Applicability of the Prohibition of Benami Property Transactions Act, 1988

[CA Pankaj Agrwal]

So far we have been discussing the implications of section 270A, levy of penalty and rate of tax in case of any deposit made in the bank and offered to tax in the return.  We have not factored or discussed the implications of the Prohibition of Benami Property Transactions Act, 1988 which will give a severe blow to all those who are depositing money in their bank accounts which they will not be able to explain.

In yesterday's newspapers, the ministry of finance has given half page advertisement warning people not to permit use of their account by others for converting their black money and they may be prosecuted and punished for rigorous imprisonment of 7 years.

A question arises what if unaccounted money deposited in a bank account ? Can it be termed as 'Benami Property' and the consequences of the Prohibition of Benami Property Transactions Act, 1988 of confiscating the same and launch of prosecution may be taken up.

As per Section 2(9) of the Act, "Benami Transaction means"
(A) ...
(B) ...
(C) ...
(D) a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious.

Section 2(8) defines "benami property" to mean 'any property which is the subject matter of a benami transaction and also includes the proceeds from such property.'
Section 2 (26) defines "property" to mean '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 also includes the proceeds from the property.'

Thus, any bank account is a property. If the depositor is not able to substantiate the source of money deposited, can it not be said that the person providing the consideration is not traceable, hence, it is a benami transaction and liable for action.

Merely by claiming the same to be depositor's money will not suffice. 

We have discussed a lot about applicability of income-tax provisions. We shall start discussing the implications of the new law.