BENAMI TRANSACTIONS: ALL THAT VALUERS NEED TO KNOW

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 a 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 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 that belonged to another person and 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

The 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 the income-tax department, customs and central excise departments, narcotics drugs department, etc will assist the prescribed authorities in the enforcement of the 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 are drawn from ITD

Confiscation and vesting of property

Meaning of vesting 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 adjudicating 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

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