PROHIBITION OF BENAMI PROPERTY TRANSACTIONS ACT, 1988 (As amended in 2016) MAYA MAHESHWARI Additional Director of Income tax Direct taxes Regional Training Institute, Bhopal

Benami Transactions(Prohibition) Act, 1988-Small Act with 9 sections only. Benami Transactions(Prohibition )Amendment Act, 2016- enlarged from 9 sections to 72 sections Renamed the 1988 Act as Prohibition of Benami Property Transactions Act, 1988(PBPT)

WHY NOT A NEW BENAMI ACT WHEN SUCH LARGE AMENDMENTS HAVE BEEN MADE law can be made retrospective but as per Article 20 of the Constitution, penal laws cannot be made retrospective giving immunity from 1988 to 2016-Not in public interest New Act would have applied to benami transactions entered into after 2016 only.

MOTIVES FOR ENTERING INTO BENAMI TRANSACTION Defeat the provisions of law. Avoid payment of statutory dues. Defrauding creditors. Avoid payment of taxes. To disguise the real ownership to prevent detection of illegal activity that produced it.

WHO IS BENAMIDAR AND BENEFICIAL OWNER-in following instances, inference of a person being benamidar was held justified Uttamchand Jain Vs CIT(1988) 173 ITR 298(MP)-B had no source of income to make investment in contract business CIT Vs G.M Dharia (2000) 243 ITE 104(Kar) -Firm found bogus and considered as benami of assessee as other partners had no experience Rampal Thakurdin Gupta Vs CIT(1988) 97 Taxmann 350/234 ITR 304(M.P)-Assessee bid for liquor contract but employer compelled him to sign papers Paras & co. Vs CIT(1995) 211 ITR 914 (Raj)-Partners of assessee firm were members of HUF, premises of HUF used and partners ignorant about business-Firm was benami of HUF

No person shall enter into any benami transaction. The Basic Law.. No person shall enter into any benami transaction. Any property, which is subject matter of benami transaction, shall be liable to be confiscated by the Central Government. In certain cases, person found guilty shall be punishable with rigorous imprisonment for 1 to 7 years and shall also be liable to fine upto 25% of the FMV of the property.

Benami Property “Benami property” means .... any property which is the subject matter of a benami transaction also includes the proceeds from such property

also includes the proceeds from the property "property" means assets of any kind, whether movable or immovable, tangible or intangible, including cash, bank balance, shares etc. includes any right or interest or legal documents or instruments evidencing title to or interest in the property where the property is capable of conversion into some other form, then the property in the converted form also includes the proceeds from the property

“Benami transaction" means- (A) A transaction or an arrangement (a) 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 (b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration

Transfer of Property to A Benamidar Transfer of Property to A Consideration paid by B Benami Transaction Property Held for the Benefit of B Beneficial Owner

Exceptions (i)- When the property is held by a Karta, or a member of a Hindu undivided family, and the property is held for his benefit or benefit of other members in the family and the consideration for such property has been provided or paid out of the known sources of the Hindu undivided family.

Exceptions(ii)- When the property is held by a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 any other person as may be notified by the Central Government for this purpose

Exceptions(iii)- When the property is held by any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual

Exceptions(iv)- When the property is held by any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and the individual appear as joint-owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual

“Benami transaction“- Other Cases (B) a transaction or an arrangement in respect of a property carried out or made in a fictitious name; ex: entry in books showing money payable to ‘Mirchi Seth’’ (C) 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; Ex: cash deposits in Jan dhan A/c of labourer (D) a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious;

“Power of Attorney” Transactions.. Benami transaction shall not include any transaction involving the allowing of possession of any property to be taken or retained in part performance of a contract referred to in section 53A of the Transfer of Property Act, 1882, if, under any law for the time being in force,— (i) consideration for such property has been provided by the person to whom possession of property has been allowed but the person who has granted possession thereof continues to hold ownership of such property; (ii) stamp duty on such transaction or arrangement has been paid; and (iii) the contract has been registered

DIFFERENCE BETWEEN BENAMI AND SHAM/bogus/fictitious TRANSACTION Transaction should actually take place and not merely to have been shown on paper. Sree Meenakshi Mills Ltd. Vs CIT(1957) 31 ITR 28, Supreme Court clarified two sets of transactions A sells property to B but sale deed mentions X as purchaser-Sale genuine-Real purchaser is B-X being his benamidar

A purports to sell his property to B without intending that title should pass to B-SHAM TRANSACTION In Former, operative transfer resulting in vesting of title in the transferee but in latter, transferor continues to retain the title.

BENAMI TRANSACTION- CONSEQUENCES

Property held benami liable to confiscation (Sec. 5) Any property, which is subject matter of benami transaction, shall be liable to be confiscated by the Central Government.

Offences and prosecution Whoever enters into any benami transaction shall be punishable with imprisonment for a term which may extend to three years or with fine or with both. (Sec. 3(2)) Whoever enters into any benami transaction on and after the date of commencement of the Benami Transactions (Prohibition) Amendment Act, 2016, shall, notwithstanding any thing contained in sub-section 2, be punishable in accordance with the provisions contained in Chapter VII. (Sec. 3(3))

Offences and prosecution- Chap. VII Section 53(1) provides that Where any person enters into a benami transaction in order to defeat the provisions of any law or to avoid payment of statutory dues or to avoid payment to creditors the beneficial owner, benamidar and any other person who abets or induces any person to enter into the benami transaction, shall be guilty of the offence of benami transaction. (Sec. 53) Whoever is found guilty of the offence of benami transaction referred to in s.s.(1) shall be punishable with/liable to rigorous imprisonment for 1 to 7 years and fine upto 25% of the fair market value of the property. (Sec. 53)

Offences and prosecution- Chap. VII No prosecution shall be instituted against any person without the previous sanction of the Board.

Prohibition of the right to recover property held benami (Sec. 4) No suit, claim or action to enforce any right in respect of any property held benami shall lie against the person in whose name the property is held or against any other person by or on behalf of a person claiming to be the real owner of such property. No defence based on any right in respect of any property held benami shall be allowed whether against the person in whose name the property is held or against any other person, in any suit, claim or action by or on behalf of a person claiming to be the real owner of such property.

Prohibition on re-transfer of property by benamidar (Sec. 6) (1) No person, being a benamidar shall re-transfer the benami property held by him to the beneficial owner or any other person acting on his behalf. (2) Where any property is re-transferred in contravention of the provisions of sub-section (1), the transaction of such property shall be deemed to be null and void

ATTACHMENT, ADJUDICATION AND CONFISCATION

Hierarchy A chairperson and at least 2 members IRS – Commissioner ILS- Joint Secretary Adjudicating Authority Additional Commissioner Joint Commissioner Approving Authority Deputy Commissioner Assistant Commissioner Initiating Officer Income-tax Officer as defined in Sec. 2(25) of Income-tax Act Administrator

Issue of Notice (Sec. 24) Where the Initiating Officer, on the basis of material in his possession, has reason to believe that any person is a Benamidar in respect of a property, he may, after recording reasons in writing, issue a notice to the person to show cause as to why the property should not be treated as benami property. A copy of the notice shall also be issued to the beneficial owner if his identity is known.

He may, with the previous approval of AO If IO is of the opinion that the person in possession may alienate the property during the period specified in the Notice He may, with the previous approval of AO By order in writing attach provisionally the property for a period not exceeding 90 days from the date of issue of Notice

Issue of Notice (Sec. 24) The Initiating Officer shall, after making such enquiries and taking into account all relevant material within a period of 90 days from the date of issue of notice, if provisional attachment has been made, either Pass an order - with the prior approval of the Approving Authority- continuing the provisional attachment of the property till passing of order by Adjudicating Authority under section 26(3). OR Revoke the provisional attachment- With prior approval of the Approving Authority.

Where Provisional attachment has not been made Pass an order provisionally attaching the property with prior approval of AO till passing of order by Adjudicating Authority u/s 26(3) Decide not to attach the property with prior approval of AO

Reference to Approving Authority ((Sec. 24 (5)) Where the Initiating Officer passes an order for the provisional attachment of the property, he shall, within 15 days from the date of the attachment, draw up a statement of the case and refer it to the Adjudicating Authority

Adjudication (Sec. 26) On receipt of a reference u/s. 24(5), the Adjudicating Authority shall, within a period of thirty days of reference issue notice to benamidar/ beneficial owner/ any interested party including a banking company/ any person making claim over the property, to furnish such documents, particulars or evidence as is considered necessary. The notice shall provide a period of not less than 30 days to furnish the information sought.

Adjudication (Sec. 26) The Adjudicating Authority shall, after— considering the reply, if any, to the notice issued making such inquiries and calling for such reports or evidence as it deems fit provide an opportunity of being heard to the person specified as a benamidar therein, the Initiating Officer, any other person who claims to be the owner of the property, and, thereafter, pass an order within one year from the end of the month in which reference was recd— holding the property not to be a benami property and revoking the attachment order holding the property to be a benami property and confirming the attachment order

Confiscation (Sec. 27) Where an order is passed in respect of any property u/s. 26(3) holding such property to be a benami property, The Adjudicating Authority shall, after giving an opportunity of being heard to the person concerned, make an order confiscating the property held to be a benami property.

Confiscation (Sec. 27) Where an order of confiscation has been made under sub-section (1), all the rights and title in such property shall vest absolutely in the Central Government free of all encumbrances and no compensation shall be payable in respect of such confiscation.

Where appeal has been filed against order of Adj Where appeal has been filed against order of Adj. Authority, confiscation of property shall be made subject to the order of the Appellate Tribunal Copy of the order will be sent to the Authorised officer(ITO authorised by the Adj Authority) For immovable property, he will issue notice to Central Govt. or State Govt having jurisdiction for regn. of such property/notice at the site/make proclamation for confiscation

For movable property, AO will issue notice to person holding custody Sell the property if liable to speedy and natural decay with leave of Adj Authority and deposit sale proceeds in Govt. a/c Equivalent amount of FDR may be kept as security

Cash/ govt securities/ bullion/ jewellery in a locker or in the form of FDR in SBI or any nationalized bank Shares/Debentures/MF/ other instruments to be transferred in favour of Administrator Money lying in Bank or FI to be transferred and credited to the account of the Administrator

APPEAL TO THE APPELLATE TRIBUNAL Within 45 days from the date of the Order. Grounds of objection to the Order should be clear. As far as possible, appeal to be decided within one year from the last date of the month in which appeal is filed. To pass final order and affirm, vary or reverse the order of Adj Authority

some questionS Whether Benami transaction, if benamidar is only a money lender? No only a sham transaction. Will penal provisions apply on Name lender No Does use of Black Money in purchase of property make it Benami?

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