactions.  The provisional attachment u/s 24 (3) of the amended Act was passed by the Initiating officer.  On filing writ petition, the Petitioner contended that, the transactions were entered prior to 01.11.2016 and therefore the provisions of the amended act are not applicable. The Court considering the above decision of Supreme Court, held that Benami Transactions (Prohibition) Amendment Act, 2016, cannot have retrospective effect and accordingly provisional attachment order was declared as void.

b) High Court of Chhattisgarh in case of Tulsiram v. ACIT – [(2019) 112 taxmann.com 129], in this case, the petitioner was in possession of more than 200 acres of land. According to the Department, the petitioner had not been able to show the details of the properties that they owned in different villages and also the details of the loans taken for purchase of the property could not be proved and consequently the Department started proceedings under the Act. On filing of writ petition, the Petitioner contended that the provisions of the amended act could not be applied in respect of the transactions carried out prior to 01.11.2016.  The Petitioner also relied on the above decisions of the Supreme Court and Rajasthan High Court.  The Court dissented to rely on the Supreme Court decision on the ground that the decision was delivered in an entirely different contextual background and the facts of the said case were entirely on different background as compared to the facts of the present caseand it was held that the Amended Act of 2016 does not have an existence by itself. Without the provisions of the Act of 1988, the amended provisions of 2016 has no relevance and the amended Provisions are only laying down the proceedings to be adopted in a proceeding drawn under the Act of 1988 and the penalties to be imposed in each of the cases taking into consideration the period of purchase of Benami property. Accordingly, it was held that the amended act has retrospective effect.

c) High Court of Calcutta in case of M/s Ganpati Dealcom P. Ltd. v. UOI – [Writ Petition No. 687 of 2017, Order dated 12.12.2019], in this case the transaction of the property took place when the original unamended act was in operation, the notice was issued to the petitioner under the amended act, alleging the transaction of the property as benami transaction. The petitioner filed writ petition challenging the notice issued on the ground that the amended act is applicable prospectively.  The Courtheld that the 2016 amendment is a new legislation and in order to have retrospectivity it should have been specifically provided therein that it was intended to cover contravention at an earlier point of time.  Accordingly, the amended act has no retrospective effect.

SLP against the order of Calcutta High Court has been filed before the Supreme Court and the matter is pending adjudication.

4. Section 3 of the Act is the charging section of the Act. The section simply says that,no person shall enter into any benami transaction.

5. WHAT IS BENAMI TRANSACTION [Section 2 (9)]

5.1 ‘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, except when the property is held –

(i) by a Karta, or a member of HUF for his benefit or the benefit of other members of the family and consideration has been provided or paid out of the known sources of the HUF;

(ii) by a person standing in a fiduciary capacity for the benefit of another person and includes Trustee, Executor, Partners, Directors of a Company or a depository under the Depositories Act, 1996 and any other person as may be notified by the central government for this purpose.

(iii) in the name of spouse or in the name of any child and consideration for such property has been provided or paid out of the known sources of individual.

(iv)  as joint owner in the name of brother, sister, lineal ascendant or descendant and consideration is provided or paid out of the known sources of the individual.

(v) Possession of any property taken or retained in part performance to a contract referred to a contract referred to in section 53A of the Transfer of Property Act, 1882.

B) A transaction or an arrangement in respect of a property carried out or made in a fictitious name;

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

D) A transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious.

5.2 It is seen that many times property is purchased in the name of relatives, drivers, servants etc. to avoid taxes or to hide it from the public.  Such transactions are nothing but the benami transactions and will attract the provisions of the Act.  Even if the property is purchased in the name of close relatives like brother or sister or lineal ascendant or descendant, it is mandatory as per the provision of the Act, the name of such person who is providing the consideration shall appear as joint owner in the document thereof.

5.3 It is noteworthy, the list of exceptions provided in the definition of benami transactions are limited to spouse, children or brother or sister or lineal ascendant or descendant.  In our Country,the concept of joint family is still followed. In a joint family, a property may be purchased by an individual in the name of uncle or nephew or in laws and in such a case even though there is no malafide intention,such individual may have to go through the harsh provisions of the Act.

5.4 As per the Explanation to above section, where a transaction involves 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, that is power of attorney given by the landowner to builder, etc., will not be covered under the ambit of the benami transactions, if all the following conditions  are satisfied:-

a) Consideration is provided by the person who has obtained the possession of the property.

b) Ownership of the property remains with the person who has granted the possession.

c) Stamp duty on such transaction or arrangement is paid.

d) The agreement is in writing and registered.

5.5 The burden of proving the benami transaction always lies on the person who asserts such transaction as benami.  The payment of part consideration by other person cannot be the sole criteria for determining transaction as benami. Reference can be made to Mangathai Ammal v. Rajeswari (Supra).  Also,reference can be made to the decision of Delhi High Court in case of Vinay Khanna v. Krishna Kumari Khanna – [(2020) 115 taxmann.com 9]in this case a son sought to obtain a declaration of being a real owner and / or benami owner of property on the ground that he had given money to his father and mother to purchase property which they got registered in their name but actually property belonged to him, it was held by the Court that though parent may be trustee of a minor son but are not of a major son and neither the son has disclosed the particulars that his parents held property in the fiduciary capacity, thus, question of transaction being within exception to benami did not arise and thus son could not have taken plea that his father and mother were holding property in trust or for his benefit.  Accordingly, there is no entitlement of son of being real and / or benami owner of the property merely on the ground that the consideration was provided by him.

5.6 As such there is no absolute or straightjacket formulae to determine the benami transaction.  Though, following circumstances can be taken as guide to determine the benami transaction:

a) the source from which the consideration is paid

b) the nature and possession or enjoyment of the property, after purchase

c) motive, if any, for giving the transaction a benami colour

d) the custody of the title deeds after the sale.

6. THE ACT IS APPLICABLE TO WHOM AND WHAT IS ‘PROPERTY’

6.1 The Act is applicable toall the ‘person’ as defined u/s 2(24) of the Act and it includes an individual, a HUF, a company, a firm, an AOP/BOI and every artificial juridical person.

6.2 The term ‘property’ could include

a) a Corporal property (which includes land or building, car, bike etc.)

d) a incorporeal property (which includes patent, copyright etc.)

In its widest sense, property includes movable or immovable, tangible or intangible, and also includes right or interest in the property and if the property is convertible in any other form then such property in the converted form and also includes the proceeds from such property.

7. CONSEQUENCES OF ENTERING INTO BENAMI TRANSACTION

7.1 If a 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 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 percent of the fair market value of the property.  Further, such benami property will be confiscated without paying any compensation.

7.2 In a case where a person enters into any benami transaction prior to 01.11.2016, shall be punishable with an imprisonment for a term which may extend to three years or with fine or with both.

7.3 ‘Fair market value’ means: –

i) the market value of the property at which the property would have sold in the open market as on the date of benami transaction and

ii) where the price referred to in sub clause (i) is not ascertainable, it may be determined in accordance with Rule 3 of the Prohibition of Benami Property Transaction Rules, 2016.

8. PROCEDURE FOR DETERMINING THE BENAMI TRANSACTIONS AND RELATED PENAL CONSEQUENCES

8.1 The Initiating Officer

(i) If the Initiating Officer has reason to believe that any person is a benamidar in respect of a property, he may, after recording reasons in writing, issue a notice u/s 24(1) of the Act to such person to show cause why the property should not be treated as benami property.

(ii) If the Initiating Officer, after making inquiries and taking into account all relevant material is of the opinion that the person is in possession of the property held as benami then he shall pass an order provisionally attaching the property with the prior approval of the Approving Authority.

(iii) The Initiating Officer u/s 24(5) of the Act will refer the case to the Adjudicating Authority within fifteen days of passing an order provisionally attaching the property.

8.2 The Adjudicating Authority

(i) The Adjudicating Authority shall issue notice u/s 26(1) of the Act, giving opportunity of being heard to the alleged benamidar, the beneficial owner, any interested party including a banking company and any other person who makes a claim in respect of the property.

(ii) The above notice shall be issued within a period of thirty days from the date on which a reference has been made by the Initiating Officer u/s 24(5).

(iii) The Adjudicating Authority shall pass an order u/s 26 (3) of the Act, holding a property to be a benami property and confirming the attachment order or otherwise.

(iv) The above order u/s 26 (3) shall be passed within one year from the end of the month in which reference u/s 24 (5) was received.

8.3 APPEALS

(i) Any person, including the Initiating Officer, aggrieved by an order of the Adjudicating Authority may prefer an appeal u/s 46 of the Act, before the Appellate Tribunal against such an order passed u/s 26 (3) of the Act.  Such appeal must be filed within forty-five days from the date of order.  The appeal shall be filed in Form 3 along with fees of ten thousand rupees,

(ii) An appeal against the order of the Appellate Tribunal shall lie with the jurisdictional High Court only if the such case involves a substantial question of law.  Such an appeal shall be filed within period of sixty days from the date of communication of the decision or order of the Appellate Tribunal.

8.4 If the order of the Adjudicating Authority(against the person) becomes final, the property held as benami shall be confiscated u/s 27 of the Act and no compensation shall be paid. Further, the penalty and prosecution proceedings are initiated as per the provisions of the Act

9. SOME OTHER PROVISIONS OF THE ACT

9.1 Pursuant to issue of a notice u/s 24 of the Act, if any property referred to in the said notice is transferred, the transfer shall, for the purposes of the Act, be ignored and if the property is subsequently confiscated u/s 27, then such transfer of the property will be deemed to be null and void.

9.2 A benamidar shall not re – transfer the benami property held by him to the beneficial owner or to any other person acting on his behalf.  If such transfer took place then the transaction of re – transfer will be deemed to be null and void.

9.3 Prior to introduction of Benami Transaction (Prohibition) Amendment Act, 2016, the Central Government came up with the Income Declaration Scheme, 2016 which came into force from 01st June, 2016.  The Scheme gave opportunity to declare the undisclosed income and pay the tax as prescribed therein.  If the declarant declared the undisclosed income made in the form of investment in any asset and upon declaration, if such asset is transferred from benamidar to the declarant, being a beneficial owner, such a transaction was exempted from the Act.

9.4 The Appellate Tribunal or any Authority has power to rectify any mistake apparent from record within one year from the end of the month in which such order was passed [Section 47].

9.5 The CBDT has introduced a Scheme known as “Benami Transaction Informants Reward Scheme, 2018” vide notification no. F. No. 299/31/2017–Dir (INV – III)/22, dated 23.04.2018.  The Scheme aimed at granting of reward to a person who provided the information relating to benami property.  Identity of the informant shall be kept confidential.  The informant will get the reward up to 5% of the fair market value of the benami property and the maximum reward shall not exceed Rs. one crore.

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Qualification: CA in Practice
Company: Shubham Rathi & Co.
Location: Aurangabad, Maharashtra, IN
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