Benami Transaction: A Curse to Indian Economy

Benami Transaction: A Curse to Indian Economy

Introduction

After the demonetization led by our Hon’ble Prime Minister, Mr. Narendra Modi, the aim of whom was to wash away the black money out of the economy and get it into the licit, banked as well as taxable part of the economy, the next target of our Prime Minister is Benami Properties.
The term “Benami” basically means “without a name”. The Benami Transaction Prohibition Act, 1988, which is now known as Benami Transaction Prohibition Amendment Act, 2016 (the “ACT”) defines “Benami transaction” as, a transaction or arrangement, 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 the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration, a transaction carried on by a fictitious name, 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, a transaction where the person providing consideration is not traceable or is fictitious. However, the Act has stated that the following property will not be considered as Benami Transaction:

•Property held by a Karta or a member of Hindu Undivided Family where the consideration of such property is provided or paid from a known source;
•Property held by a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity;
•Property held by 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 sources of the individual;
•Property held by any person in the name of his brother or sister or lineal ascendant or descendant and the consideration for such property has been provided or paid out of the known sources of the individual.

In other words, to conclude that a particular transaction is a “Benami Transaction”, the following conditions have to be fulfilled:

•The purchaser of the property is untraceable or fictitious;
•The person holding the property has no knowledge about the transaction mode or the owner of the property;
•Person holding the property or the person on whose name the property has been transferred has not paid the money or the price of the property in question is paid by someone else.

Applicability of the Act and determining a “Benami Transaction”

The first question that pops up in our mind from the definition is what properties fall under the Act. The answer to that is all the assets may it be movable, immovable, tangible, intangible, any right, interest or legal documents and it extends to gold and financial securities.

There are numerous cases where an individual may acquire property from the known source of income in the name of his wife or unmarried daughter for the benefits of rebates or interest charged on home loan, or for saving charges of property registration or stamp duty or for saving taxes on rental income from the property etc. These types of transactions cannot be termed as benami transaction. But determination of the actual status of the property lies with the competent authorities, however few factors which shall be taken into considerations are:

•Whether the sources of funds, used to purchase the property is disclosed or not?
•The mens rea or intention of the party to purchase the property in the name of another person, i.e., spouse, children, etc.
•Actual Possession of the property and custodian of the documents of the property.
•Disclosure of the income from the property, if any, while filing income tax return.

Once the authorities are convinced that a transaction is a Benami transaction, the property or properties in question will be confiscated. These will be managed and disposed of by designated officers, who will be appointed from among income-tax officers.

Authorities under the Act

Under the Act, four new authorities have been formed to conduct inquiries or investigations relating Benami Transactions which are as follows:

Initiating officer: means an Assistant Commissioner or a Deputy Commissioner as defined in clauses (9A) and (19A) respectively of section 2 of the Income-tax Act, 1961 and who shall issue notice to the person, whom the officer believes to be a bemindar and may hold the property for a period of 90 days.
Approving Authority: means an Additional Commissioner or a Joint Commissioner as defined in clauses (1C) and (28C) respectively of section 2 of the Income-tax Act, Initiating officer shall obtain prior approval of Approving authority for inquiry or investigation.
Adjudicating Authority: consists of a chairman and two members and who shall investigate the documents and evidence and passes an appropriate order.
Administrative Authority: Based on the order by the adjudicating authority, the Administrative authority shall confiscate the property in a manner and subject to the conditions as prescribed under the law.

All the above authorities have the same powers as the powers of a civil court under Code of Civil Procedure, 1908.
In case the individual is not satisfied with the order of adjudicating authority, he can challenge the same with Appellate Tribunal, which is established under the Act and if he is not satisfied with the order of Appellate Tribunal, the appeal can be made with High Court of the state.

Penalties under the Act

As per the Act, the guilty person shall be punishable with rigorous imprisonment for not less than one year which may be on severity of the offence extended to seven years. The convicted person shall also be charged with a fine which may extend to 25 percent of the fair market value of the benami property. Under the old law, the violation of the act would lead to imprisonment up to three years, or a fine, or both.
The Act also has a provision of penalty for providing false information. Any person, required to furnish information under this Act, intentionally provided false information or document to any authority shall be punishable with rigorous imprisonment for not less than six months which may be on severity of the offence extended to five years. The convicted person shall also be charged with a fine which may extend to 10 per cent of the fair market value of the benami property. However, no prosecution shall be initiated against any person under this law without the prior approval of Central Board of Direct Taxes (CBDT).
The point to ponder is that benami transactions are not confined only to purchases, but also leasing of immovable property in the name of another person or mortgaging property for a fictitious consideration is also considered as a benami transaction and is subject for prosecution under the Act.

Conclusion

The amendment of 1988 act has brought more clarity about the definitions, rights and liabilities of the accused and more importantly about the authorities and its appointments and powers. With this Act and determination of the government, it is believed that finally all the black money will be washed away from the economy especially from the real estate market. Along with other regulatory changes such as implementation of Goods and Services Act (GST), Real Estate Regulation Act (RERA), Land Digitization, this amendment is a step in right direction to improve the overall confidence of the real estate buyer. However, the actual results will take some time to be visible and will depend on the actual implementation at the ground level.

Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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