Benami Transactions

One should not enter into any benami transaction as its consequences are severe and unescapable. Please find attached herewith insights on the Prohibition of Benami Property Transactions Act, 1988. Benami property means any property which is the subject matter of a benami transaction and also includes the proceeds from such property. Benami transactions are prohibited. Benami Property is confiscated by the government and those found guilty would be punishable with rigorous imprisonment for the term of 1 to 7 years and also liable to fine up-to 25% of FMV of property. Submission of false information has further catastrophic impact as it leads to increase in fine by 10% of FMV and rigorous imprisonment by 6 months to 5 years. This act not only covers “benamidar” or “beneficial owner” as guilty but also extends to those “who abets or induces a person to enter into benami transaction”.

While many may think that this would not be relevant for them to know what Benami Transaction/Property is, but Ignorance of law is not an excuse, At times, even individual, due to ignorance, may carry out a transaction which may be termed as Benami Transaction. For example, if one buys a property in the name of father, mother, brother, sister and the payment has been made by the concerned person directly to the seller of the property, then it would technically fall within the definition of Benami transaction/ property. Once it’s  proved that the consideration has been paid by the person other than the person holding the property, it is presumed that the property is held for the benefit of the person who has paid the consideration.

If a property is purchased by a person by transferring the funds to the bank account of father/mother/brother/sister as loan/gift and then the amount is paid by father/mother/brother/sister to the seller of the property, then it may not constitute a Benami Property.

In a particular case wife denied running any business as proprietorship and made a statement that she has no such knowledge about such business and the business is taken care by her husband only, the department initiated the action under the Act.

Prior to the amendment of the Act, the onus was on the person alleging the property to be a benami but post amendment the onus of proving a benami transaction rests entirely on the shoulders of the benamidar/beneficial owner. “Akashdeep IO vs. Manpreet Estates LLP (Appellate Tribunal)”.

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Qualification: CA in Job / Business
Company: VM Consulting & Advisory
Location: Pune, Maharashtra, IN
Member Since: 22 Sep 2020 | Total Posts: 4
A Fellow Member of the Institute of Chartered Accountants of India (1991 batch) has close to 3 decades of rich & varied experience, in industries ranging from Energy & Power, Manufacturing, FMCG to Financial Services. Vikas Maheshwari specializes in the vast domain of Treasury Management an View Full Profile

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2 Comments

  1. MarySevens says:

    Dear Vikas Maheshwari!

    A well composed, informative article.

    If a property is bought in the name of daughter, will it come in the category of benami?

    ThxRgds

    Ms..//

    1. vmconsulting says:

      Property held by individual in the name of Spouse or Child would not be covered under Benami Property/Transaction provided consideration has been paid from the known source. Please note it is “Known Source” and NOT “the known source of Income”. Hence if an individual has taken loan for acquiring property, then it would fall in known source.
      Trust above answers your query!!
      Regards

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