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Home / Money / Personal Finance /  Benami law—the long arm of tax authorities

The word benami means “without a name". In simple terms, benami transaction refers to any transaction made by a person without using his name or by using the name of another person. As an example, a benami property is a property bought by a person in the name of another person. There is a popular perception that benami transactions are used to disguise the real ownership for reasons, including tax avoidance, maintain secrecy, creating personal wealth at the expense of business, parking unaccounted money etc.

Against this backdrop, a need was felt for legislation to discourage benami transactions.

Legislative backdrop

The Benami Transactions (Prohibition) Act, 1988 (‘Old Act’) was introduced to prohibit benami transactions and to recover the property held as benami. The Old Act contained nine sections; however, the rules, regulations and procedures for the implementation of the law could not be framed, which made it ineffective. In particular, there were no regulations relating to the confiscation of property.

In July 2016, the government decided to amend the Old Act and “The Benami Transactions (Prohibition) Amendment Act, 2016" (“the Act") was enacted. This Act came into force from 1 November 2016. The amended law contains 72 sections.

Let us now look at some of its key provisions:

Benami transactions

Under the Act, the following transactions or arrangements are considered as benami transactions:

  • Where a property is transferred to or is held by a person and the consideration for such property has been provided by another person. The additional condition being that the property is held for the immediate or future benefit of the person who has provided the consideration, e.g. Mr. A pays `50 lakh to purchase a property which is held in the name of his chauffeur, for the future benefit of Mr. A.

To avoid hardship in genuine cases, some exceptions have been provided. Property held by karta or member of Hindu Undivided Family (HUF), property held by person (trustee, partner, director, depository) in a fiduciary capacity, property held in the name of spouse or children of a person and property jointly held by a person with his lineal ascendents or descendants are not covered, subject to prescribed conditions.

  • Transaction or arrangement in respect of a property carried out or made in a fictitious name. e.g. Mr. B purchases a property in the name of Mr. C, who is non-existent.
  • Transaction or arrangement in respect of a property where the owner of the property is not aware of or denies knowledge of such ownership. e.g. Mr. X is holding a flat in the name of Mr. Y. Upon inquiry by authorities, Mr. Y denies the ownership of the flat.
  • Transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious. Mr. Z purchased a flat, payment of which was made by an unknown person.

The Benamidar

‘Benamidar’ implies a person or a fictitious person, in whose name a benami property is transferred or held. He is not the beneficial owner of the transaction under consideration. Law provides that a Benamidar cannot re-transfer the benami property held by him to the beneficial owner. Any such transaction, if undertaken, will be invalid under the law.

Scope of the term ‘property’

The word “property" has been defined in a very wide manner to mean asset of any kind. It may be movable or immovable, tangible or intangible, and corporeal or incorporeal. Thus, it could cover within its ambit land, building, shares, securities, etc.

It also includes any right or interest or legal documents or instruments evidencing an interest in a property. Additionally, where the property is capable of conversion into some other form, then the property in such converted form. Proceeds from the property are also covered. Hence, cash in hand or bank, generated from the sale of such property is also covered.

Power of authorities

The prescribed authorities under the Act have very wide powers. The powers are akin to those of civil court and inter-alia include powers relating to:

  • Discovery and inspection.
  • Enforcing the attendance of any person, including officers of banking, financial institution, any other intermediary or reporting entity.
  • Authority to instruct to produce the books of accounts.
  • Receiving evidence on affidavits.

It has also been provided that officers of the income-tax department, customs and central excise departments, narcotics drugs department, etc. will assist the prescribed authorities in the enforcement of the Act.

The person against whom any proceeding is initiated can explain his position and file submissions before the authorities. Appeal avenues with higher forums are also prescribed.

Confiscation of benami property

The Act empowers the authorities to provisionally attach properties. Attachment implies a prohibition on transfer, conversion, or disposition of property. Once it is adjudicated that a property is benami, it can be confiscated by the Central government.

Penal consequences

A person found guilty of the offence of benami transaction can face rigorous imprisonment from one to seven years. Fine is also levied up to 25% of the fair market value of the property. Further, any person who furnishes false information or document is punishable with rigorous imprisonment from six months to five years. Additionally, fine is also levied up to 10% of the fair market value of the property.

Retrospective application–a debate

Currently, there is some dispute on the retrospective application of some of the provisions of the Act. In particular, as the Old Act did not contain rules and regulations enabling confiscation, there are disputes on its application on properties acquired prior to 1 November 2016.

Implementation status

The government has taken various steps for effective implementation of the Act. According to media reports, till January 2019, the income-tax department had confiscated assets worth `6,900 crore under this Act. According to the government’s Press Information Bureau website, till 31 May 2019, show-cause notices have been issued in more than 2,100 cases involving benami properties valued at over `9,600 crore. The tax department has set up 24 dedicated Benami Prohibition Units across the country. These units are involved in gathering information and matching the same with the data available for identifying the benami properties. A reward scheme for informants was also announced. It aims at encouraging people to, inter alia, give information about benami transactions and get rewards up to `1 crore.

Way forward

It is pertinent to note that as the databases of different government departments get inter-linked, property records get digitized, information gets collated from a wide variety of sources, and artificial intelligence and data analytics throw up any mismatches, this stringent law will see more action, in days to come. Further, with the government’s resolve to bring in transparency in the economy, benami law is bound to act as a deterrent and a potent tool, and revenue collection will be a natural fall out.

Richa Sawhney and Sameer Shah contributed to this article.

Vikas Vasal is national leader-tax at Grant Thornton Bharat LLP.

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