Benami

The Benami Transactions (Prohibition) Amendment Act, 2016 is an amendment of the older Benami Transactions (Prohibition) Act 1988. (herein after read as The Principal Act) It was first introduced in the Lok Sabha on May 13, 2015 by Finance Minister Arun Jaitley, and was then referred to by a Standing Committee on Finance. The Committee submitted its report on April 28 and following that, it was passed in the Lok Sabha and Rajya Sabha on July 27 and August 2 respectively. Central Board for Direct Taxes (CBDT) notified that the provisions of the Benami Act would come in effect from November 1, 2016. The CBDT stated that after coming into effect, the Benami Transactions (Prohibition) Act, 1988 will be renamed as the Prohibition of Benami Property Transactions Act, 1988 (PBPT Act). (herein after read as The Amending Act)

What is Benami Transaction

“Benami transaction" means a transaction or an arrangement 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 the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration OR a transaction or an arrangement in respect of a property carried out or made in a fictitious name; OR 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; OR a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious. However, also provides for the exceptions in the case of a Karta or member of a HUF, family members and lineal descendants or a fiduciary as long as they satisfy the certain conditions.

Exception to Benami Transactions

Finance Minister Aurn Jaitley already assured that genuine religious trusts would be kept out of the purview of this new legislation. Apart from it, Benami Transaction Act has provided more exclusion which are as follows:

  • In case of Hindu Undivided Family (HUF), Karta or any other member of HUF owns or held any property for his benefit or for the benefit of the family members and the consideration for the same is paid out of the known source income of HUF.
  • A person acting within fiduciary capacity for the benefit of another person i.e. transaction involving 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.
  • Any individual transacting in the name of his/her spouse or any of his/her children (excluding married daughter) and consideration of such property is paid out of the known source of income of the individual.
  • In case the property is purchased using known sources of fund as joint ownership with wife, children, siblings includes brother or sister or lineal ascendant or descendant.
  • If a property is transferred but the contract of transferring the property is partly executed, the same shall not be considered as benami property.
  • If the property transaction is done based on General Power of Attorney (GPA), through a registered contract and even stamp duty is paid, such property is not considered as benami property.
  • Benami Property declared under Income Declaration Scheme 2016 (IDS) will no longer be treated as Benami Property.

Authority under Benami Act

Under this new legislation, four authorities have been formed to conduct inquiries or investigation benami transactions i.e. Initiating Officer, Approving Authority, Administrator and Adjudicating Authority.

The initiating officer after assessing the transaction, if believes that person is benamidar than he may issue the notice to that benamidar. Initiating office may hold the property for a period of 90 days from the date of issue of notice. However, in order to keep the property, permission from Approving Authority is required.

To further hold the property, the case is referred to Adjudicating Authority which will examine all the documents and evidence relating to the matter and then pass an order on whether or not to hold the property as benami.

Based on the order of Adjudicating Authority, the Administrator will confiscate the property in a manner and subject to the conditions as prescribed under the law. In case the individual is not satisfied with the order of adjudicating authority, he can challenge the same with Appellate Tribunal, and if he is not satisfied with the order of Appellate Tribunal, the appeal can be made with High Court.

Penal Provision under Benami Act

As per the new law of Prohibition of Benami Property Transactions Act (PBPT Act), the guilty person shall be punishable with rigorous imprisonment for not less than one year which may be on severity of the offence extended to seven years. He shall also be charged with a fine which may extend to 25 percent of the fair market value of the benami property. Under the old law, the violation of the act would lead to imprisonment up to three years, or a fine, or both.

The New Law also has a provision of penalty for providing false information. Any person, required to furnish information under this Act, intentionally provided false information or document to any authority shall be punishable with rigorous imprisonment for not less than six months which may be on severity of the offence extended to five years. He shall also be charged with a fine which may extend to 10 per cent of the fair market value of the benami property. However, no prosecution shall be initiated against any person under this law without the prior approval of Central Board of Direct Taxes (CBDT).

The point to ponder is that benami transactions are not confined only to purchases, leasing of immovable property in the name of another person or mortgaging property for a fictitious consideration is also considered as a benami transaction and is subject for prosecution under Benami Transaction Act.

Why We

We at tax India Advisor not only advices our client how to handle your affairs in such a fashion not to get into any transactions which lead you to indulge into the draconian provisions of the Act but also  assist you to get rid of the clichés of this Act if alleged under this Act.