• By ADMIN
• Posted 01 Apr, 2023
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Introduction & Impact of Benami Law in India

There are four types of benami transactions which are prohibited under Prohibition of Benami Property Transactions Act, 1988 as amened by Benami Transactions (Prohibition) Amendment Act, 2016.

Benami Transaction-1

In any transaction or arrangement, in which a property was purchased or owned by a person and the payment for the property was made by another person and the property is held for the immediate or future benefit, direct or indirect of the person who has paid the amount.

Example:-

Mr.A purchased a house in the name of Mr.X. The value of the property is INR 50 lakhs. The price paid by Mr.A was out of his tax paid source of Income. The said property is used by Mr.A and his relatives.

There are certain exceptions (one can buy property in another’s name) to the above:

a. Karta of HUF holding a property on behalf of the HUF

b. Person standing in a fiduciary capacity for the benefit of another person.

c. An individual buying property in the name of his spouse or any child

d. An individual buying property in the name his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendent or descendant and the individual appear as joint owner in any document.

Benami Transaction-2

In case a property is in a fictitious name.

Benami Transaction-3

A property where owner of the property is not aware of, or denies knowledge of , such ownership

Benami Transaction-4

In case of a property, where the person providing the consideration is not traceable or is fictitious.

What is mean by “Property” under this law?

“Property” means assets of any kind, whether movable or immovable, tangible or intangible or corporeal or incorporeal and includes any right or interest or legal documents or instruments evidencing title to or interest in the property and where the property is capable of conversion into some other form, then the property in the converted form and also includes the proceeds from the property.

Cash Deposits into Bank Accounts

If it is found that the source of money relates to another person and the account holder is a name lender and has no control over the said account in which the said cash deposit made and which is utilized by the real owner, the cash deposit can be treated as a benami property.

Whether benami property includes movable properties like purchase of car?

Yes. The definition of “property” in section 2(26) is of wide import to include both movable and immovable property of various kinds and forms. The following are the illustrative examples in which one person pays for the price and uses the property but it is held or purchased in the name of others which are falls into the benami property

1. Motor Car

2. Lorry

3. House

4. Jewels

5. Plot of Land

Difference between benami transactions and sham transactions

In a sham transaction or bogus transaction or fictitious transaction, no transaction has actually taken place and the transaction is merely shown to have taken place on paper. This is how a benami transaction differs from bogus transactions.

Authorities for issuing notice.

The following authorities are prescribed under the act to issue notice: -

a. Assistant Commissioner of Income-tax

b. Deputy Commissioner of Income-tax

They are called as Initiating Officer (IO).

Approving Authority

The following are the prescribed authorities to approve the actions of initiating officer (IO):-

a. Additional Commissioner of Income-tax

b. Joint Commissioner of Income-tax

Proceedings under the law

On the basis of material in his possession, having reason to believe that any person is a benamidar in respect of a property, the initiating officer shall issue a show cause notice to the benamidar as to why the property should not be treated as benami property.

If the Initiating Officer is of the opinion that the person in possession of the property held benami may alienate the property during the period specified in the notice, he may with the previous approval of the Approving Authority, by order in writing, attach provisionally the property for a period not exceeding 90 days form the date of issue of notice.

The initiating officer, after making such inquires and calling for such reports or evidences as deem fit and taking into account all relevant materials, shall within a period of 90 days from the date of issue of notice-

a. If provisional attachment had already been done

Pass an order continuing the provisional attachment of the property with prior approval of Approving Authority till the passing of the order by the Adjudicating Authority or revoke the provisional attachment of the property.

b. If no provisional attachment done earlier

Pass an order provisionally attaching the property with prior approval of Approving Authority till the passing of the order by the Adjudicating Authority or decide not to attach the property.

The Initiating Officer within 15 days of passing order, shall refer it to the Adjudicating Authority in writing.

On receipt of a reference from Initiating Officer, the Adjudicating Authority shall issue notice, to furnish such documents, particulars or evidence as is considered necessary on a date to be mentioned therein, on the following persons:-

a. The person specified as a benamidar

b. Any person referred to as the beneficial owner therein or identified as such

c. Any interested party, including a banking company

d. Any person who has made a claim in respect of the property

The adjudicating authority shall issue notice within 30 days of reference from IO. The minimum time period to be given to submit details are 30 days.

The Adjudicating Authority, after considering all the details and documents, objections, after providing opportunity of being heard shall pass any of the following order:-

a. Holding the property not to be a benami property and revoking the attachment order

b. Holding the property to be a benami property and confirming the attachment order

Punishment for offence of benami transactions

1. Confiscation of Property

The property under the benami transactions shall be confiscated by the Government. Even if it was sold to by the benamidar, it would be confiscated subject to an exception that it should have transferred before issuing the notice under benami law.

2. Penalty and Prosecution

Where any person entered 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 (the person who paid the consideration), benamidar and any other person who abets or induces any person to enter into the benami transaction, shall be guilty of offence of benami transaction. Whoever found guilty shall be punishable with

1. Rigorous imprisonment for a term which shall not be less than one year, but which may extend to seven years and

2. Liable to fine which may extent to 25% of fair market value of the property.

Remedies available to the benamidar

Order of could be challenged under writ jurisdiction before High Court. Alternatively, there is an appeal before Appellate Tribunal Under SAFEMA ,1976 located in Delhi.

Judicial pronouncements

In G. Mahalingappa Vs. G.M.Savitha [2005] 147 Taxmann 583 (SC), the Supreme Court of India held that the following findings of fact were arrived at by the appellate court and the trial court would conclusively prove that the transaction in question was benami in nature:

1. The appellant had paid the purchase consideration.
2. The original title deed was with the appellant.
3. The appellant had mortgaged the property for raising loan to improve the same.
4. The appellant paid property taxes for the property.
5. The motive for purchasing the property in the name of another person was that the said person was born on an auspicious day and the appellant believed that if the property was purchased in the name of plaintiff, the appellant would prosper; and
6. The circumstances surrounding the transaction, relationship of the parties and subsequent conduct of the appellant tend to show that the transaction was benami in nature.

Offences by Companies

Where a person committing offences under benami law every person who, at the time of contravention was committed, was in charge of, and was responsible to, the company, for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly.

Company means a body corporate and includes a firm and an association of persons (AOP) or a body of individuals (BOI) whether incorporated or not. Director in relation to a firm means a partner in the firm, in relation to any AOP or BOI means any member controlling the affairs thereof.