Guide To The Prohibition Of Benami Property Transactions Act

Advocate Dr. P. Daniel has conducted a systematic study of the Prohibition of Benami Property Transactions Act, 1988 as amended in 2016. Apart from referring to all the important statury provisions and judicial pronouncements on the subject, the author has answered FAQs which throw light on the precise legal consequences of the enactment

Introduction

The problem of property held as Benami has been causing concern to the tax authorities for quite some time. The Select Committee on the Taxation Laws (Amendment) Bill, 1969 had also recommended that Government. should examine the existing law relating to Benami Transactions with a view to find out whether such transactions should be prohibited. Hence the Benami Transactions Prohibition Act was enacted in 1988. As there was various lacunae and shortcomings in the Act, a new Amendment Act was introduced renaming the Title as The Benami Transactions (Prohibition) Amendment Act, 2016.

The brief history of the introduction and later amendment of this Act is as under:

May 19, 1988                    On the recommendations of the 57th Law commission Report promulgated an Ordinance called The Benami Transactions (Prohibition of Right to recover Property) Ordinance, 1988

September 5, 1988             The Benami Transactions (Prohibition) Bill 1988 was passed by both the Houses of Parliament. Hence the Benami Transactions (Prohibition) Act, 1988 (i.e., the Original Act).

May 13, 2015                    TheBenami Transactions (Prohibition) Amendment Bill, 2015 introduced in Lok Sabha to amend and incorporate certain provisions to the Original Act.

April 28, 2016                   Standing Committee submitted its Report on examination of the Bill.

July 22, 2016                     Government proposed amendments to the Amendment Bill, 2015.

July 27, 2016                     Amendment Bill was passed by Lok Sabha

August 2, 2016                              Rajya Sabha passed the Amendment Bill

August 10, 2016                            President gave his assent to the Amending Act

November 1, 2016                         Date on which the Amending Act came into force

November 1, 2016             The Prohibition of Benami Property Transactions Rules, 2016 came into force

Meaning of Benami

The term “Benami” is originated from Persian compound word which implies “without a name”. According to Advanced Law Lexicon Benami means Nameless, fictitious, fraudulent, (a sale or purchase made in the name of someone other than the actual vendor or purchaser). The habit of holding land benami is inveterate in India as held in a number of cases. Fiction and falsehood are very usual in benami disputes. Benami purchases are very common in India, and are due to many considerations which may not find their counterpart in other countries [1922 P.C. 235]. Before 1988, the legislature did not by any measure, declared Benami transactions to be illegal and was recognised and effect given to them by Courts. Benami used in Hindu Law to designate a transaction, contract, or property that is made or held under a name that is fictitious or is that of a third party who holds as ostensible owner for the Principal or beneficial owner. 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, the benami purchase, i.e. a real purchase by one in the name of another. Occasionally the word “benami” is used to refer to a sham transaction for example when A purports to sell property to B without intending that title should pass to B (Shree Meenakshi Mills Ltd. v. CIT) AIR 1957 SC 49 at p. 66.

“A Benami transaction is one where one buys property in the name of another or gratuitously transfers his property to another, without indicating an intention to benefit the other. The benamidar, therefore, has no beneficial interest in the property or business that stands in his name; he represents in fact the real owner and so far as their relative legal position is concerned, he is a mere trustee for him. In other words, a benami purchase or conveyance leads to a resulting trust in India, just as a purchase or transfer under similar circumstances leads to a resulting trust in England. The general rule and principle of the Indian Law as to resulting trusts differs but little, if at all, from the general rule of English Law upon the same subject.” [Treatise on Hindu Law, Mayne 11th Edition p. 953 as cited in Controller of Estate Duty Lucknow v. Alok Mitra, AIR 1981 S.C. 102 and Rajesh Kumar Agarwal v. Virendra Kumar Agarwal AIR 1994 All 135).

The expression “Benami” denotes transactions for the benefit not of the persons taking part in the transactions but of the persons or persons not mentioned in the transaction. In other words, in simple terminology, Benami transactions are transactions where property is purchased in the name of one person but the consideration for the said purchase is paid by other person therefore the former will be the nominal owner and the latter will be the beneficial or real owner of the property. The Privy Council in the case Pether Perumal v. Muniandy (1908) I.L.R. 35. Cal. 551 held that the person who lends his name for the purchase of property and has ostensible title, i.e., the benamidar is nothing but an alias for the real owner who is has beneficial ownership of the property.

Brief History

The earliest noteworthy mention of benami transactions was in the 18th Century when the British had colonised the territory of India. In the case of GopeekristGosain v. Gungapersuad (1854) 6 MIA 53, it was held that such benami transactions were a part of India’s custom and therefore must be recognised unless otherwise provided by law. Thereafter, Sections 81 and 82 of the Indian Trusts Act, 1882 (hereinafter referred as the “Act, 1882”) extended legislative recognition to benami transactions due to which the Indian Courts were bound to enforce them. The rationale provided for justifying these transactions was Section 5 of the Transfer of Property Act, 1882 according to which there is no prohibition on transfer of property in the name of one person for the benefit of the other. Eventually such transaction were entered between parties to defraud public revenues. In order to remedy this situation Parliament introduced Section 281A in the Income-tax Act, 1961 (hereinafter referred as the “Act, 1961”) to prohibit the institution of suits with regards to benami properties. The widespread menace of illegal benami transactions was not effectively curtailed and therefore Sections 81 and 82 of the Indian Trusts Act, 1882 and Section 281A of the Income-tax Act, 1961 were repealed. Thereafter following the recommendations of the 57th Law Commission report the Benami Transaction (Prohibition of the Right to Recover Property) Ordinance, 1988 (hereinafter referred as the “Ordinance”) was promulgated by the President on 19th May, 1988.

The said Ordinance was subject to criticism from press and public on the grounds that it was not an effective mechanism to curb benami transactions. Accordingly 130th Law Commission Report submitted certain recommendations as enumerated below:

•         All kinds of property must be covered by Benami transactions

•         The new law must declare that entering into Benami transactions is an offence except when a father or husband transfers property in the name of his daughter or wife.

•         Omission of Section 94 of the Indian Trusts Act, 1882.

•         Acquisition of properties in the same procedure as provided in Chapter XXA of Income-tax Act, 1961

Thus, after incorporating the relevant recommendations of the Law Commission the Benami Transactions (Prohibition) Act Bill was passed by both the Houses of Parliament and on 5th September, 1988 it became the Benami Transaction (Prohibition) Act, 1988.

•         Benami Transaction (Prohibition) Act, 1988

The Benami Transaction (Prohibition) Act, 1988 (hereinafter referred as the “Act”) was enacted in order to prohibit all benami transactions and recovery of property which has been held as benami. The Act consisted of only nine sections out of which Sections 3, 4 and 5 are significant.

–          Section 3 prohibits entering into a benami transaction. The exceptions to the same are as follows:
           
“The purchase of property by any person in the name of his wife or unmarried daughter and it shall be presumed, unless the contrary is proved, that the said property had been purchased for the benefit of the wife or the unmarried daughter.”

–          Section 4 provides that no suit or claim shall be maintained to enforce rights with respect to benami properties. The exceptions to the same are:

“(a)     where the person in whose name the property is held is a coparcener in a Hindu undivided family
and the property is held for the benefit of the coparceners in the family; or

(b)       where the person in whose name the property is held is a trustee or other person standing in a fiduciary capacity, and the property is held for the benefit of another person for whom he is a trustee or
towards whom he stands in such capacity.”

–          Section 5 provides that the benami properties shall be acquired by authority without any compensation or payment in return.

Delay in implementation of the Act

The flourishing of black money is not due to lack of deterrent law but due to non-implementation of an enacted statute by the administration. In other words, although twenty eight years ago the Act was passed by the Parliament, however, it was not implemented despite the request by the Central Vigilance Commission to the Government to empower the former under the Act and also prescribe rules for effective implementation. In this context, the Government justified that the Act was not made operational due to apparent lacunae and pitfalls in the same. Hence, recently the legislators drafted a new bill in tune with the current circumstances and requirements.

Benami Transactions (Prohibition) Amendment Bill, 2016

In the recent past, there have been various instances in which people use their unaccounted money to purchase property in name of a fictitious or non-existent person therefore the need for a strong mechanism to combat such activities has become inevitable. This Act has come into operation w.e.f. 1-11-2016 and the Govt. introduced demonetisation on 8-11-2016 which is worth noting.

The object and purpose of the Benami Transactions (Prohibition) Amendment Bill, 2016 (hereinafter referred as the “Amendment Bill”) is not only to efficaciously prohibit benami transactions but also to prevent evasion of tax by illegal practices. The most significant aspect of the Amendment Bill is that all the benami properties shall be confiscated after following due procedure of law. However, the law extends immunity under the Income Declaration Scheme to those who made a declaration in respect of their benami properties.

Journey of the law on prohibition of benami transactions

On 13th May, 2015 the Benami Transactions (Prohibition) Amendment Bill, 2015 (hereinafter referred as the “Amendment Bill, 2015”) was introduced in Lok Sabha in order to amend and incorporate certain very important provisions of the Act, i.e., amendment to the definition of benami transactions, establishment of Adjudicating Authority and Appellate Tribunal, penalties on benami transactions, etc.

The rules and all the provisions of the Benami Transactions (Prohibition) Act, came into force on November 1, 2016.

Distinction between the Old Act and Amended Act

Old Act	Amended Act
Benami Transactions (Prohibition) Act, 1988	Prohibition of Benami Property Transactions Act, 1988
9 Sections	72 Sections
Acquisition of Property	Confiscation of property
Benami Transaction Rules Absent	Benami Transaction Rules notified
No administration	Administration defined
Imprisonment for 3 years or fine or both	Rigorous imprisonment for a period not less than one year but which may extend to Seven years and also fine which may extend to 25% of the F.M.V. of the property

The significant developments of law on prohibition of benami transactions is traced in the following table in a concise form:

St. No.	Amendment Bill, 2015	Recommendations of the Standing Committee	Government proposals for amendment	Amendment Act, 2016
1.	Clause 4 expands the definition of “benami transactions” and adds the following arrangements/ transactions to the definition:	To provide exemption to the following	Accepted the Standing Committee Recommendations. Proposed exemption	Explanation to Section 2(9) Benami transaction shall not include any transaction involving
	i)      property is held for another for immediate/ future benefit, direct or indirect except- Karta or HUF, person in fiduciary capacity, holding in name of spouse, property in the name of the person’s brother or sister or lineal ascendant or descendant ii)     transaction is made under a fictitious name iii)    the owner is in denial of the ownership of property iv)     transaction in which the person who has provided consideration for the purchase of property is not traceable	i)      bona fide transactions in which Consideration has been paid. ii)     Transaction which involves transfer of immovable property via a)      registered agreement of sale b)      registered General Power of Attorney or c)      registered development agreement on stamp duty payment	to the contract involving transfer of property which is partly executed under the Transfer of Property Act, 1882 provided that stamp duty is paid and contract is registered	the allowing of possession of any property to be taken or retained in part performance of a contract referred to in section 53A of the Transfer of Property Act, 1882. This requires that the requisite stamp duty is paid and the contract is registered
2.	The aforesaid mentioned provides exemption to individual purchasing property in name of family member provided he is using “known source of income” for this purpose	Recommended to substitute “known sources of income” with “known sources”	Recommendation accepted	S.2(9)(A)(i) – Exemption to Karta provided the consideration for the purchase of property is paid out of known source. S. 2(9)(A)(iii) – Exemption for purchase of property in the name of spouse and any child provided the consideration paid out of known source S. 2(9)(A)(iv) – Exemption for purchase of property in the name of brothers or sisters or lineal ascendants provided the consideration is paid out of known source and the purchaser is joint owner
3.	Clause 8 There shall be no re-transfer of the benami property from the one who is holding the property (benamidar) to the one who has paid the consideration (beneficial owner) and any such re-transfer shall be void	No recommendation	The corresponding provisions of the bill will not apply to those who disclose their benami properties under the Income Disclosure Scheme of the Finance Act, 2016	Section 6(3) – The provisions of sub-sections (1) and (2) shall not apply to a transfer made in accordance with the provisions of section 190 of the Finance Act, 2016.
4.	Clause 27(3) All the rights and titles shall vest, free of all encumbrances, in the Central Government after the confiscation of the benami property. No compensation shall be paid for such confiscation.	Since land is subject of the State List of the Schedule VII of the Constitution of India therefore all the rights of the confiscated property to be vested with the State Government	No amendment	S. 27(3) – Where an order of confiscation has been made under sub-section (1), all the rights and title in such property shall vest absolutely in the Central Government free of all encumbrances and no compensation shall be payable in respect of such confiscation
5.	Clause 24(1) On grounds of suspicion, the Initiating Officer, after recording reasons, may initiate investigation after issuance of notice to show cause as to why the property in question should be considered as benami	A specified time frame must be enunciated for the completion of investigation against benami transaction	No amendment	Section 24(1 )– Where the Initiating Officer, on the basis of material in his possession, has reason to believe that any person is a benamidar in respect of a property, he may, after recording reasons in writing, issue a notice to the person to show cause within such time as may be specified in the notice why the property should not be treated as benami property
6.	Clause 24(2) When the notice as mentioned in Clause 24(1) specifies the property held by the benamidar then the copy of notice shall also be provided to the beneficial owner	No recommendation	Notice to be issued to the beneficial owner provided his identity is known	Section 24(2) where a notice under sub-section (1) specifies any property as being held by a benamidar referred to in that sub-section, a copy of the notice shall also be issued to the beneficial owner if his identity is known
7.	Clause 26(1) Within the period of 30 days, the Adjudicating Authority may require the benamidar or the beneficial owner of the benami property to submit all the necessary documents	The time period to furnish the documents must be extended to three months	No amendment	Section 26(1)  On receipt of a reference under sub-section (5) of section 24, the Adjudicating Authority shall issue notice, to furnish such documents, particulars or evidence as is considered necessary on a date to be specified therein
8.	Clause 46(1) The Appellate Tribunal shall be the appellate body against the order of the Adjudicating Authority	The time period of two years must be provided for disposal of appeals	No amendment	Section 46(1) Any person, including the Initiating Officer, aggrieved by an order of the Adjudicating Authority may prefer an appeal in such form and along with such fees, as may be prescribed, to the Appellate Tribunal against the order passed by the Adjudicating Authority under sub-section (3) of section 26, within a period of forty five days from the date of the order
9.	Clause 32(1) A sitting or former High Court Judge shall be qualified for the purpose of being a Chairperson of the Appellate Tribunal	The Chairperson must have an experience of minimum five years as a High Court Judge	Recommendation accepted	Section 32(1) A person shall not be qualified for appointment as Chairperson of the Appellate Tribunal unless he is a sitting or retired Judge of a High Court, who has completed not less than five years’ of service.

 

• What is Benami transaction as per Act?

(9) “benami transaction” means:-

(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,

except when the property is held by –

(i)        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

(ii)       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 (22 of 1996) and any other person as may be notified by the Central Government for this purpose;

(iii)     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.

(iv)      any person in the name of his brother or sister or lineal ascendant or descendant, 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; or

(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;

Explanation – For the removal of doubts, it is hereby declared that benami transaction shall not include any transaction involving the allowing of possession of any property to be taken or retained in part performance of a contract referred to in section 53A of the Transfer of Property Act, 1882, if, under any law for the time being in force –

(i)        consideration for such property has been provided by the person to whom possession of property has been allowed but the person who has granted possession thereof continues to hold ownership of such property;

(ii)       stamp duty on such transaction or arrangement has been paid; and

(iii)     the contract has been registered.
           
2. In this Act, unless the context otherwise requires –
           
(29) “transfer” includes sale, purchase or any other form of transfer of right, title, possession or lien;
           
The term ‘transfer’ is inclusively defined. The second part states that any other form of transfer (i.e., a form other than sale or purchase) of right, title, possession or lien is also covered. Therefore mortgage, lease, tenancy, gift, will all be transfers.
           
(24) “person” shall include-

(i)        an individual;

(ii        a Hindu Undivided Family;

(iii)     a Company;

(iv)      a Firm;

(v)       an association of persons or a body of individuals, whether incorporated or not;

(vi)      every artificial juridical person, not falling under sub-clauses (i) to (v); the definition is identical to the definition of ‘person’ in s. 2(31) of the Income-tax Act, 1961 except that local authority is not included herein.

(26)     “Property” means asset 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 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.

(2) In this Act, unless otherwise requires

(31) words and expressions used herein and not defined in this Act but defined in the Indian Trusts Act, 1882, the Indian Succession Act, 1925, the Indian Partnership Act, 1932, the Income-tax Act, 1961, The Depositories Act, 1996, the Prevention of Money-Laundering Act, 2002, the Limited Liability Partnership Act, 2008 and the Companies Act, 2013, shall have the same meanings respectively assigned to them in those Acts.

Therefore, if a word/expression is used in this Act but is not defined in this Act one will need to check if it is defined in any of the 8 Acts mentioned above. If the answer is in the affirmative, such word/expression will have the same meaning assigned to them in those Acts. A difficulty may arise if a word/ expression is defined in more than one of these 8 Acts and the two definition are different, which one be adopted for the purposes of this Act.

Judicial Interpretation of Benami Transactions

There are couple of factors that need to be taken into account in order to determine as to whether a particular sale of property is benami or not. In the case of Om Prakash Sharma v. Rajendra Prasad Shewda&Ors. Civil Appeal No. 8609-8610 of 2009 decided on 9th October, 2015 the Supreme Court made reference to a landmark precedent known as Jaydayal Poddar (Deceased) through L. Rs. &Anr. v. Mst. Bibi Hazra&Ors. AIR 1974 SC 171 and laid down certain important factors as stated below:-

“(1)     the source from which the purchase money came;

(2)       the nature and possession of the property, after the purchase;

(3)       motive if any, for giving the transaction a benamicolour;

(4)       the position of the parties and the relationship, if any, between the claimant and the alleged benamidar;

(5)       the custody of the title-deeds after the sale and

(6)       the conduct of the parties concerned in dealing with the property after the sale.”

The Apex Court also cautioned that no straight jacket formula can be laid down in this context and the aforesaid mentioned factors are not exhaustive therefore the facts and circumstances of each case become excessively relevant.

What are the legal consequences of Benami transactions?

The following are the legal consequences of Benami transactions:

1.         Benami transaction is a punishable offence – Whoever enters into any benami transaction shall be punishable with imprisonment for a term which may be extended to three years or with fine or with both – Section 3(2) of the Act.
           
After 1-11-2016 as per Sec. 53(2) shall be punishable with R.I. 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 E.M.V. of property.

2.         Prohibition of the right to recover property held benami – No suit, claim or action to enforce any right in respect of any property held benami against the person in whose name this property is held or against any other person shall lie by or on behalf of a person claiming to be the real owner of such property – Section 4(1)

3.         No defence based on any right in respect of any property held benami, whether against the person in whose name the property is held or against any other person, shall be allowed in any suit, claim or action or by or on behalf of a person claiming to be the real owner of such property – Section 4(2).

4.         Property held benami liable to confiscation – Any property, which is the subject matter of benami transaction, shall be liable to be confiscated by the Central Government – New Section 5 as substituted by the 2016 Amendment Act.

5.         Prohibition on re-transfer of property by benamidar – No person, being a benamidar shall re-transfer the benami property held by him to the beneficial owner or any other person acting on his behalf – New section 6(1). Any such re-transfer shall be null and void – New section 6(2). However, this prohibition shall not apply where the re-transfer is made in accordance with the Income Declaration Scheme, 2016 – i.e., in accordance with section 190 of the Finance Act, 2016 – New section 6(3).

Authorities under the Act – Section 18

Authorities                                Designated Officers
Initiating Officer                    :     ACIT/DCIT
Approving Authority              :     Jt. CIT/ Addl. CIT
Administrator                       :     T.R.O.
Adjudicating Authority            :   Officer in the grade of
(Administrative as well                Commissioner of Income tax
as legal                                     and a person of I.L.S. not below
                                               the Rank of Jt. Secretary

(2)       The authorities shall exercise all or any of the powers and perform all or any of the functions conferred on, or, assigned, as the case may be, to it under this Act or in accordance with such rules as may be prescribed.

Section 19(1) of the Act provides that for the purposes of this Act, the authorities shall have the same powers as are vested in a Civil Court while trying a suit in respect of the following matters viz. –

(a)       discovery and inspection;

(b)       enforcing the attendance of any person, including any official of a banking company or a public financial institution or any other intermediary or reporting entity, and examining him on oath;

(c)       compelling the production of books of account and other documents;

(d)       issuing commissions;

(e)       receiving evidence on affidavits; and

(f)        any other matter which may be prescribed.

All the persons summoned under s. 19(1) shall be bound –

(i)        to attend in person or through authorised agents, as any authority under this Act may direct, and

(ii)       to state the truth upon any subject with respect to which they are examined or make statements, and produce such documents as may be required.

Powers of Authorities – Section 19

•         Every proceeding under sub-sections (1) and (2) shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228 of the Indian Penal Code.

•         Any authority under this Act may, for the purposes of this Act, requisition the service of any police or other officer or any officer of the Central Government or State Government or both to assist him for all or any of the purposes specified in sub-section (1), and it shall be the duty of every such officer to comply with the requisition or direction.

•         Sub-section (5) defines “reporting entity” for the purposes of this section to mean any intermediary or any authority or of the Central or the State Government or any other person as may be notified in this behalf.

•         Explanation to the section states that the term ‘intermediary’ for the purposes of sub-section (5) shall have the same meaning as assigned to it in section 2(1)(n) of the Prevention of Money Laundering Act, 2002.

FAQ

Q.1     What is Benami Transaction? What is Benami Property?

Ans.   Benami property can be any property whether movable or immovable, the source and ownership of which is not known. When the owner of the property is not able to define the source of funding of the property, the property could become benami.

Q.2     How does Benami transaction take place?

Ans.   Benami transaction takes place between two parties. On the one hand is the beneficial owner of the property who pays the consideration for the benami transaction. On the other hand is the owner of the property in whose name the property has been purchased, such person is called the benamidar.

Q.3     What are the conditions to be fulfilled for a transaction to be classified as Benami?

Ans.   As per the Benami Transaction (Prohibition) Amendment Act, 2016: A transaction shall be regarded as a Benami Transaction if it fulfils the following two conditions:

1)        Property is held by or transferred to any person for which the consideration is paid by another person and

2)        The property is held for the benefit or future benefit, either directly or indirectly, for the person who has provided such consideration.

Q.4     Whether Benami Property includes only Immovable property?

Ans.   As per the Prohibition of Benami Property Transactions Act, Benami property includes both immovable property (like land or building) and movable property/assets.
           
Here, an important point to be noted is that in case of the ongoing process of de-monetisation, if a person deposits old currency in the account of another person with the understanding that the account holder will return the money in new currency can also be regarded as a benami transaction. Here, the Tax department can issue notices under the Benami property Act also.
           
The person who deposits old currency in the bank account shall be treated as beneficial owner and the person in whose bank account the old currency has been deposited shall be categorised under as a benamidar.

Q.5     What are the transactions that are also included in the definition of Benami Transaction?

Ans.   Following are also considered as Benami Transactions:

•         Any transaction or arrangement made in respect of a property carried out or made in a fictitious name.

•         Any transaction or arrangement made in respect of a property, where the owner of the property is not aware of such ownership.

Q.6     Will POA transactions be regarded as benami transactions?

Ans.   It appears that by virtue of Explanation to Section 2(9), power of attorney transactions will not be regarded as Benami Transactions provided the conditions mentioned therein are satisfied. In his reply to the debate on the Amendment Bill in Rajya Sabha on 3-8-2016, the Finance Minister has clarified as under:
           
“As far as power of attorneys are concerned, I have already said properties which are transferred in part performance of a contract and possession is given then that possession is protected conventionally under section 53A of the Transfer of Property Act. That is how all the power of attorney transactions in Delhi are protected, even though title is not perfect and legitimate. Now, those properties have also been kept out as per the recommendation made by the Standing Committee.”

Q.7Why do people enter into benami transactions?

Ans.   Many people want to know why anyone enters into benami transactions.
           
Some of the reasons for entering into benami transactions are:

(1)       People who enter into Benami transactions are those who have money earned from unknown sources i.e., black money. Therefore, in order to utilise the black money, these persons enter into Benami transactions where the transaction is done in the name of another person but the consideration is paid by another person out of his black money. Since these persons cannot show the transaction in their own names therefore they use names of other persons or some fictitious names for entering into such transactions.

(2)       Another reason for entering into Benami transactions is that people want to hide the ownership of the benami property from their creditors or from the banks in case where such people have taken loans from such banks. Some people also want to hide the ownership from their relatives.

Q.8     What are the transactions that are not classified as benami transactions?

Ans.   As per the Benami Transactions Amendment Act, 2016, following transactions are not classified as Benami Transactions:

(1)       If the property is held by a Karta or any member of the HUF and the property is held for the benefit of the members of the HUF and the consideration for such property has been paid through known sources of the HUF.

(2)       A person standing in the fiduciary capacity for the benefit of another person towards whom he stands in such capacity. Ex: A trustee, a director of the company.

(3)       In case of an individual, where the property is in the name of the spouse or in the name of any child of the individual and the consideration for such property has been paid out of known sources of the individual.

(4)       In case of an individual, in the name of his brother or sister or lineal ascendant or descendant and where the names of the individual and brother/sister or lineal ascendant or descendant appear as joint owners.

Q.9     What can be the consequences of entering into Benami Transactions?

Ans.   Following are the consequences of entering into Benami transactions:

•         As per the provisions of Prohibition of Benami Property Transactions Act, entering into benami transactions is prohibited.

•         This Act further provides that whosoever enters into any benami transactions shall be punishable with rigorous imprisonment for a term which shall not be less than one year and shall not exceed seven years.

•         In addition to this, fine of 25% of the fair market value of the property shall be payable.

•         The Act further prohibits recovery of the benami property from the benamidar by the real owner and where the benamidar retransfers 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.

Q.10 What would be impact of the amendment to the Prohibition of Benami Transactions Act on black money in wake of the recent demonetisation of the currency?

Ans. Some of the impact of the Amendment to the Benami Act would be as follows:

•         The major impacts of the application of the Benami Act would be on the real estate sector. This Act will ensure that the real estate transactions shall be in the name of the actual owners i.e., in the name of the person paying the consideration for such property. This is likely to lower prices in the real estate sector.

•         It is also likely to solve a major problem in the real estate sector i.e., the lack of clarity of title of the property. This lack of clarity deters investors such as PE and NBFCs from investing in the real estate sector.

•         In case of the ongoing process of demonetisation, if a person deposits old currency in the account of another person with the understanding that the account holder will return the money in new currency can also be regarded as a benami transaction. Here, the Tax department can issue notices under the Benami Property Act also.
           
There might be some other impacts of the Benami Act such as:

•         A company raising share capital that is not able to produce its shareholders to the concerned authorities can fall under the ambit of benami transactions.

•         If a person takes a loan and is not able to substantiate the genuinity of the lender or is not able to produce the lender may also fall under the ambit of the Benami Act.

•         The new law is also likely to have a serious impact on rural India where, because of large number of cash transactions and poor state of land records, even genuine landowners may find it difficult to establish their titles.
            The enactment of the amended Prohibition of Benami Transactions is a major step by the Government to curb the flow of black money; however, it is also equally important to protect all the genuine commercial transactions from the ambit of the Amended Benami Act.

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