The Prohibition of Benami Transaction Act, 1988

The Prohibition of Benami Transaction Act, 1988

Introduction:

The term “Benami” originated from Persia which mean “No name” or “without name”, the term “Benami Transaction” in common parlance mean that the owner of property is not the actual/real beneficiary of the property.

In India these transactions are widely prevalent since 18th century that in Gopeekrist Gosain v. Gungapersua the court held that the Benami transactions were so widely prevalent in India that a mere legislative step could not curb it and therefore they must be recognised unless otherwise provided by law, and thereafter Section 81 and 82 of the Indian Trusts Act, 1882 were introduced to give legislative recognition to benami transactions. The reasoning provided to justify these transactions was Section 5 of the Transfer of Property Act, 1882 according to which there is no prohibition on the transfer of property in the name of one person for the benefit of the other.

Mostly, Benami transactions were entered between the parties to defraud public receipt or launder black money and to antidote these transactions Sec 281A in Income Tax Act, 1961 was enacted to prohibit institution of suit for enforcing any right concerning Benami properties but this enactment failed to curtail the widespread menace of benami transactions and therefore Sec 261A was repealed along with Sections 81 and 82 of the Indian Trusts Act, 1882.Thereafter on the recommendations of the 57th Law Commission report the Benami Transaction (Prohibition of the Right to Recover Property) Ordinance, 1988 was promulgated.

The 130th Law Commission Report submitted following recommendations to curtail this evil:-

• All kinds of property must be covered by benami transactions such as movable-immovable, corporeal-incorporeal, tangible- intangible.

• The new law must declare that entering into benami transactions is an offence.

• The omission of Section 94 of the Indian Trust Act, 1882

Benami transaction?

A Benami Transaction, in common speech, refers to a transaction in which a property is transferred in the name of a person, whereas the consideration for the same is paid by a different person.

In Thakur Bhim Singh v. Thakur Kan Singh, the honourable court had detailed the concept of "Benami Transaction" and included primarily 2 types of transactions under its compass. Firstly, when a person buys a property with his own money in the name of another person without any intention to benefit such other person and secondly, when a person who is owner of the property executes a conveyance in favour of another without the intention of transferring the title to the property.

Benami Property?

A Benami transaction is one in which an individual purchases a house in the name of his helpers. Thus, the property is sold to a helper, however, the consideration for the same is provided by master. If we interpret this, the house being subject matter of the benami transaction is called 'Benami Property'.

The term 'property' includes: movable or immovable, tangible or intangible, corporeal or incorporeal, 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 is included as well, even the proceeds from the property are also included within the definition of 'property'.

The acid test to determine a benami property was provided In Bina Pani Paul vs Pratima Ghosh where the court held that the classification of any property as benami is to determined on following grounds:

• The source from which the money for consideration came;

• The nature and possession of the property, after the purchase of the property;

• Motive of transaction;

• The position of the parties and the relationship, if any between the claimant and the alleged benamidar/beneficial owner;The source from which the money for consideration came;

• The custody of the title-deeds after the sale; and

• The conduct of the parties concerned in dealing with the property after the sale.

Illustration: A businessman ‘A’ pays a consideration for a property, called 'Pool' in the name of 'B' his helper, for his own benefit the transaction would be a Benami Transaction. The subject matter of such a transaction (Pool) is called a "benami property".

Here, A is a beneficial owner who is actual/real beneficiary and for his benefits transaction was completed and B is a benamidar and on his name benami property is transferred, B can be real or fictitious person and Identity of A could be known or unknown.

Examples:

1. A is working in a company as he have details of company in and outs he is prohibited from trading in company shares, so he hires a person “B” to trade for him by paying him consideration.

2. As every state has limit on area of agriculture land one can own, people buy agricultural land on the name of other for their own use or benefits.

3. Mr A buys property on the name of his driver “B” and source of income is not disclosed, here B’s name will be shown in paper and Mr. A will be real beneficiary of property.

Consequences of entering into a Benami Transactions?

• Attachment and Confiscation of Benami Property.

• Criminal and Civil Liability which may include punishment of imprisonment between 1 to 7 years and fine up to 25% of the fair market value for the benami property.

Defences to the charge of Benami

There are certain defences that can be pressed into action in civil and criminal proceedings under the Benami Act:

• Property held by Karta/Member of a Hindu Undivided Family.

• Property held by a person standing in a fiduciary capacity such as director, trustee, etc.

• Property held in the name of spouse, children, etc and consideration paid by spouse/parent.

• Property held in the name of brother, sister, lineal ascendant, etc.

• Possession allowed to be taken or retained in part performance of a contract.

• Property purchased under a legal financial arrangement.

In P. Leelavathi v. Shankarnarayana Rao the court held that, the intention needs to be analysed before holding transaction as benami, also mere financial assistance by a person to another to buy property by the latter would not IPSO-facto hold it a benami transaction and the burden of prove a transaction as benami is upon the person who asserts it so.

Proceedings before Initiating Officer and Adjudicating Authority

An Initiating Officer can be an assistant commissioner or deputy commissioner as defined in Income Tax Act, 1961, an initiating officer is empowered to initiate process under the Benami Act (Sec 23). The proceedings begins when some material, like documents or other evidence, comes into the possession of the Initiating Officer giving him a reason to believe that any person is a benamidar in respect of a property. In such a situation, the Initiating Officer may, after recording his reasons in writing, issue a notice to the person to provide a reply within given period to showcase that the property held is not benami (Sec 24(1)). The initiating officer may issue a copy of notice to beneficial owner if his/her identity is known under Section 24(2). However, issuance of notice is not a condition precedent to the attachment to prevent unlawful alienation of property. That initiating officer can provisionally attach property suspected to benami purely as a protective/interim measure after the approval from the adjudicatory authority for a period not more than 90 days if he has reason to believe that the person holding such Benami property may detach the property, and make the proceedings unfruitful Sec 24(3). That under Section 24(4) and Section 24(5) The Initiating officer after making such inquires and calling of reports and evidence as he deems fit shall draw up a statement and refer it to adjudicatory authority under within 90 days after determining whether impugned property needs ‘provisional attachment’ or not.

Adjudicating Authority: Under Section 26(1) upon receipt of Reference from Initiating officer, the Adjudicating Authority is required to issue notice, within thirty days from the date on which a reference has been received, to benamidar, beneficial owner, interested parties or any other person who claimed in respect of the property, providing them thirty days to furnish information sought in notice, that after, considering reply of concerned parties, making an inquiry or calling for evidence or reports the adjudicatory authority under Section 26(3) provide an opportunity to benamidar, initiating officer and any other person claiming a right in impugned property, thereafter, pass any order of not holding property as benami and revoking the attachment order or of holding the property as benami and confirming the attachment order within one year as provided in Section26(7).

Under Section 27 In cases of an adverse decision by the Adjudicating Authority, the property is liable to be confiscated, and all the rights & title of Property shall vest in Central Government free from encumbrances and no compensation payable. Provided that where an appeal is preferred against the adverse order of adjudicatory authority the confiscation of property would be subject to order of Appellate tribunal.

The remedies available against wrongful attachment.

1. Section 46- Appeal before the Appellate Tribunal

2. Section 49- Appeal before the High Court against the order of Appellate tribunal.

3. In certain cases, a writ can be filed before High Court against the order of initiating officer and adjudicatory authority.

Conclusion

The past experience has revealed that, Benami transactions are entered into by people who have black money and usually invest it in real estate or gold. This opens the door for evasion of taxes, facilitation of money laundering, defeating ceiling laws and socially beneficent legislation. Therefore, the Act, seeks to achieve a praiseworthy motive and should be allowed its fullest play. Transactions where consideration is paid by known source of incomes and for their own benefit will not be affected. The major impact will be on the real estate sector where there will be increased clarity concerning the title of the property. Despite that, there is a lot of uncertainty that remains with respect to crucial issues such as application of the Act to properties located outside India, retrospective application to transactions entered into prior to 2016, It may also have an adverse impact on the rural parts of India where most of the transactions take place in cash and the state of land records is really poor.