Benami Transaction and its Legality

The Benami Transactions (Prohibition) Act, 1988 was amended by the Benami Transaction (Prohibition) Amendment Act, 2016, in which substantial provisions were added to the existing Act to provide extra ordinary powers to keep a limit on the Benami Transactions and impound the Properties which are Benami in nature. The act is also renamed as Prohibition of Benami Property Transactions Act, 1988 and came into force on 1^st November 2016.  Through the amended Act, the term Benami Transaction is expanded and provides the rigorous imprisonment for up to seven years along with the fine which may extend to 25 percent of the fair market value of the Benami Property. 

BENAMI PROPERTY

Before we proceed further, it is necessary to understand the term Benami Property. The basic meaning of Benami is the property which is bought by an individual but not under his or her name but at somebody else's name is known as Benami property. It includes all the property which is held in the name of third person like children or spouse and the amount for that property is paid by unknown sources of income. The transaction involved in the same is called Benami transaction. People invest their money in buying Benami property to evade taxation. Furthermore, the true owners of these properties are hard to find due to fake identities and name. The person on whose name the property is bought is called 'benamdar'. The Benami transactions include buying any kind of assets — movable, immovable, tangible, intangible, any right or interest, or legal documents.

CONCEPT OF BENAMI PROPERTY AND BENAMI TRANSACTION UNDER THE 2016 ACT

Under the 2016 Act, the term "Benami Property" under section 1(8) has been defined as under:

• A Benami Property means any property which is the
• subject matter of a Benami transaction
• Also includes the proceeds from such property.

The definition of property under 2016 Act include assets of any kind, whether movable or immovable, tangible or intangible, corporeal or incorporeal.

Under Section 1 (9) of the 2016 Act, the term "Benami Transaction" has been defined as under:

A Benami Transaction means,-

• a transaction or an arrangement-
• where a property
• is transferred to, or is held by, a person,
• the consideration for such property has been provided, or paid by, another person;

• 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-

Therefore, the following transactions shall fall under the scope of Benami Transaction:

1. Where the property is held by or transferred to another person, and the property is held by that another person, for the immediate or future benefit of the person who has provided the consideration for such property;
2. Where a transaction has been made under a fictitious name;
3. Where the owner is not aware or denies knowledge of the ownership of the property;

Two types of Benami Transactions which are generally recognized in India

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

The second case which is loosely termed as a Benami transaction is a case where a person who is the owner of the property executes a conveyance in favor of another without the intention of transferring the title to the property thereunder. In this case, the transferor continues to be the real owner.

The difference between the two kinds of Benami transactions referred to above lies in the fact that whereas in the former case, there is an operative transfer from the transferor to the transferee though the transferee holds the property for the benefit of the person who has contributed the purchase money, in the latter case, there is no operative transfer at all and the title rests with the transferor notwithstanding the execution of the conveyance. One common feature, however, in both these cases is that the real title is divorced from the ostensible title and they are vested in different persons."

Why are Benami Transactions considered Illegal?

The Benami transactions in India has always been a part of India since many years. There are various cases in which the Courts went on to observe that certain Benami transactions were customs of the country and must be recognized as such, thereby giving it a legal structure, since custom was one of the important sources of law back then.

However, gradually it was realised that Benami Transactions were also being employed for various dishonest intentions which includes money laundering, evasion of taxes etc. It was also realized that these transactions could be misused for diverting one's assets in another's name and thereby defeating the lawful claims of creditors and defrauding them. Slowly and gradually it dawned that, on a cost-benefit analysis, the losses and mischief arising from allowing Benami transactions to continue unabated far outweighed their perceived advantages, leading to such transactions being forbidden by law. 

Is entering into a Benami Transaction a crime as well?

When a Benami transaction is entered into: in order to defeat the provisions of any law, to avoid payment of statutory dues or to avoid payment to creditors, it attracts penal provisions of the Benami Act and prosecution can be initiated under the Act after receiving the sanction of the Central Board of Direct Taxes constituted under the Central Board of Revenue Act, 1963.

Special Courts for trial of offences under the Act will be set up by the Central Government, as per the mandate under the Act.

Authorities which deals with the Benami Property and Transactions

1.         The Initiating Officer

Such officer shall have reason to believe on the basis of material available to him and shall record the reasons in writing. Thereafter, he shall issue a notice to the parties and after obtaining the replies, if he thinks so, he may provisionally attach the property with prior permission of the approving authority for a period not exceeding 90 days and he may also revoke the provisional attachment with prior permission of the approving authority. He shall have power to conduct enquiry in regard to person, place, property, document, bank etc

2.         The Approving Authority

The approving authority means an Additional Commissioner or a Joint Commissioner as defined in section 2 of the Income Tax Act, 1961. It shall have powers to give approval for retention of books of accounts and documents impounded within 15 days and will give permission to the initiating officer. He will also give permission or approval to the approving authority for his various actions like continuation of attachment, revocation of attachment, enquiry, investigation, etc.

3.         The Administrator

He shall have the power to receive and manage the property, in relation to which an order of confiscation has been made. He is empowered to take such measures as are necessary for managing such property. He also has the powers to enforce possession by giving reasonable notice to the occupier of such property.

4.         The Adjudicating Authority

This authority consisting of at least two members and one chairman will issue notice to the parties with 30 days from the date on which a reference has been received from the initiating officer. The authority may pass an order revoking or confirming attachment after holding that the property is Benami or not. Such order shall be passed within expiry of one year from the end of the month in which reference under this Act was received. This authority shall make an order for confiscation of the property after giving an opportunity of being heard to the person concerned.

Powers of the concerned authorities

The authorities shall have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit in respect of the following matters, namely–

•      discovery and inspection;
•   enforcing 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;
•    compelling the production of books of account and other documents;
•      issuing commissions;
•      receiving evidence on affidavits; and
•  any other matter which may be prescribed.

PROCESS OF ATTACHMENT OF BENAMI PROPERTY

•      Under Section 24 of the 2016 Act, the Initiating Officer, if has reason to believe that any person is benamidar, will issue notice to:

a)       Benamidar

b)      Beneficial owner (if identity known).

• The Initiating Officer with the approval of Approving Authority can attach the property for a period not exceeding 90 days, if in his opinion, the person to whom notice has been issued may alienate the property during notice period.
  
  
• The Initiating Officer shall after making inquiries and considering evidence and all other relevant material, with the approval of Approving Authority and within a period of 90 days from the date of issuance of notice.

• If there is a provisional attachment:

a) Pass an order continuing the provisional attachment of the property till the adjudication order by the Adjudicating Authority; or

b)    Revoke the provisional attachment order.

• If there is no provisional attachment:

a)  Pass an order for attaching the property till the adjudication order by the Adjudicating Authority; or

b)    Decide not to attach the property.

If there is any order for attachment of the property or continuation of the provisional attachment, the Initiating Officer shall draw up a statement of the case and refer it to Adjudicating Authority within 15 days from the date of such attachment.

CONCLUSION

From comparison of the 1988 Act with the 2016 Act, it becomes clear that 1988 Act didn't have any mechanism or process of confiscation/ acquisition of the Benami property and therefore, no Benami property could be acquired by the government. On the other hand, the 2016 Act is a comprehensive law which not only provides for the mechanism and process for attachment and confiscation of the Benami property, but has also enacted the administrative structure for proper implementation of such provisions. The 2016 Act has not only widened the ambit of Benami Transaction, but the same also mandates for more stringent punishment. By the 2016 Act, the Government of India has made its intentions abundantly clear that the Benami transactions occurred during the intervening period of 1988 to 2016 are not going to be spared.