Benami in Hindi means without a name. Webster’s dictionary defines the term, “Benami” as: made, held, done, or transacted in the name of (another person). Thus, a Benami Transaction, in common parlance, 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. So, a property bought by an individual, not under his or her name is Benami property. It can include property held in the name of a spouse or child for which the amount is paid out of unknown sources of income. A joint property with brother, sister, or other relatives for which the amount is paid out of unknown sources of income also falls under Benami property.
To illustrate, where X purchases a property, let us call it Morley’s House; however, the property is not purchased in his own name, but in the name of ‘Y’, though the consideration has flown in from X only. This would be a classic Benami Transaction. The subject matter of such a transaction (Morley’s House; in this case) is called Benami property. Usually, any Benami Transaction would have two primary actors: a beneficial owner (Mr.X, in our example) and a Benamidar (Y). Benamidar is a real or a fictitious person whose name the Benami Property is transferred or held.A beneficial owner, on the other hand, refers to the person, whether his identity is known or not, for whose benefit the Benami Property is actually held by a Benamidar. A Benamidar is a mere name lender; a mask or a facade, whereas, it is the beneficial owner who is the real person who has purchased the property.
As a usual practice, to evade taxation, people invest their black money in buying Benami property. Rather than hoarding the black money in cash, the tax evader invests their accumulated illegal money in buying Benami properties. The whole process affects the revenue generation of the government hampering the growth and development of the state. Since the percentage of taxpayers in the country is a dismal low, the government fails to successfully implement its policies and schemes due to a lack of resources. A tough law against Benami properties is the need of the hour to check corruption.
The first act against Benami properties was passed in 1988 as the Prohibition of Benami Property Transactions Act, 1988. This Act consisted of only eight sections. The current government in July 2016 decided to amend the original act. So after further amendment, the Benami Transactions (Prohibition) Amendment Act, 2016 which was made up of 72 Sections, came into force on November 1, 2016.
It must be noted that, contrary to popular misconception, the application of Benami law is not confined to immovable properties alone. The term ‘property, for the purposes of Benami, is quite wide and includes within its wide ambit: assets of ‘any kind’; whether movable or immovable, tangible or intangible, corporeal or incorporeal; and not only that, it also includes any 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. In fact, the proceeds from the property are also included within the definition of ‘property. Though most houses, cars, and jewelry have traditionally been considered to be property for the purposes of Benami Law; however, under the new definition, even securities, shares and intellectual property can be considered ‘Benami Property’ and may attract the rigors of the Benami Act. This expansion of the definition by the 2016 amendment reflects the legislative intent of intensifying the crackdown on such practices.
Now, we know that the Benami Property is the subject matter of a Benami Transaction. So, what is a ‘Benami Transaction?”Let us go through specific conditions which are required to be satisfied for a transaction to qualify as a Benami Transaction:
- 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.
- a transaction or an arrangement in respect of a property carried out or made in a fictitious name;(In other words, where benamidar is a non-existent person or entity)
- 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;
- a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious;
All these transactions would fall within the ambit of ‘Benami Transactions’ within the Benami Act.
Whereas, the following type of transactions will not be treated as Benami transactions:
- Property is held by a member of the Hindu Undivided Family for the benefit of the Hindu Undivided Family and the consideration is paid from the known sources of income of such Hindu Undivided Family;
- 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.;
- An individual holding property in the name of his spouse or child and where the consideration is paid from the known sources of such individual ;
- 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.
The Hon’ble Supreme Court of India in the case of Bibi Saddiqa Fatima Vs. Saiyed Mohammad Mahmood Hasan [(1978) 3SCC 299], while dealing with the circumstances governing the determination of the question whether a transfer is a Benami Transaction or not, has held as under:
“Though the question, whether a particular sale is Benami or not, is largely a question of fact, and for determining this question, no absolute formulae or acid tests, uniformly applicable in all situations, can be laid down; yet in weighing the probabilities and for gathering the relevant indicia, the courts are usually guided by these circumstances :
(1) the source from which the purchase money came;
(2) the nature and possession of the property, after the purchase;
(3) motive, if any, for giving the transaction a Benami color;
(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 and
(6) the conduct of the parties concerned in dealing with the property after the sale.
The above, indicia are not exhaustive and their efficacy varies according to the facts of each case. Nevertheless, the source whence the purchase money came, is by far the most important test for determining whether the sale standing in the name of one person is in reality for the benefit of another.”
When a benami transaction is entered into in order to defeat the provisions of any law, to avoid payment of statutory dues or to avoid payment to creditors, it attracts penal provisions of the Benami of statutory dues or to avoid payment to creditors, it attracts penal provisions of the Benami Act and When a Benami transaction is entered into: in order to defeat the provisions of any law, to avoor to avoid payment to creditors, it attracts penal provisions of the Benamiid pprosecution can be initiated under the Act after receiving the sanction of the Central Board of Direct Taxes constituted under the Central Board of Revenue Act, 1963.
Around 34 Special Courts, for the trial of offenses under the Act have been set up by the Central Government, as per the mandate under the Act.
The Special Court will take cognizance of any offense punishable under the Act, upon a complaint in writing made by—
- the Initiating Officer; or
- the Approving Authority; or
iii. the Administrator; or
- the Adjudicating Authority; or
- any officer of the Central Government or State Government authorized in writing by that Government
In recent times we have seen a major crackdown on Benami properties and their owners by the Government. On 26 July 2017, the present government told Rajya Sabha that after coming into force from 1 November 2016, properties worth over ₹800 crores (US$122.85 million) were under attachment is more than 400 proxy transactions cases identified so far. Furthermore, the government has set up 24 Benami Prohibition Units (BPUs) across India for taking action under the Benami Transactions (Prohibition) Amendment Act, 2016. Also, this act lays down various forms of stringent punishments which are as follows:
- Confiscation of Benami property;
- 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 into such a transaction would be punishable with:
Imprisonment between 1 to 7 years and
Fine up to 25% of the fair market value of the property
Where a person who is required to provide information under this Act provides false information, he shall be punishable with:
Imprisonment between 6 months to 5 years and
Fine up to 10% of the fair market value of the property.
At the same time, The Benami Act protects a bonafide purchaser from confiscation and
attachment of property. As per the Amended Act, 2016 if a purchaser, after paying adequate consideration, acquires a property, of which he has knowledge that the said property is a subject matter of Benami transaction, attachment and confiscation of property shall not apply. The Act also says that any third-party rights created in favor of any party with a view to defeat the purposes of this Act shall be null and void.
Though the definition of property in the Act is extremely wide and there is nothing in the Act that excludes the applicability of the Benami Act to Benami properties located outside India; however, in a reply to a debate on the Amendment Bill in the Rajya Sabha on 02.08.2016, the Finance Minister went on to say “What happens if the asset is outside the country? If an asset is outside the Country, it would not be covered under this Act. It would be covered under the Black Money Law because you are owning property or an asset outside the country…”.The reference appears to be to the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 which aims to curb Black money and undisclosed foreign assets and income by imposing tax and penalties on such income. A judicial decision on this point clearing the air is much awaited.
Benami transactions are unlawful as it serves the unlawful purposes of money launderers and black money hoarders to convert their black money into white money by using the name of another person as name lender. This Act specifically aims at prohibiting the generation of black money and utilizing the proceeds generated from it. Hence all transactions should be in the name of the actual owner who pays the consideration from valid accounted sources. This process curbs the menace of black money, brings transparency to the economy, reducing risks, and protecting the interests of the genuine buyers.
Authored by: Qudrat Jot Kaur