• By ADMIN
• Posted 24 May, 2024
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FAQs on Benami Transactions

1. Are gifts to persons other than relatives covered under the definition of benami transaction?

No. The definition of a benami transaction does not differentiate between gifts made to relatives or non-relatives. In the context of the Income Tax Act, a gift is defined as a transfer of property made out of natural love and affection, intended solely for the benefit of the recipient (donee). Therefore, gifts, whether to relatives or non-relatives, are not considered benami transactions.

 2. Are gifts covered under the definition of benami transactions since the consideration is always paid by the donor?

No. Gifts are not considered benami transactions because the consideration (the property gifted) is provided by the donor solely for the benefit of the donee. The donee exclusively enjoys the property and can use it as they wish. Hence, pure gifts do not fall within the scope of benami transactions.

 3. What happens to the sale proceeds if a benami property is sold by the Benamidar to a third party?

There are two views on this matter:

> First View: As per the definition of benami property under Section 2(8), the proceeds from the sale of a benami property are considered benami property. Therefore, the sale proceeds in the hands of the Benamidar are treated as benami property.

> Second View: The sale proceeds from a benami property are not covered under “proceeds from benami property” but rather as “proceeds of benami property.” Thus, these sale proceeds are not considered benami property under Section 2(8). For example, rental income from a benami property is covered under “proceeds from benami property,” but the sale proceeds are not. However, given the punitive nature of the law aimed at deterrence, a purposive and harmonious interpretation might be applied.

 4. Does it matter whether the benami property has been paid for out of disclosed income or undisclosed income?

No. It is irrelevant whether the benami property was purchased with disclosed or undisclosed income. A benami property can be subject to proceedings under the PBPT Act regardless of the source of income used for its purchase. However, there are exceptions under Section 2(9)(A) where properties purchased from known or disclosed sources of income may not be considered benami properties.

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