1.1 The problem of property held as benami had been causing concern to the tax authorities for quite some time. The Select Committee on the Taxation Laws (Amendment) Bill, 1969 had also recommended that the Government should examine the existing law relating to Benami Transactions with a view to find out whether such transactions should be prohibited. Hence, the Benami Transactions Prohibition Act was enacted in 1988. Despite this Act being enacted in 1988, as there were various lacunae and shortcomings in the Act, a new Amendment Act was introduced renaming the Title as The Benami Transactions (Prohibition) Amendment Act, 2016 consequent of which the full-fledged Act is renamed as The Prohibition of Benami Property Transactions Act, 1988 (hereinafter referred to as “the Act”).
1.2 The term Benami is originated from the Persian compound word which essentially means “without a name”. However, in the present context, it means proxy. So, a benami property is a property bought by the original owner using a proxy. This helps to park unaccounted money safely while avoiding paying taxes to the government at the same time. The expression “Benami” denotes transactions for the benefit, not of the persons taking part in the transactions but of the persons or persons not mentioned in the transaction. In other words, benami transactions are transactions where the property is purchased in the name of one person but the consideration for the said purchase is paid by the other person and therefore the former will be the nominal owner while the latter will be the beneficial or real owner of the property. The Privy Council in the case of Pether Perumal v. Muniandy (1908) I.L.R. 35. Cal. 551 held that the person who lends his name for the purchase of property and has ostensible title, i.e., the Benamidar is nothing but an alias for the real owner who infacthas beneficial ownership of the property. To curb and prohibit such practice, this Act has a crucial role to play.
2. STRUCTURE OF THE ACT
The said Act is systematically structured into eight chapters. The structure of the Act is summarized below:
|II||Prohibition of Benami Transactions||3-6|
|IV||Attachment, Adjudication and Confiscation||24-29|
|VII||Offences and Prosecution||53-55|
The former Act contained only 9 sections whereas via the Amendment Act, 63 new provisions were inserted which have been divided into 8 chapters as shown above, thereby making the Amended Act more effective and functional.
3. IMPORTANT TERMINOLOGIES OF THE ACT
There are certain important definitions which merits attention to understand the provisions of the Act. Few of them are enumerated below:
3.1 Benami Transaction
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 by:
i. a Karta, or a member of a Hindu undivided family, as the case may be, and the property is held for his benefit or benefit of other members in the family and the consideration for such property has been provided or paid out of the known sources of the Hindu undivided family;
ii. a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 (22 of 1996) and any other person as may be notified by the Central Government for this purpose;
iii. any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sourcesof the individual;
iv. any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendent and the individual appear as joint-owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual; or
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 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
Explanation.—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,—
(i) 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;
(ii) stamp duty on such transaction or arrangement has been paid; and
(iii) the contract has been registered;
In Part A of the definition, the point to be highlighted is that along with the condition that the property is held in another person’s name and consideration is paid on his behalf, there is a second condition which states that the property is held for the benefit of the person who has provided the consideration which implies that unless both the said conditions co-exist, a particular transaction cannot fall under the Part A of the definition and perhaps conditions laid down in other parts should be checked to determine whether it is benami or not.
3.2 Benami Property
Any property which is the subject matter of a benami transaction and also includes the proceeds from such property.
To give an example, if a benami property is sold to a third party and the transaction is concluded by way of registry of sale, then the department can only attach the proceeds from the sale and the not the property as such since the Act does not prohibit the sale of a benami property to a third person. In other words, proceeds received from a benami property would also be covered under this definition.
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.
3.4 Beneficial Owner
A person, whether his identity is known or not, for whose benefit the benami property is held by a benamidar.
In other words, he is the person who receives income for his own use and enjoyment and assumes the risk & control i.e. who enjoys and assumes all attributes of ownership & exercise complete discretion over the disposition of the income.
3.5 Initiating Officer
It is an Assistant Commissioner or a Deputy Commissioner as defined in clauses (9A) and (19A) respectively of section 2 of the Income-tax Act, 1961.
3.6 Approving Authority
It is an Additional Commissioner or a Joint Commissioner as defined in clause (1C) and (28C) respectively of section 2 of the Income-tax Act, 1961.
3.7 Adjudicating Authority & Appellate Tribunal
No Authority is yet appointed u/s.7 of the Act. Similarly, Appellate Tribunal is yet to be established u/s.30 of the Act to hear appeals against orders of the Adjudicating Authority. However, presently, Adjudicating Authority referred to in section 6(1) of the Prevention of Money Laundering Act, 2002 (PMLA) and Appellate Tribunal established u/s.25 of the PMLA have been notified for the purposes of the PBPT Act.
It is an Income tax Officer as defined in section 2(25) of the Income tax Act, 1961
4. BRIEF PROCEDURE
i. The Initiating Officer (IO), if he has reason to believe that any person is Benamidar in respect of a property he may issue notice u/s 24(1) (after recording reasons in writing).
ii. Notice to be sent to Beneficiary Owner also if his identity is known.
iii. IO may make provisional attachment of a property upto a period of 90 days and thereafter IO is obliged to:
(a) Pass an order for continuation of the provisional attachment of the property, or
(b) Revoke the provisional attachment of the property (prior approval of Approving Authority is mandatory in both situations)
iv. In case provisional attachment is continued,the IO shall within 15days draw up a STATEMENT OF CASE and refer it to the Adjudicating Authority.
v. Notice of hearing u/s 26 is to be issued to Benamidar, Beneficial Owner, any interested Party (including a Banking Company) and any person who has made a claim in respect of the property.
vi. The Adjudicating Authority may suomoto or on application strike out or add the name of any party.
vii. The Adjudicating Authority is to decide whether the property referred is Benami or not. If it is held to be Benami, then attachment order to be confirmed; if it is not held as Benami, then attachment order to be revoked.
viii. The order is to be passed by AA within one year from the end of the month in which reference/ statement of case/ documents received from IO.
ix. Aggrieved Party has right of appeal before Appellate Tribunal u/s. 30 of the Act.
x. Confiscation of the property only after the order passed by the Appellate Tribunal.
5. WHAT INVITES AN OFFENCE & PROSECUTION?
|Offence||Where benami transaction entered|
|Motive||(a) to defeat the provisions of any law or
(b) to avoid payment of statutory dues or
(c) to avoid payment to creditors
|Who is punishable?||(a) the beneficial owner,
(b) benamidar and
(c) any other person who abets or induces any person to enter into benami business Shall be guilty of the offence of benami transaction
|Shall be punishable with (Section 53)||(a) rigorous imprisonment for a term which shall not be less than one year, but which may extend to 7 years and
(b) shall also be liable to fine which may extend to 25% of the fair market value of the property.
|Penalty for false information||(a) rigorous imprisonment for a term which shall not be less than 6 months but which may extend to 5 years and
(b) shall also be liable to fine which may extend to 10% of the fair market value of the property. (Section 54)
|Sanction||Prosecution shall be instituted only after the previous sanction of the CBDT (Section 55)|
6. IS THE AMENDED ACT RETROSPECTIVE OR PROSPECTIVE?
6.1 The question of retrospectivity of the amended act i.e. whether the provisions of the amended act can be made applicable in respect of properties which were acquired prior to 01.11.2016 has been the most deliberated issue in the recent times. At this juncture, it is much relevant to discuss the background and objective of enacting the Amendment Act in 2016. In response to several debates on the Amendment Bill in the Lok Sabha, the Hon’ble Finance Minister on 27.07.2016 stated that:
“Several members have laid stress on a point that acting on the recommendations of the Standing Committee, a fresh Bill should have been brought instead of bringing an amendment to the original Act of 1988. So, if we had accepted the recommendation of the Standing Committee – repealed the 1988 Act and recreated a new law in 2016- that would have been granting immunity to all people who acquired properties benami between 1988 and 2016. Obviously, the acquisition cannot take place, but the penal provisions of the 1988 Act also would have stood repealed. When a new Act with similar provision would have come, it could only apply for a penal provision to properties which are benami entered into after 2016. This move would not have been in larger public interest, particularly if large amounts of unaccounted and black money has been used to transact those transactions. Therefore, prima facie the argument looks attractive that ‘there is a 9-section law and you are inserting 71 sections into it. As far as penalizing the guilty people is concerned, the required machinery is being made operative under the present amendment for punitive action….”
6.2 Therefore, the speech of the Hon’ble Finance Minister coupled with the Statement of Object and Reasons of the Amended Act signify that the machinery provisions included in Chapter IV of the Amended Act have been introduced only to plug the loopholes in the 1988 Act in order to enforce punitive action on people entering into prohibited benami transactions and hence, it could be said that the amendment brought into the 1988 Act by way of an amendment Act, 2016 by the Legislature was only with an intent to amend and incorporate the procedural provisions which were absent in the former. The said enaction of the Amendment Act, 2016 does not have the effect of either repealing or substituting/superseding the original law but in fact the machinery provisions supplement the substantive provisions i.e. anterior to the 2016 Act in order to make the 1988 Act workable.
6.3 In backdrop of the aforesaid, it is also crucial to examine the relevant provisions of the un-amended Act i.e. The Benami Transactions (Prohibition) Act, 1988. Section 1(3) of the said Act provides that ‘the provisions of section 3, 5 and 8 shall come into force at once (i.e.5th September, 1988 when the Act was enacted) and the remaining provision of this Act shall be deemed to leave come into force on the 19th day of May, 1988’ (i.e. date of enactment of the Benami Transaction (Prohibition of the right to recover property) Ordinance, 1988 promulgated by the President of India). Thus, it is clear that the provisions of the said Act are in force since 1988 itself. In fact, the said provision in its verbatim finds its place in the new Act too which certainly depicts that there is no escape for transactions done prior to 01.11.2016. However, the expression ‘remaining provisions of the Act’ is once again subject to a debate. Does it refer to the balance 6 sections of the un-amended Act or balance 69 sections of the new Act?
6.4 Further, section 2, 3 (prohibitory provisions) and 5 (acquisition of property) of the un-amended Act clearly establish the fact that any offence committed from 1988 to 01.11.2016 is also punishable and in view of the clear intent of the Legislature, no immunity is to be granted to benami transactions taken place between 1988 to 01.11.2016 and such transactions come under both the definitions, prior to and after the amendment. Another perspective is to have a close look at section 5 of the unamended as well as the amended act. Both the sections are on a similar footing with the only distinction that the erstwhile section provided for the acquisition of properties held benami by the prescribed authority whereas the amended section provides for confiscation of such benami properties by the Central Government. This clearly shows that the consequence of entering into a benami transaction with respect to the property is the same under the unamended as well as the amended act and thereby the amendment to the Act was to spell out a specific procedure to acquire such benami properties which was absent in the erstwhile Act. Having said earlier, it must be borne in mind that it was only to plug in the loopholes of the earlier Act that the Amendment Act, 2016 came into force by bringing in the machinery provisions plus redefining and expanding the scope of benami transaction with certain exclusions. Accordingly, taking a comprehensive view of the intent of the Legislature and the structure of the Act, it is opined that the PBPT Act, 1988 as amended should also apply to benami transactions/ properties acquired even for the period 1988 to 01.11.2016 and not isolating to the period from 01.11.2016 onwards.
6.5 As on date, there are still conflicting judicial views on this issue. The Hon’ble Chhatisgarh High Court in W.P. (C) No. 3819/2019, Tulsiram & Anr. Vs. ACIT & Ors., vide judgment dated 15.11.2019 observed that the said Act has a retrospective effect and accordingly dismissed the petition. However, the Hon’ble Rajasthan High Court in W.P. (C) No. 2915/2019, Niharika Jain W/o Shri Andesh Jain Vs Union of India vide judgement dated 12.07.2019 has taken a contradicting view that the Act is applicable prospectively. Recently, a similar view has also been taken by the Hon’ble Calcutta High Court in APO No.8 of 2019 & WP No.687/2017 in M/s. Ganpati Dealcom Pvt. Ltd. Vs.Union of India &Anr.
6.6 Let us have a glimpse of the above landmark judgements. The relevant portion of the decision of the Hon’ble Chhatisgarh High Court is as under:
“12. What has to be understood at this juncture is that the original Act of 1988 does not stand repealed or superseded in any manner. The Act of 1988 is in operation with full force. The Parliament in its wisdom did not find the original Act of 1988 to be effective enough to control the menace of Benami properties being acquired in the country. The Parliament found certain discrepancies and loopholes and also did not find the original Act to be stringent and deterrent enough to achieve the object behind the enactment of the Act of 1988. With an intention to make the Act or the law more effective, forceful and stringent, certain new amendments were made making the law stringent and also prescribing the procedure and the manner in which the proceedings were to be drawn while initiating proceeding to attach and confiscate the Benami properties.
13. To decide the core issue whether the amended Act of 2016 can be made applicable for initiating proceedings against the petitioner in respect of the properties which were purchased or acquired prior to 01.11.2016, it would be necessary to read the Act of 1988 as a whole including the Provisions inserted by way of Act of 2016.
14. Sub Section 3 of Section 1 reads as under: “(3) The provisions of Sections 3, 5 and 8 shall come into force at once, and the remaining provisions of this Act shall be deemed to have come into force on the 19th day of May, 1988. The aforesaid section clearly indicates that the law as it stands shall be deemed to have come into force on the 19th day of May, 1988.
15. Sub sections (2) and (3) of Section 3 reads as under: (2) Whoever enters into any benami transaction shall be punishable with imprisonment for a term which may extend to three years or with fine or with both. (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.
16. Both these provisions of law have been inserted by way of the amendment Act of 2016 w.e.f. 01.11.2016. A plain reading of both these provisions makes it evident that Sub Section 2 would be applicable upon any Benami Transactions made prior to 01.11.2016 and Sub Section 3 would be applicable upon only those properties or Benami Transactions made on or after the commencement of the Amendment Act, 2016 i.e. 01.11.2016. This again leads us to draw a safe inference that the proceedings under the Act of 1988 could very well be initiated against a person who has entered into a Benami transaction irrespective of the date when the amendment act came into force.
17. So far as Chapter IV particularly Section 24 is concerned, the same is only a procedural law or procedural provision inserted in the original Act of 1988 by way of amendment w.e.f. 01.11.2016..…”
Therefore, the Hon’ble Court has taken a view that the Act must a retrospective application on all transactions entered even prior to 01.11.2016.
Recently, an SLP has been filed before the Hon’ble Supreme Court bearing No. 002784/2020 on 27.01.2020 by the Department (BPU) against the above judgement which is still pending to be adjudicated as on date.
6.7 Per contra, as stated above, recently the Hon’ble Calcutta High Court in case of M/s. Ganpati Dealcom Pvt. Ltd. Vs. Union of India & Anr. has given a contradicting view on the same issue vide its judgement dated 12.12.2019.In that case, the Hon’ble High Court rejected the argument of the department that Section 1(2) of the 1988 Actautomatically made the New Act of 2016 retrospective. It was held that the 2016 amendment was a new legislation and in order to have retrospectivity it should have been specifically provided in the New Act itself that it was intended to cover contraventions made at an earlier point of time. Such express provision is not provided in the New Act of 2016.It was further held that as per the provisions of Section 8 of the 1988 Act, the Central Government was vested with the power to make rules for enforcement of the Benami Law, however no such Rules were made and hence the Act of 1988 was merely a dead letter and wholly inoperative. Thus, it can be said that the Government had waived its rights granted by the said Act and hence no criminal action can be initiated. Even if it was assumed that appellant had entered into a benami transaction in 2011, no action can be taken by the Central government now, in the absence of enabling procedural rules. By not framing rules for the Act of 1988, a right of limitation had accrued for the appellant which could not, in the absence of an express provision be extinguished by the amending Act of 2016. By applying the definition of benami property and benami transaction the Central government cannot, on the basis of the 2016 amendment – allege the appellant to be abenamidar and start the prosecution in respect of a transaction entered in 2011. Accordingly, all the show cause notices were held to be null and thus were quashed & set aside. The case of Niharika Jain Vs Union of India adjudicated by the Hon’ble Rajasthan High Court was also referred to in the above judgement.
6.8 In view of the above, the issue of retrospective operation of the Amended Act needs to be reviewed by the Hon’ble Apex Court to render a final verdict to settle the existing litigation.
However, so far as applicability of prosecution provisions is concerned, it is interesting to note section 3(2)and 3(3) of the amended Act. The older punitive provision contained in section 3(3) has been engrafted verbatim in sub-section 2 of the amended Act which provides for a punishment of imprisonment for a term which may extend to 3 years or fine or both. However, sub-section 3 of the amended Act provides that any person who enters into a benami transaction on or after the date of commencement of Amendment Act, 2016 shall not withstanding anything contained in sub-section 2, be punishable in accordance with the provisions contained in Chapter VII. A careful study of the above provisions reveals that the amended Act has categorically spelt out the applicability of the prosecution provisions to transactions which fall prior to and subsequent to the amended Act having come into force, however, nothing so has been expressly provided as regards the applicability of the Act in its entirety which is a matter of debate and deliberation before the judicial authorities.
6.9 Apart from the above, a close observation of section 2(9) of the amended Act could possibly lead to another controversy in terms of retrospective operation. This is because the said section vide the amendment has widened the scope of the definition of Benami Transaction into 4 parts. On a careful perusal, one may note that part A of the definition has been drafted in a different fashion while keeping the same essence of section 2(a) of the unamended act as regards the consideration paid or provided by another person for a property which is transferred. However, the remaining parts B, C and D have been separately inserted vide the amendment which has given a whole new scope thereby leading a wide array of transactions to fall under the definition of benami transaction. Therefore, the key question which ought to be addressed by the Courts in the coming future is whether section 2(9) especially parts B, C and D can be applied retrospectively to the transactions carried out before 01.11.2016 since the old statute did not intend to cover such nature of transactions as benami.
7. OTHER RELEVANT ISSUES AND JUDGEMENTS
7.1 In the recent times, there has been an ongoing whisper about the criminal charges under this stringent law especially pursuant to the allegation by the Income Tax Department on the renowned Bollywood Actor Mr. Shah Rukh Khan (SRK)by treating his farm house and plot built on agricultural land in Alibaug as a benami property and booking the company M/s. Deja Vu Farms Pvt Ltd as a Benamidar and SRK as the Beneficial Owner. Interestingly, the Adjudicating Authority (AA) passed its order u/s.26(3) of the PBPT Act on 23rd January, 2019 dissenting the allegations thrown by the IT Department and revoked the provisional attachment order. However, as on date,the Department is in appeal before the Appellate Tribunal against the order passed by the Adjudicating Authority which is yet pending for disposal.The brief facts of the case are hereunder:
7.2 Coming to the decision given by the AA, one should notice that it has enunciated an important principle, that a commercial transaction entered into in the course of business by an independent entity cannot be coloured as a benami transaction because it had sourced the funds from loans.It observed that primarily, it is the object of the Act which needs to be deciphered which eventually aims at curtailing black money transactions, money laundering and checking on unaccounted wealth. In the said case, the company had legitimately acquired the agricultural land in its own capacity and only sourced its funds through borrowings from Mr. SRK which was duly disclosed in its books of accounts and annual returns as well as books of Mr. SRK and therefore the funds being out of known sources, it cannot bealleged that it is unaccounted money of Mr. SRK which has been sourced for the purchase. Infact, the test of beneficial interest also must be strictly established to term the company as the Benamidar and Mr. SRK as the Beneficial Owner which is not the case. Therefore, the key take-away from this case is that typical commercial transactions which are completely transparent by duly following the requisite formalities should not be camouflaged with the term benamimerely due to the fact that a particular property has been acquired through borrowed funds but it is essentially the test of beneficial interest which is to be established stringently along with other surrounding circumstances.
7.3 In a similar context, the Hon’ble Supreme Court in the case of Smt. P. Leelavathi v. V. Shankarnarayana Rao  104 taxmann.com 153 (SC)observed that merely financial assistance given by an individual to purchase properties in the name of other person cannot be the sole determinative factor/ circumstance to hold a transaction to be benami in nature. To put in simple words, in that case, the late father of the plaintiff daughter had provided some financial assistance to his defendant sons in acquiring certain suit properties. At the time of his death, the plaintiff claimed that she was entitled to1/4th share in all the said properties since they ultimately belonged to her father. The matter initially travelled all the way before the Hon’ble Supreme Court wherein it was remanded back to the Hon’ble High Court to consider whether the said transaction of acquisition of properties was benami or not. The Hon’ble High Court however dismissed the appeal of the plaintiff stating that they were self-occupied properties of the defendants and therefore she was not entitled to any share in the suit schedule properties and also held that the provisions of the PBPT Act are retroactive in operation.
On appeal before the Hon’ble Supreme Court, on appreciation of facts of the case, it observed that the plaintiff had miserably failed to establish and prove the intention of the father to purchase the suit properties for and on behalf of the family which were purchased in the name of the defendants. Plus, it came to light that the father of the plaintiff had not only provided financial assistance to his defendant sons but also to the plaintiff as well to purchase the residential house in which she was living and also was given certain number of shares and therefore, apart from financial assistance, none of the other ingredients to establish the transaction as benami were satisfied and accordingly dismissed the appeal.
7.4 In a nutshell, the principle which one needs to remember is that merely financial assistance per se would not lead the transaction to be called asbenami but certain other tests like any beneficial ownership, concealing one’s black money by routing into properties held in other person’s name, the motive for giving a benami colour,the custody of title deeds of the property etc. are to be duly considered to capture such transactions under the net of the PBPT Act.
7.5 Pursuant to the above judgement, the Hon’ble Apex Court in the case of Mangathai Ammal v. Rajeswari  111 taxmann.com 275 (SC) also made an observation that while considering a particular transaction as benami, the intention of the person who contributed the purchase money is determinative of the nature of transaction. The intention of the person, who contributed the purchase money, has to be decided on the basis of the surrounding circumstances; the relationship of the parties; the motives governing their action in bringing about the transaction and their subsequent conduct, etc. and not merely that contribution to part sale consideration for purchasing property could be held as benami.
The Hon’ble Courts in the above catena of judgements have clearly expressed their views on different dimensions of the law and one needs to keep them in mind before stepping into such kind of transactions whether knowingly or unknowingly.
8. INTERPLAY OF BENAMI LAW WITH OTHER LAWS
8.1 In recent times, the most complex question which has been pondered upon is in relation to the implications of Benami Law and Income Tax Act on the issues of share capital, loans, gift, gold/ jewellery, cash, immovable property or any investment/expenditure. It is a matter of concern as to whether such transactions would be subject to the provisions under section 68 to 69D of the Income Tax Act or be attached as benami property under the Benami Law or both.
8.2 At this juncture, one should note the provisions of sections 60 and 67 of the PBPT Act. Section 60 provides that the provisions of this Act shall be in addition to, and not, save as hereinafter expressly provided, in derogation of any other law for the time being in force. In other words, the application of other laws is not debarred. Per contra, section 67 provides thatthe provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force.
8.3 A combined reading of the above two provisions makes it eminent that in a particular situation, it may be quite possible that the provisions of the Benami Law as well as the PMLA, 2002 or even the Income Tax Act per se can be applied simultaneously if the requisite conditions of the relevant Acts have been fulfilled. Therefore, the application of the Benami Law is not mutually exclusive and can have implications on a situation irrespective of the fact whether a particular transaction has been exempted or not even penalized under any other law. However, as regards the overriding effect as contained in section 67, it is important to note the expression “notwithstanding anything inconsistent”which enunciates the principle that the provisions of the PBPT Act shall have an overriding effect only where there is a provision in any other law which is inconsistent with the provisions of the said Act. Thus, if there are no inconsistent provisions in Benami Law applicable to a particular scenario, the effect of the provisions of other laws are not barred or nullified.
8.4 To summarize, the Benami Law is not mutually exclusive to applications of other laws but has an overriding effect to the extent where any inconsistent provision of any other Act could have a role to play on that particular transaction/ situation. For instance, even if the Assessing Officer has made addition u/s.68 of the Income Tax Act in respect of share application money, it could be possible that the said transaction could also come under the purview of the Benami Law if the Benamidar and Beneficial Owner have been identified; the burden of which wholly lies upon the Initiating Officer unlike the Income Tax Act where certain provisions such as section 68 to 69D are deeming provisions and can be invoked without casting heavy burden on the Assessing Officer. It is a well settled position of law coming from various courts including the Hon’ble Supreme Court in the recent case of Fair Communications & Consultants v. Surendra Kardile  113 taxmann.com 377 (SC)that the burden to prove a property as abenami property is upon the person who asserts it so.Therefore, one should not be misled that for example, accepting addition under the Income Tax Act and paying taxes thereon would be deemed to conclude that the said property is not benami.
8.5 In this context, it may be noted that the income tax assessees (beneficial owner) were infact given a one time opportunity under the Income Declaration Scheme, 2016 vide Finance Act, 2016 wherein under section 190, relief was given to beneficial owners to be excluded under the provisions of the PBPT Act if they made a declaration of undisclosed income made in the form of investments in the name of a benamidar and if it was transferred back to the declarant being the beneficial owner within the period notified by the Central Government.
9. FEW CASE STUDIES
9.1 Bogus Share Capital
9.1.1 Let us assume a situation where a search action was conducted on a company A Ltd. wherein the director Mr. A vide his statement recorded explained that shares worth Rs.10 crores were issued to B Ltd. for which an equivalent sum was received by A Ltd. through banking channels. However, it was also stated by him that an equal amount of cash was provided by him to B Ltd. against the share capital received through banking channels.
In this situation, issue arises as to what could be the possible course of action under the Income Tax Act and PBPT Act?
9.1.2 Under the Income Tax Act, the Assessing Officer can take recourse to the deeming provisions of section 68 of the Act provided A Ltd. is unable to establish the identity, genuineness and creditworthiness of the transaction and explain the nature and source of the share capital received.
9.1.3 Under the PBPT Act, there shall initially lie a heavy burden on the Initiating Officer to establish that there exists a Benamidar and a Beneficiary Owner in order continue with the proceedings. In the instant case, since it is an admitted position that Mr. A had indeed paid equivalent cash to B Ltd, it could be argued by the department that the consideration for the shares have been provided by Mr. A and the share certificates are held by B Ltd. on behalf of Mr. A since Mr. A possess the true ownership rights on the share certificates and therefore, B Ltd would be the Benamidar, Mr. A is the Beneficial Owner and the share certificates worth Rs.10 crores is the Benami Property and accordingly proceedings under the PBPT Act u/s.24 can be initiated on both, the Benamidar and Benefcial Ownerseparately irrespective of the additions made to taxable income and penalty proceedings if any, under the Income Tax Act.
9.1.4 The situation would have been different had Mr. A not stated that he had exchanged cash in lieu of the consideration received from B Ltd. In such a scenario, although additions under the Income Tax Act could have still been made on A Ltd being the recipient of unexplained cash credit, proceedings under the PBPT Act could take a different turn. This is because if Mr. A had not mentioned about the cash exchange, the burden would entirely been on the Initiating Officer to establish that there is a concept of duality of ownership of the property and that there really exists a Benamidar.
9.2 Gifting of a Property
9.2.1 After the evolution of the Benami Law, a definite question may arise in our minds as to whether gifting of property to our near and dear ones would come under the definition of a ‘benami Transaction’. The new Benami Law after its amendment has been liberal enough to add certain exclusion to benami transactions u/s.2(9)(A) of the Act which was not the case prior to 01.11.2016. The said section excludes such properties which are held by an individual in the name of spouse or a child of such individual. However, the catch to this exception is that the consideration for such a property must be provided or paid out of ‘known sources’ of the individual. This concept of ‘known sources’ is a matter of debate because the Act does not specify the meaning of known sources and perhaps should be interpreted as what it could mean in common parlance such as a source which can be identified and described in the general sense. It is also extremely important to note that it does not state known sources of ‘income’ and therefore, it can be inferred that it is not necessary that the consideration ought to have been paid out of taxable income per se but could also be paid out of borrowings or any other source which can be described. Hence, where such a condition has been duly established, gifting a property to a spouse or child would be out of the purview of benami transactions.
9.2.2 It is also important to mention that in case an individual gifts a property in the name of his brother, sister or lineal ascendant or descendant, this too comes under the exclusions spelt out by section 2(9)(A). However, apart from establishing ‘known sources’ of consideration paid as discussed above, another catch to this is that the individual must be a joint owneralong with the person in whose name the property is purchased. If it is not in joint ownership, then it may fall under the definition of Benami Transaction where the individual would be the Beneficial Owner and the other person in whose name the property is purchased would be the Benamidar.
9.2.3 On the other hand, coming to the Income Tax Act, since the Benamidar would be the legal owner of the property so concerned, he would be liable to pay tax on the income derived from such property/ investment and if it has led to concealment of facts/ income, certainly the penal proceedings could also be initiated on him. Proceedings under the PBPT Act could also have implications on the Beneficial Owner under the Income Tax Act. Under the Benami Law, it is mandatory for the Initiating Officer to establish that a Beneficial Owner exists, however, it is not a mandatory requirement of the Act to prove the identity of such Beneficial Owner in order to issue a notice u/s.24 of the Act. Assuming that the Beneficial Owner is identified, then perhaps a situation may arise where such an investment is not recorded in his books of account and the Assessing Officer is not satisfied about the explanation given in regard to the source of the investment made, the same could be added to the taxable income of the Beneficial Owner u/s.69 of the Income Tax Act and therefore, there could be parallel actions under both the laws for the same transaction entered.Similar implications would prevail in cases of loans, jewellery, cash etc.
9.3 Benami Trading in Stock Markets
9.3.1 Benami Trading can also be done in stock markets. In such cases, an individual invests his money in another person’s name. The real owner passes the money in the name of loan through a chain of several people/ entities and the person at the end of the chain trades in the shares on behalf of the real owner. Under the Benami Law, heavy onus is cast upon the Department to prove that the person/ entity at the end of the chain is not the true owner of the scrip but is holding the ownership on behalf of another person i.e. he is the Benamidar. However, in case of the Income Tax Act, there is no requirement to establish duality of ownership of a property and is concerned only whether unaccounted money has escaped from taxation.
9.4 Consequence of Income Tax Assessments:
Apart from understanding the interplay of the Benami Law with the Income Tax Act, the consequence of income tax assessments on the beneficial owner and the benamidar is also of utmost importance in a practical scenario. Few hypothetical situations addressing this issue are as follows:
Situation 1: Where undisclosed income of the assessee “R” (real owner) is assessed in the name of “R” under the Income Tax Act and the said property from which such income is derived is also held in the name of “R”, only Income Tax Act can be invoked and not the PBPT Act since there is no duality of ownership of property.
Situation 2: Where undisclosed income of the assessee “R” (real owner) is assessed in the name of “R” under the Income Tax Act and the said property from which such income is derived is held in the name of “B” (benamidar), both Income Tax Act and the PBPT Act can be invoked.
Situation 3: Considering Situation 2, in case where assessment has already been made by the AO in the hands of “B” under the Income Tax Act, then it may be difficult for the Benami Law officer to invoke the provisions of Benami Law and take a contradictory stand by treating “B” as a Benamidar and “R” as a Real Owner.
10. OTHER ISSUES
10.1 Concept of Fiduciary capacity
10.1.1 The unamended as well as the amended act have given relief in the form of excluding transactions where the alleged property has been held by a person standing in a fiduciary capacity and for the benefit of another person.
Section 4 of the erstwhile act- The Benami Transactions (Prohibition) Act, 1988 barred suit in respect of a benami property by the real owner but sub section 3 of section 4 created an exception in the following words:
“(3) Nothing in this section shall apply,–
(b) where the person in whose name the property is held is a trustee or other person standing in a fiduciary capacity, and the property is held for the benefit of another person for whom he is a trustee or towards whom he stands in such capacity.”
10.1.2 Though section 4(3)(b) of the erstwhile Act had carved out this exception to exclude properties held by a trustee or a person in a fiduciary capacity, section 7 of the same Act had also repealed the provisions of 81, 82 and 94 of the Indian Trusts Act, 1882. In other words, transactions which were covered under the aforesaid 3 provisions stood illegal under the Benami Act after the effect of repealing the said 3 provisions. One needs to interpret section 4(3)(b) in a manner which is in accord with the legislative intention to bar claims against properties held as benami. The concept of trust has always been inbuilt in a benami transaction and the statute had yet provided for the exception. This implied that based upon the factual circumstance of the case, relief given by section 4(3)(b) could be taken if it was established that it was genuinely the trustee or a person in a fiduciary capacity holding the property which is not against section 7 of the Act.
10.1.3 Pursuant to the amendment in 2016, the said exception was incorporated in the definition of “benami transaction” itself u/s.2(9)(A) of The Prohibition of Benami Property Transactions Act, 1988 which stipulates as follows:
“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 by:
ii. 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”
On a perusal of the above, it appears that the present law has attempted to give an inclusive definition of persons who are meant to stand in a fiduciary capacity which is wider in its scope to include such fiduciary capacity arising in any other manner not specifically provided under the Act.
10.1.4 The term ‘fiduciary capacity’ as such has not been defined explicitly in the Act and therefore reference should be made as to what it means in common parlance. The Hon’ble Supreme Court had an occasion to interpret the concept of ‘fiduciary capacity’ in Marcel Martins v. M. Printer  21 taxmann.com 7 (SC). Support was also drawn from the Corpus Juris Secundum (an encyclopedia of the United States law) and various other leading dictionaries which sought to explain the said expression. The Hon’ble Court opined that the expression may not be capable of precise definition but implies a relationship that is analogous to the relationship between a trustee and the beneficiaries of the trust. The expression is in fact wider in its import for it extends to all such situations as place the parties in positions that are founded on confidence and trust on the one part and good faith on the other. It also observed that in determining whether a relationship is based on trust or confidence, relevant to determining whether they stand in a fiduciary capacity, the Court shall have to take into consideration the factual context in which the question arises for it is only in the factual backdrop that the existence or otherwise of a fiduciary relationship can be deduced in a given case.
In view of the aforesaid, one may draw a logical conclusion that since the amended law has given this exception in the inclusive form, the term “fiduciary capacity” is not restricted to what has been listed but also extends to such relationships depending upon the specific factual situation of a case where an element of trust and confidence can be established.
10.2 Is there a distinction between Benami Transaction and Sham Transaction?
10.2.1 The question whether sham transactions are included within the purview of the Benami Act has been a matter of concern. A prima facie view could be taken that a sham transaction may partake the colour of a benami transaction, but this view may not absolutely hold good in all situations. The underlying feature of a benami transaction is that there ought to be a real transaction or an arrangement wherein a property is actually held in the name of any other person on behalf of the real owner even if the benamidar has only an ostensible title to the property. The fact of the matter is that there is an operative transfer resulting in the vesting of title in the transferee. On the other hand, a sham transaction is one which is merely shown to take place on paper. The prominent feature of sham transaction is that there is neither any transfer nor passing of any consideration which is nothing but a camouflage. The documentary evidence created to support such a transaction is just a facade behind which nothing takes place in reality and resultantly the concept of ‘duality of ownership’ does not exist to treat such sham transactions as also benami.
For eg. A sells his property to B, however the sale deed mentions X to be the purchaser of the property. In this case, the sale transaction itself is real and genuine but since the real purchaser is B instead of X, then X is the benamidar and the transaction is benami.
Suppose, A purports to sell his property to B on paper without intending to cease his title to the property, then it is a mere sham transaction since the transaction is fictious without any actual passing of property. Also, there does not exist presence of any duality of ownership of a property to be called as benami since it is fictitious.
10.2.2 In fact, in the case Ouseph Chacko v. Raman Nair Raghavan Nair AIR 1989 Ker. 317 ITR 511 dated 07th April, 1989, the Hon’ble Kerala High Court then had an occasion to deal with this controversy and after an exhaustive examination and deliberation based on the facts of that case, it came to a conclusion that a sham transactions do not come within the purview of the Benami Act.
Per contra, the position after the amendment to the Act in 2016 has changed and it seems that the scope of benami transaction has been considerably enlarged to cover sham transactions too. This is because the definition of “Benamidar” has been amended to include even a fictitious person and person who merely lends his name.
10.2.3 Similarly, the definition of “Benami Transaction” has also been expanded to include an arrangement or a transaction in respect of a property where the person providing the consideration is not traceable or is fictitious. Therefore, the amended law has probably created once again a controversy of bringing sham transactions into the net of the PBPT Act. However, this would definitely not imply that every case of sham transaction that should ordinarily be considered under the Income Tax Act shall also be regarded as benami. Therefore, one must make an attempt to understand the factual circumstance along with the intention behind entering into/ exhibiting a particular transaction in order to conclude whether such a transaction is sham and whether it can still be labeled as a benami transaction.
10.3 Is property located outside India within the ambit of the Benami Law?
10.3.1 On a plain reading of the PBPT Act, there is no restriction on the applicability to properties located in any territory within India. However, there are cases where properties are held benami outside India to conceal one’s black money and real ownership of the properties. Practically, under the PBPT Act, it would cause great difficulties to attach and confiscate properties which are located outside India and therefore, invoking the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 to discover and confiscate undisclosed assets located outside India would indeed serve the purpose to a great extent. Apart from the Black Money Act, infact as of today, one should even consider the implications of the Fugitive Economic Offenders Act, 2018, which has deemed to come into force on 21st April, 2018. This statue is extremely important since the Schedule to the Act has included ‘Benami Transactions’ as an offence which is committed by a ‘fugitive economic offender’. In other words, an individual who has left India or refuses to return to India to avoid criminal prosecution against whom a warrant for arrest in relation to this scheduled offence of owning a benami property whether in India or abroad would categorically be bound under this statute in order to attach and confiscate such benami properties owned by such individual.
10.3.2 Accordingly, we can infer that even if the PBPT Act has its own limitations to capture such benami transactions done outside India, the Black Money Act or the Fugitive Economic Offenders Act, 2018 can come to the rescue subject to the only condition that the latter can be applied only if the total value involved in such offence(s) is Rs.100 crore rupees or more.
The Benami Law is evolving,one should be aware and take note of the intricacies and repercussions of indulging in such transactions. The aim and object of this Act is to bring into its net all such dubious and illegal transactions by siphoning off one’s own unaccounted money into various properties under the garb of displaying ownership of another person. It has to be drilled in our minds that the scope of this Act is totally distinct and wide. Where the Income Tax Act can point out the generation of black money, the PBPT Act focuses on the application of back money and is thus more effective. It is the duty of our professional fraternity that the implications of this law be consciously understood and communicated to our clients to prohibit such benami transactions in the days to come.
Author- CA Aparna Sivakumar is Executive- Direct Tax Advisory at SGCO & Co. LLP and CA Rushabh Mehta is Partner at SGCO & Co. LLP.