“This (demonetisation) is not an end. I have more projects in mind to make India corruption-free. We will take action against ‘benami’ property. This is major step to eradicate corruption and black money”
This statement on “benami property” from our Prime Minister forayed into reality with the passage of Benami Transactions (Prohibition) Amendment Act, 2016. The Act seeks to amend older Benami Transactions (Prohibition) Act, 1988.
For many people, the term “benami property” is a mystery. Some assign meaning to it as “without name”. Well, that’s correct only to mean the first word of the term. Let us understand what does the term imply and what does the Act brings in its kitty.
What is a benami property?
At the foremost, clear the general misunderstanding. When we say ‘property’, it is not just real estate. It covers assets of any kind – moveable or immoveable, tangible or intangible, corporeal or incorporeal. It means it covers shares, debentures, fixed deposits as well.
Benami property has been defined by the Act as:
“Any property which is the subject matter of a benami transaction and also includes the proceeds from such property”
The definition highlights two things to consider:
1. A benami transaction
2. Any proceeds from such benami property will be benami property only.
So let us decipher the meaning of “benami transaction”. In simple terms, a benami transaction is a transaction in which:
1. The property is held by one person X and paid for by another Y and held for the immediate or future benefit of Y;
2. it is held in a fictitious name (means the owner does not exist) or
3. the owner of such property is unaware of or denies having knowledge of such ownership; or
4. the person financing such transaction is not traceable
The following picture gives clarity on the concept of benami property:
An important question arises:
Whether ownership by one person and consideration by another turns every property benami?
No. The Act itself answers this question. It provides some exceptions to this rule which are:
1. A husband can own property in the name of his wife and vice versa.
2. A parent can own property in the name of children, whether married or not.
3. A person can jointly own property in the name of his brother or sister or lineal ascendant or descendant
4. Karta of an HUF can own property for his or other HUF member’s benefit
5. Members of HUF can own property for Karta or other HUF members’ benefit
6. Property held by a person standing in fiduciary capacity for the benefit of another, including a trustee, an executor, a partner, a company director or a depository participant or agent; or
What is all more important that in the case of property held by the Karta or a member of a HUF, spouse, parent or siblings, the money for the transaction should come from `known and traceable sources’.
List of exclusions from benami transactions
1. Contract for the transfer of property which has been partly executed under the Transfer of Property Act, 1882, provided stamp duty has been paid and the contract have been registered.
2. The Central Government is empowered to exempt any property belonging to charitable or religious trusts from the operation of this Act. Given the recent crackdown on licenses granted under FCRA, 1976, this may not be feasible.
3. Benami Property declared under Income Declaration Scheme 2016 (IDS) will no longer be treated as Benami Property.
Why this practice is prevalent?
The practice is prevalent due to various reasons:
- To defeat the provisions of any law. For example, to bypass the ceilings provided in different laws as to ownership of properties.
- Provides an opportunity for channelizing black money.
- To avoid payment of statutory dues or to avoid payment to creditors. For instance if X is highly indebted, he would purchase property in the name of Y, so that X’s creditors could not attach such property for recovery.
Fate of a benami property
Any property labeled as benami does not have so called “good days”. Check out yourself:
- Real owner does not have any remedy by way of suit, claim or action to enforce any right in respect of any benami property against the Benamidar or against any other person.
- Real owner is not allowed any defence in any suit, claim or action to enforce right in benami property
- A benami property is liable to confiscation
- Re-transfer of benami property to the beneficial owner or any person acting on his behalf, is considered null and void.
- No compensation receivable on acquisition of such property by the authorities
It is important to note here that the law does not curb any mischief with respect to transfer of a benami property to a third party i.e., not being a beneficial owner or any other person acting on his behalf, by a benamidar.
Penalty and prosecution
Beware! “Mind your Ps and Qs”
Before even thinking to enter into a benami transaction, open your eyes to watch out for the hammering punishment provided under the amended law.
1. Benami transactions entered on or after commencement of the amendment act which is November 1, 2016:
- The parties to the benami transaction shall be guilty of offence of benami transaction
- Rigorous imprisonment for a term ranging from 1-7 years.
- Fine extending up to 25% of the fair market value of the property.
- Previous sanction of Board required for initiating prosecution
2. Benami transactions entered before November 1, 2016:
- Imprisonment for a term which may extend to three years or with fine or with both.
- Offence is non-cognizable and bailable
Procedural hierarchy for investigating benami transaction
For the purpose of the smooth implementation and monitoring, the act defines a hierarchical structure (See Table below) with different responsibilities:
|Initiating Officer||• Show Cause notice
• Provisional attachment
|Approving Authority||Approvals for provisional attachment|
|Adjudicating Authority||• Notice to furnish evidence
• Revocation or confirmation of provisional attachment
• Confiscation and vesting of Property
|Administrator||Possession and Management of Properties confiscated
|Appellate Tribunal||Hear appeals against the orders of Adjudicating Authority|
The road ahead
We must appreciate that amendments in the Act have, no doubt, plugged the Principal Act’s loopholes and paves a way for strikes on benami transactions. It comprehensively encompasses all aspects of transactions or arrangements in which the real beneficiary or funding party has no link to the ownership structure.
No legislation, in itself, is perfect and same applies to this Act as well. Concerns are surrounded against genuine transactions being labeled as benami. Further, law does not provide a mechanism to prevent benami transactions.
Nonetheless, the amendment Act is definitely an applauding step to redress the effects of benami transactions and ultimately cornering corruption and black money.
Hope you liked reading it. We will appreciate hearing from you.