Introduction A Benami Transaction is a transaction in which the property is acquired by one person in the name of another person or a business may be carried on by some person in the name of another person. Thus, the real or beneficial owner remains unknown and the apparent owner is only a name lender. As the word ‘benami” suggests it is one without a name. This practice of benami transactions has been extremely prevalent in India for several years. Benami transactions are one of the main sources of utilisation of black money, tax and duty evasion, corruption, etc. Benami transactions are quite common in the real estate business. However, they have also entered the arena of the stock market and other areas. Benami transactions were also used as a device for asset protection as the creditors would never be able to get their hands on a property which did not legally belong to their debtor. To deal with and curb benami transactions, the
Benami Transactions (Prohibition) Act, 1988 (“the Act”) was passed. However, this law suffered from various inadequacies. Accordingly, the Benami Transactions (Prohibition) Amendment Bill, 2016 was moved by the Central Government to substantially modify the Act. This Bill was passed by the Lok Sabha on 27th July 2016 and by the Rajya Sabha on 2nd August 2016 and has also received the assent of the President and has been notified in the Official Gazette on 11th August 2016, thereby, becoming
the Benami Transactions (Prohibition) Amendment Act, 2016 (“the Amendment Act”). One important feature of the Amendment Act is that it empowers the Government to frame Rules something which the original Act did not have.
Definitions
Benami Transaction
A Benami Transaction had been originally defined to mean a transaction in which the property is transferred to one person for a consideration paid or provided by another person. Thus, in a benami transaction, there are two persons, the real or beneficial owner who actually owns the property, but the property does not stand in his name and the second person is the one in whose name the property stands who is but a mere front i.e., the benamidar. The term “Benami” means one which has no name. Thus, the definition of a benami transaction may be summarised as under :
It is a transaction
(i) in which a property is bought by one person and transferred to another person; or
(ii) in which the property is directly bought by one person in the name of another person
The Amendment Act seeks to considerably enhance the definition of a benami transaction. The modified definition defines it as under:
(A) a transaction or an arrangement-
(i) 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
(ii) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration;
(B) a transaction or an arrangement in respect of a property carried out or made in a fictitious name; or
(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.
Thus, even a transaction wherein the real owner is not aware of ownership has been added. Further, in cases where the consideration provider is untraceable or fictitious would also qualify as a benami transaction. The Amendment Act also seeks to carve out certain exceptions to the definition of a benami transaction:
(i) property held by a Karta, or a member of an HUF on behalf of the HUF where the consideration for such property has been paid by the HUF;
(ii) property held by 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 depository participant and any other person as may be notified by the Central Government for this purpose;
(iii) property held by an individual in the name of his spouse / his child and the consideration for such property has been paid by the individual;
(iv) property held by any person in the name of his brother or sister or lineal ascendant or descendant, where the names of such relative and the individual appear as joint-owners, and the consideration for such property has been paid by the individual.
(v) property the possession of which has been obtained in part performance of a contract referred to in section 53 of the Transfer of Property Act, 1882 provided the contract has been stamped and registered.
The Supreme Court in the case of SreeMeenakshi Mills Ltd., 31 ITR 28 (SC) has defined a benami transaction as thus:
“……..The word benami is used to denote two classes of transactions which differ from each other in their legal character and incidents. In one sense, it signifies a transaction which is real, as for example, when A sells properties to B but the sale deed mentions X as the purchase. Here the sale itself is genuine, but the real purchaser is B, X being his benamidar. This is the class of transactions which is usually termed as benami. But the word “Benami” is also occasionally used, perhaps not quite accurately, to refer to a sham transaction, as for example, when A purports to sell his property to B without intending that his title should cease or pass to B.
The fundamental difference between these two classes of transactions is that whereas in the former there is an operative transfer resulting in the vesting of title in the transferee, in the latter there is none such, the transferor continuing to retain the title notwithstanding the execution of the transfer deed.
It is only in the former class of cases that it would be necessary, when a dispute arises as to whether the person named in the deed is the real transferee or B, to enquire into the question as to who paid the consideration for the transfer, X or B. But in the latter class of cases, when the question is whether the transfer is genuine or sham, the point for decision would be, not who paid the consideration but whether any consideration was paid.”
Property
The definition of Property has been expanded by the Amendment Act and is now defined to mean, Property of any kind:
(a) Whether movable or immovable,
(b) Whether tangible or intangible,
(c) Including any right or interest or legal documents evidencing title or interest in such property. I t includes proceeds from the property also
Benami Property
This is a new definition and is defined to mean any property which is the subject matter of a benami transaction and includes proceeds from such property.
Benamidar and Beneficial owner
The Amendment Act adds two new definitions. While a benamidar is defined to mean the person / the fictitious person in whose name the benami property is transferred or one who is the name lender; the beneficial owner is the mysterious person for whose benefit the benamidar holds the benami property.
Prohibition of Benami Transactions
Section 3 is the operative section of the Act. It provides that no person shall enter into any benami transactions. The Act provided that a benami offence would be bailable and non-cognizable. This has now been deleted by the Amendment Amendment Act.
Consequences of Benami Properties
In case of a benami property, the real owner of the property cannot enforce or maintain any right against the benamidar or any other person. Thus, the real owner or any person on his behalf is prevented from filing any of a suit, claim or action against the namesake owner.
Similarly, the real owner or any person on his behalf cannot take up a defence based on any right in respect of the benami property against the benamidar or any other person.
Confiscation of Benami Properties
All benami properties are liable to be confiscated by the Central Government. For this purpose, the Amendment Act seeks to appoint an Adjudicating Authority and Initiating Officers. The Deputy Commissioner of the Income tax would be the Initiating Officer. Where the Initiating Officer has, based on material he possesses, reason to believe that any person is a benamidar of a property, he may ask him to show cause why the property should not be treated as benami property. He can also provisionally attach the property for a maximum period of 90 days. He must then draw up a statement of case and refer it to the Adjudicating Authority. The Authority must provide a hearing to the person affected and pass an order either holding the property to be a benami property or holding it not to be a benami property. The Authority has a maximum period of 1 year from the date of reference to pass its order. The affected person can appear before the Authority in person or through his lawyer / CA.
Once an order is passed by the Authority treating a property to be a benami property, it must pass an order confiscating the benami property. An appeal lies against the orders of the Adjudicating Authority to the Appellate Tribunal to be constituted under the Act. An appellant can appear before the Tribunal in person or through his lawyer / CA. The orders of the Appellate Tribunal can appealed before the High Court.
Once a property is confiscated, the Income-tax Officer would be appointed as the Administrator of such benami property who will take possession of the property and manage it.
The Act provides that if an Initiating Officer has issued a notice seeking to treat a property as benami property, then after the issuance of such a Notice, the subsequent transfer of the property shall be ignored. If the property is subsequently confiscated then the transfer will be deemed to be null and void.
Re-transfer of Benami Property
A benamidar cannot re-transfer the benami property held by him to the beneficial owner or any other person acting on his behalf. If any benami property is re-transferred the transaction of such a benami property shall be deemed to be null and void. However, this does not apply to a re-transfer of benami property initiated pursuant to a declaration made under the Income Declaration Scheme, 2016. In this respect, section 190 of the Finance Act, 2016 provides that the Benami Act shall not apply in respect of the declaration of the undisclosed asset, if the benamidar transfers such benami property to the declarant who is the real beneficial owner within the period notified by the Central Government, i.e., on or before 30th September 2017.
Repeal of Certain Sections
The original Act had repealed the following sections, which continue under the Amendment Act:
(a) Sections 81, 82 and 94 of the Indian Trusts, Act, 1882;
(b) Section 66 of the Code of Civil Procedure, 1908; and
(c) Section 281A of the Income-tax Act.
Trusts Act
The Trusts Act originally recognised and allowed the concept of benamidar under certain situations which were covered under the repealed sections.
(i) Section 81 originally provided that where the owner of a property, transfers / bequeaths (by will) it and It is not possible to infer from the surrounding circumstances that the transferor intended to depose of the beneficial interest contained therein, then the transferee may hold the property for the benefit of the owner or his legal representative.
(ii) Section 82 originally provided that where the property is transferred to one person and the consideration is paid for by another person and it appears that such other person did not intend to pay for the same then the Transferee must hold the property for the benefit of the payer.
(iii) Section 94 originally applied where there was no trust and the possessor of the property did not have the entire beneficial interest in the property, then in such a case he must hold the property for the benefit of the beneficiary. Thus, now even honest benami transactions are prohibited.
Civil Procedure Code
Section 66 of the Code originally provided that no suit shall be maintained against any person claiming title under a Court certified purchase on the ground that the purchase was made on behalf of the plaintiff. Thus, after the repeal of section 66 it is no longer possible to raise a defence on the plea of benami.
Income Tax Act
Section 281A of this Act originally provided that in case the real owner desired to file a suit in respect of a benami property against the benamidar or any other person, then he could not do so unless he had first given a notice in prescribed format to the Commissioner of Income tax within one year of the acquisition of the property. In case the suit related to a property exceeding Rs. 50,000 in value, then it was sufficient if the notice was given at any time before the suit.
Thus, the above sections provided statutory recognition to certain genuine benami transactions but after the enactment of the 1988 Act they were rendered inconsistent and hence, the 1988 Act has repealed them which repeal has been continued under the Amendment Act.
Punishment
If 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 a benami transaction. Any person guilty of the offence of 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 25% of the fair market value of the property.
Thus, in addition to the compulsory acquisition of the property, the Act also provides for a severe penalty. The offence of entering into a benami transaction is not bailable and is non-cognizable.
The penalty for giving false information is punishable with rigorous imprisonment from 6 months to 5 years and fine up to 10% of the fair market value of the property.
In case a Company enters into any benami transaction, not only is the property liable to be acquired but the every person who at the time of the contravention was in charge of and responsible for the conduct of the business would be proceeded against and punished.
Conclusion
This is one more step in the Government’s fight against black money. While the Black Money Act, 2015 is a weapon against foreign black money, the Benami Act seeks to fight domestic black money.
