BENAMI TRANSACTIONS: ALL THAT VALUERS NEED TO KNOW
Benami transactions or Benami property would be one where a person’s own name is not used but the name of another person or a fictitious person is used instead.
Benami Transactions (Prohibition) Act, 1988
It is an Act of the parliament of India that prohibits certain types of financial transactions. The act defines a Benami transaction as any transaction in which property is transferred to one person for consideration paid by another person
Commenced : 19/05/1985
Enacted by : Parliament of India
Benami transaction considerations
1) where a property related transaction is carried out under a fictitious name – the Benamidar can also be a fictitious person
2) where the owner of the property has no knowledge / denies having any knowledge of the ownership of such property
3) where the person providing the consideration is untraceable or fictitious – the identity of the beneficial owner may also be unknown
Exceptions – transactions not treated as Benami
1) property is held by a member of the HUF for the benefit of the HUF and the consideration is paid from the known sources of income of such HUF
2) a person who holds the property in a fiduciary capacity for the other person – for example, a trustee for the trust, a director for his company, a depository / depository participant for a trader (holder of shares in Demat form), etc
3) an individual holding property in the name of his spouse or child and where the consideration is paid from the known source of such individual
4) an individual holding property jointly with a brother, sister or lineal ascendant / descendant and where the consideration is paid from the known sources of such individual
Instances of Benami Transactions
1) every state has a certain limit on the amount of agricultural land that an individual or his family can hold
Thus, where such limit is reached, people try to purchase the property in the name of another person but provide the consideration for the said property
2) a person who has access to price sensitive information of a company as a result of being in a position of power within the company would not be allowed to trade in the shares of the company since it would amount to insider trading
Therefore, to find a way out of this, they involve a third unrelated party and give him the funds to trade on their behalf
3) during demonetization, there were many instances of persons depositing old notes into their bank accounts which belonged to another person and the exchanging them for new notes
The definition of property under the Benami act s very wide and also includes cash
Hence such a transaction would also be termed as a benami transaction
Punishment under the Benami Act
1) confiscation of Benami property
2) where a benami transaction has been entered into to defeat the provisions of any law, avoid payment of statutory dues or avoid payment to creditors, any person who enters or abets/induces another person to enter such a transaction would be punishable with
a) imprisonment between 1 to 7 years
b) fine up to 25% of the fair market value of the property
c) where a person who is required to provide information under this act provider false information he shall be punishable with
i) imprisonment between 6 months to 5 years and
ii) fine up to 10% of the fair market value of the property
Reasoning of Benami transaction
Usually people who enter into a Benami transaction are those who have money earned from unknown sources ie black money
Guidelines for Proving a Benami transaction
1) the source from which the purchase money came
2) the nature and possession of the property after purchase
3) motive, if any, for giving the transaction a benami colour
4) the position of the parties and the relationship, if any, between the claimant and the alleged Benamidar
5) the custody of the title deeds after the sale
6) the conduct of the parties concerned in dealing with the property after the sale
Benamidar
It means a person (individual/HUF/firm/company/AOP/AJP) in whose name Benami property is transferred to or held
Benami Bank Account
Benami or shell bank accounts are those accounts that are used by someone different than whose name they are registered in .According to the report, the income tax department has already started cracking down on Suspicious bank lockers to check if they were used to hoard black money
Benami Transfers
Landowners managed to divide the land among relatives and others, including servants, in so-called Benami transfers – which allowed to keep control over the land (in fact if not in name)
Power of Authorities in Benami transaction
The powers are akin to those of civil court and interalia include power relating to
1) discovery and inspection
2) enforcing the attendance of any person, including officers of the banking, financial institution, any other intermediary or reporting entity
3) authority to instruct to produce the books of account
4) receiving evidence on affidavits
5) it has also been provided that officers of income-tax department, customs and central excise departments, narcotics drugs department etc will assist the prescribed authorities in the enforcement of act
6) the person against whom any proceeding is initiated can explain his position and file submissions before the authorities
7) appeal avenues with higher forums are also prescribed
Confiscation
The action of taking or seizing someone’s property with authority, seizure
1) to seize (private property) for the public treasury, usually as a penalty
2) to seize by or as by authority, appropriate
Authorities of Benami transaction act
1) Initiating officer
Assistant Commissioner of income tax (ACIT) or a deputy commissioner of income tax (DCIT)
Notice and attachment of property
2) Approving Authority
Additional Commissioner of income tax (AdlCIT) or a joint Commissioner of income tax (JCIT)
Notice to furnish evidence
3) Administrator
income tax officer (ITO)
Possession and management of properties confiscated
4) Adjudicating Authority
Officers drawn from ITD
Confiscation and vesting of property
Meaning of vseting of property
Having a present right to the immediate or future possession and enjoyment of property
History of word Benami
Benami word is originated from Persia which means “No Names” or “Without Name”
Section 2(a) of Benami transaction
Means any transaction in which property 2(c) is transferred to one person for a consideration paid or provided by another person
Section 2(c) property in Benami transaction
Means property of any kind, whether movable or immovable, tangible or intangible and includes any rights or interests in such property
Section 3 – prohibition of benami transaction
No person shall enter into any Benami transaction
Section 4 – Prohibition of the right to recover property held benami
No suit, claim or action to enforce any right in respect of any property held Benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a person claiming to be real owner of such property
Section 5 – property held Benami liable to acquisition
All properties held Benami shall be subject to acquisition by such authority, in such manner and after following such procedure as may be prescribed
No amount shall be payable for the acquisition of any such Benami property
Section 6 – Act not to apply in certain cases
Nothing in this act shall affect the provisions of sectionn53 of transfer of property act, 1882 (Fraudulent transfer) 9r any law relating to transfer for an illegal purpose
Section 8 – Power to make rules
Central Government may by notification in the official gazette, make rules for carrying out the purpose of this act
Procedures
Section 24
Proceedings before the initiating officer
Section 26
Reference before the adjucating authority
Section 46
Appeal to Tribunal
Some important decisions
1) Mangathai Ammal Vs Rajeswari – 111 taxman.com 275 (SC)
Sectionv2(9) / Section 24 – Onus of establishing that a transaction is Benami is upon who asserts it
Compiled by
Avinash Kulkarni
Chartered Engineer, Govt Regd Valuer, IBBI Regd Valuer