Practical Analysis of Benami Transactions Prohibition Act

Practical Analysis of Benami Act:

The original Benami Act was introduced in 1988 for prevention of black money but due to some inherent limitations of the Act it could not be implemented with full force, and therefore, an amendment was introduced in 2016 to ensure the successful enforcement of the Act.

An amendment was issued instead of a new Act because if a new Act were introduced then the transaction entered from 1988 to 2016 would get immunity as the law does not allow retrospective penalization.

The amendment in 2016 of the original Benami Act created a sudden storm in the nation bringing about a lot of curiosity in people. A lot of people are worried about the impact of the Act on their property and its possible outcomes. The aim of the Benami Transaction Act is to prohibit benami transactions. It states that any person entering into a benami transaction shall be liable for prosecution

Real estate is one of the major sectors for generation and investment of unaccounted money known as ‘black money’, in India. The Benami Act was introduced to curb black money transactions to ensure that all real estate transactions are conducted in the name of the actual owner where the consideration is paid from his known sources.

This will increase the tax revenue for the Government by stopping black money from pumping into the system and will help in bringing down corruption and unfair trade practices. Also it will increase transparency and honesty in real estate dealings.

Reason behind people enter into Benami Transaction

There can be several reasons why people enter into a benami transaction. Usually people who enter into a Benami transaction are those who have money earned from unknown sources i.e. black money. Thus, to utilise the black money, people enter into benami transactions where the transaction is made in the name of another person but the consideration is paid by the person out of his black money.

Since these people cannot show the transaction in their own names due to the usage of black money, therefore they use the names of other people or create some fictitious names for entering into such transactions known as benami transaction.

Another reason why people enter into benami transactions is that they want to hide the true ownership of the benami property from their creditors or from the banks.

Meaning of Benami

Benami literally means ‘without a name’. Therefore an asset without a legal owner or a fictitious owner is called benami. It can be a property of any kind, whether movable or immovable, acquired by way of benami transaction.

The Hon’ble Supreme Court in Bhim Singh v. Kan Singh, has explained Benami Property Transaction as:

Where a person buys a property with his own money but in the name of another person without any intention to benefit such other person, the transaction is called benami and the Property is called Benami Property.

In such cases the transferee holds the property for the benefit of the person who has contributed the purchase money, and he is the real owner.

Meaning of Benami Transaction 

The law states the following as a benami transaction:

(A) a transaction or an arrangement—

a.  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

b.  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 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;

 A transaction is considered as benami transaction if any one of the following holds true,

•  Deals are in a fictitious name; or
• The owner is unaware of or denies knowledge of the ownership, or
• The person providing the consideration for the property is not traceable.

A suspected Benamidar will be served a notice on source of funds by an Initiating Officer. If the answer is not satisfactory, action will be initiated under Benami Transactions Prohibition Act, 2016.

Meaning of Benami Property

 Benami Act encompasses all kinds of properties whether movable or immovable. The definition given by the law clearly states that:

“property” means assets of any kind, whether movable or immovable, tangible or intangible, 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;

For instance: In case of de-monetisation, if a person deposits his old currency in the account of another person with an arrangement such that, that the account holder will return the money in new currency is also a benami transaction.

Prohibition on Transfer of Benami Property

The Act prohibits resale of the benami property from the Benamidar to the real owner (or to any person acting on his behalf). Such transactions would be considered as null & void.

The Act does not prohibit the sale of a benami property to a third person. However, if the property is sold to a third party and the transaction concluded by way of registry of the sale, the department can only attach the proceeds from the sale, not the property.

Exceptions of Benami Transactions

Transactions not classified as Benami Transactions

When the property is held by—

• ·      a Karta, or a member of a Hindu undivided family, as the case may be, and the property is held for his benefit or benefit of other members in the family and the consideration for such property has been provided or paid out of the known sources of the Hindu undivided family;

• ·     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;

• ·     any person in the name of his brother or sister or lineal ascendant or descendant (parents or children), where the names of brother or sister or lineal ascendant or descendant and the individual appear as joint-owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual;

• ·     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 participant as an agent of a depository under the Depositories Act, 1996 and any other person as may be notified by the Central Government for this purpose; For eg: Trust.

Punishment for entering into a Benami Transaction

As per the provisions of act, entering into benami transactions is prohibited. Anyone who enters into any benami transaction shall be punishable with imprisonment for a term which shall not be less than 1 year and shall not exceed 7 years. In addition to this, fine of 25% of the fair market value of the property shall be payable.

In addition to it, any person who is a party to a benami transaction or has provided false information shall also be liable for prosecution for which the punishment shall not be less than 6 months up to 5 years and a fine which may extend up to 5 years and may include a fine up to 10% of the fair market value of the property.

The Act further prohibits resale of the benami property from the benamidar by the real owner and where the benamidar re-transfers the property to the beneficial owner, then the transaction for such re-transfer shall be deemed to be null & void.

Properties that are held as benami are liable to be confiscated by the Government without payment of any compensation.

How does Benami Act affect me?

Benami transactions are entered in to by people who have black money and usually invest in to real estate. Such people who have black money and enter into Benami Transactions would be very badly affected by this act as a huge penalty would be levied on them and they can also be sent to jail.

Genuine transactions where any property is acquired by way of payment from known sources of income and for their own direct benefit will not be affected. Usually people enter into genuine transactions and therefore they don’t have to worry about this.

The major impact will be on the real estate sector where there will be increased clarity with respect to the title of the property i.e. the real ownership of the property.

Compiled by :

CA IP Mukesh Mittal

B.Com., FCA

Insolvency Professional

Independent Director

Certified Concurrent Auditor

9215536951, 9813340495

ca.mukeshmittal@gmail.com

https://camukeshmittal.blogspot.com

DISCLAIMER: The Author have taken utmost care while drafting the article but it may occur that certain error creeps in. This article is for academic purpose and should not be treated as a professional advice. The readers are advised to refer the Bare Acts and Rules before making any judgment.