Author: Ashwini Vernekar Student, Mumbai University
Benami in Hindi means without name or no name. In common parlance, Benami Transactions 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 some other person. In Sudaram Nadar vs Sukumaran, it was held that benami transaction denotes a transaction effected by a person (beneficial owner) without using his own name, but in the name of another.
For example, if A purchases a land in the name of B and not on his own name but the consideration for the same is paid by A. Such transaction is called as “benami transaction” and the subject matter i.e., the land in this transaction is called “benami property”.
Benami Transactions have been a major part in the Indian Society for a long time. The Privy Council have observed that the idea was quite unobjectionable. The Courts observe certain transactions which were benami in nature were the customs of the country and must be recognized as such, since custom is one of the important sources of the law. Later with the evolvement in the society, it was realized that such transactions can be misused with various dishonorable motives. People invest their money in buying benami property to evade taxation. It was difficult to trace the true owner in a particular transaction as it involves fake names or identity. It can be buying of any property whether it is movable or immovable, tangible or intangible.
During the period of demonetization, there were transactions wherein people deposited other’s old notes into the bank and later exchanged them for the new notes. So benami transaction includes cash as well and such transaction can be termed as benami.
Kinds of Benami Transaction generally in India
Firstly, when a person buys a property, but in the name of someone else, with no intention to benefit them. In such case, the transferee holds the property for the benefit of the person who paid the purchase money or consideration, and he is the real owner.
Secondly, when a person who is the owner of the property executes a conveyance in favour of another without the intention of transferring the title to the property thereunder. In such case, the transferor continues to be the real owner.
Benami Transaction in regard to English Law and Indian Law
Under the English Law, the transaction which is benami in character, was presumed to be in favour of the person who have paid the consideration. However, it was open to the transferee to rebut that presumption by showing that the intention that the transferee should himself acquire the beneficial interest in the property.
Under Indian Law, the recognition to the benami transaction is traced under Section 82 of the Trust Act, as it existed before repeal, which contained general provisions where the property can be transferred to one person for a consideration paid or provided by another person, and it appears that such other person did not intend to provide such consideration for the benefit of the transferee, the transferee must hold the property for the benefit of the person who paid the consideration.
In Jaydayal Poddar v BibiHazra (1974) 1 SCC 3, the court reiterated that the burden of proof that a particular sale is benami and the apparent purchaser is not the real owner, always rests on the person asserting it to be held. It is further observed that this burden has to be strictly discharged by adducing legal evidence of a definite character which would either directly prove the fact of the benami transaction or establish circumstances unerringly and reasonably raising an interference of that fact.
Evolution of Benami Transaction under Indian Law
Earlier to the Benami Transactions (Prohibition) Act, 1988, there was no law that would remove the flourishing benami transactions in India and punish the offenders, so the act was enacted with an aim to prohibit the benami transactions. But later, due to various infirmities in the Act, relevant rules for implementing certain provisions of the 1988 Act was not possible and so it further did not provide any mechanism or process of confiscation/acquisition of the benami property and hence, no effective action for such property could be taken.
So, on the perusal of the 28th report of the Standing Committee on Finance, dated April 2016, on the Benami Transaction Prohibition (Amendment) Bill, 2015, the reason behind amending the 1988 Act was to include all the benami transactions under its ambit on which no action was taken under the 1988 Act, so that consequential action could follow. The Benami Transactions (Prohibition) Amendment Act, 2016, came into force with effect from 1st November, 2016.
The transactions which were traditionally followed in India, purchase of property in the name of their parents but the consideration was paid by the children were also covered by the new benami law. The scope of the benami transaction has been widened, and the punishment and penalties have been made more stringent. Its main purpose behind is to nab people with undisclosed income by prohibiting the benami transactions and to prevent tax evasion in the country.
Under the 2016 Act, the term “Benami Property” under section 1(8) has been defined as, A benami property means any property which is the subject matter of a benami transaction and also includes the proceeds from such property.
The offences so committed shall be non-cognizable under Section 61 of the 2016 Act.
Authorities established under the Act
The initiating officer
The approving authority
The adjudicating authority
Confiscation of Benami Property
The Adjudicating Authority under Section 27 of the 2016 Act, has held property as a benami property then it shall give the concerned person an opportunity of hearing and after that shall pass order for confiscation of such property. If an appeal has been preferred against the order of attachment of the property, then it shall be confiscated after the order of the Appellant Tribunal.
Prohibition and Penalty
When a benami transaction is entered into, it is in order to defeat the provisions of any law, to avoid payment of statutory dues or to avoid payment to creditors or any person who enters in such transaction or abets the other to enter in such transaction, would be punishable with imprisonment with minimum 1 year to 7 years and/or with fine up to 25% of the fair market value of Benami property.
When a person gives false information when he is expected to provided information about a transaction, he shall be liable for imprisonment from six months up to five years and fine upto 10% of the fair market value of the property.
Any person aggrieved by the order of the Adjudicating Authority of holding the property as benami or not, can file an appeal to the Appellant Tribunal within 45 days from the date of the order. An appeal against the order of the Appellant Tribunal may be preferred in the High Court within 60 days.
Transaction which would not come under Benami Transaction
When the property is held by any person in joint name(s), where the name of his brother or sister or lineal ascendant or descendant appear in any document, and consideration for such property has been provided or paid out the known sources of the individual.
A person on behalf of another person, in fiduciary capacity and includes a trustee, executor, partner, director of a company etc. or
An individual in the name of his spouse or in the name of any child of such individual and consideration for such property has been provided or paid by known sources of the individual, or
Karta or a member of an HUF (hereafter referred as Hindu Undivided Family) for his benefit or for the benefit of other members of HUF and the consideration for such property has been paid or provided by the known sources of the HUF, or
any person in part performance of a contract referred to in section 53A of the Transfer of Property Act, 1882, property held under Power of Attorney, a. where possession has been provided to a person after providing consideration but the owner of property continues to hold ownership of such property; b. stamp duty on such transaction has been paid; c. the contract has been registered.
In Mangathai Ammal vs. Rajeswari, the Supreme Court has observed that the payment of part sale consideration or stamp duty by another person cannot be the sole criteria to hold the sale/transaction as benami.
In Niharika Jain vs Union of India, the Rajasthan High Court observed that the court has neither examined nor commented upon merits of the writ applications but has considered the question of retrospective applicability of the Amendment Act, 2016. The authority would examine each case on merit but the amended provisions would be prospective and not retrospective.
The amendments brought by the new act or provisions which are substantial and not procedural in nature, and therefore cannot be applied retrospectively. The act seeks to achieve a laudable motive and should be allowed its fullest play. There have been lot of uncertainty that remains with respect to crucial issues and we hope it finds their way into courts and get resolved judicially or the law makers make take note, and introduce and make the necessary amendments required. Recently a PIL has been filed in the Supreme Court seeking directions to the centre to ascertain the feasibility of confiscating benami properties, disproportionate assets and black money.
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