Benami Transactions

BENAMI TRANSACTIONS

Author: Ayushi Verma

INTRODUCTION

What is a Benami Property?

The literal meaning of Benami in Hindi is something that is without a name. It means a property bought by a person not under his name but somebody else’s name. It is a property that is held in the name of any other third person like spouse or children and the consideration is paid by known sources of income. The true owners of such property are always hard to find due to their fake identities. The person under whose name property is bought is called the ‘Benamdar’. The transactions involved for such property are known as Benami Transactions.

In the case of Thakur Bhim Singh v. Thakur Kaan Singh[1], the Supreme Court explained the concept of Benami Transactions. It lists two types of Benami Transactions. In the first case, the property is bought by the person from his own money but with the name of another person without intending to benefit the other person. Secondly, where a person is the owner of the property and transfers it to the name of another person without any intention of transferring the title of the property. In this case, the transferor continued to be a real owner of the property. In India, before 1988 Act Benami Transactions were legal and there was no punishment in entering into such transactions.

Benami Transactions (Prohibition) Act, 1988

Benami Transactions (Prohibition) Act, 1988 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. [2]

Benami Transactions are the transactions:

• Where the property is transferred to or held by some other person and for such property consideration has been paid by some other person.
• Where the property is held, by a person, for his future benefit, direct or indirect, of the person who has provided or paid consideration.
• Where the property is held or carried out in a fabricated name.
• Where the owner of the property does not know about it or he denies the knowledge of being the owner of the property.
• Where a person providing consideration is not known or has a fabricated name.

Transactions which are not to be treated as Benami

Where the property is held by:

• Karta or a member of a Hindu Undivided Family, the property is held for his benefit or the benefit of other members of the family and the consideration for such property has been paid by known sources of Hindu Undivided Family.
• A person, on behalf of another person who is in a fiduciary relationship.
• A person in the name of a spouse or in the name of children and the consideration for such property has been paid by known sources.

Where property is held by:

• Any person who has a joint name(s).
• 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)[4]
• where possession has been provided to a person after providing consideration but the owner of property continues to hold ownership of such property;
• Stamp duty on such transaction has been paid; and
• The contract has been registered.

The authorities who will conduct the inquiries regarding Benami Transactions are:

• Assistant or Deputy Commissioner of Income-tax (Initiating Authority)
• Additional Commissioner of Income-tax or a Joint Commissioner of Income-tax (Approving Authority)
• Administrator
• Adjudicating Authority

The procedure followed when the authorities get information about the Benami Properties:

• The initiating officer will issue the show cause notice.
• Provisional attachment of property
• Provisional attachment shall be revoked if satisfied that the property is not Benami.
• Refer statement of the case to Adjudicating Authority.
• The Adjudicating Authority will listen to the parties and decide whether the property is benami or no.
• If the property is benami, all rights and title should vest with the Central Government without any hindrance.
• The Administrator takes possession and manages such property. Then the trial is held.

Consequences of Benami Transactions

The person who enters into Benami transaction shall be punishable:

• Imprisonment of 1 year to 7 years and will be held liable for fine up to 25% of the fair market value of such Benami property.
• The property will be confiscated by the Central Government.
• Re-transfer of the property will be prohibited by benamdar to the beneficial owner.

[1] Thakur Bhim Singh v. Thakur Kaan Singh (1980) 3 SCC 72

[2] https://en.wikipedia.org/wiki/Benami_Transactions_(Prohibition)_Act,_1988

[3]https://www.google.com/url?sa=i&url=https%3A%2F%2Fcanirmalg.wordpress.com%2F2017%2F09%2F02%2Fwhat-is-a-benami-transaction%2F&psig=AOvVaw1n5euYjQhZC5-tBPxYk0Nr&ust=1596099776814000&source=images&cd=vfe&ved=0CAMQjB1qFwoTCLCcvJmN8uoCFQAAAAAdAAAAABAD

[4] https://taxguru.in/income-tax/benami-transactions-meaning-and-consequences.html#What_is_a_Benami_Transaction