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All You Need To Know About Benami Act

Narendra Kumar

| Updated: Aug 16, 2017 | Category: RERA Registration

Benami

In simple words, Benami properties mean a property that does not have any name i.e. the property that is held by some other person than the one who pays the consideration for such property and the transactions relating to benami property are known as benami transactions. Recently, the government has amended the Act which is known as Benami Transactions (Prohibition) Amendment Act, 2016, which provides government new powers to fight against corruption and black money transactions.

What is Benami Property?

The meaning of Benami is “without a name”. Therefore, properties which people buy but not under their own name are termed as benami properties. People often spend their black money to buy assets in the name of their family members to save their taxes hence the government has amended the Act to curb this illegal practice.

What are Benami Transactions?

Transactions related to purchasing of Benami properties are called Benami transactions. The person who is the owner of the property on paper or the person on whose name the property is purchased is called be Namdar. Such property can be of any kind like movable, immovable, tangible, intangible, any right/interest or legal document, etc.

When does a Transaction become Benami?

Identifying of Benami transaction is very difficult as they are usually entered into between relatives, friends, people having a fiduciary relationship, between landlord and tenant, employer and employee or other relationships where there exists an obligation to protect or a fear of some loss. This limits the scope of litigation regarding benami transactions. Below mentioned transactions are benami:

  • If a person who buys a property but the consideration for the purchase is paid by someone else.
  • If the property in question is held by someone for the benefit of the person who paid consideration for the property.
  • If the property is held, carried out or made under a fictitious name. If the owner of the property is not aware of the ownership of property or denies knowledge of such ownership.
  • If the person who paid consideration for the property cannot be traced. 

In which case are Transactions not considered as Benami?

  •  If the member of a HUF holds the property for his benefit or for the benefit of any other member of HUF & the consideration for the property is paid in full out of known sources of HUF.
  • If the property is held by a person, on behalf of another person in a fiduciary capacity & includes a trustee, executor, partner, director of a company, etc.
  • If a person purchases assets in the name of his spouse or kids for which the payment was done from known sources of income when such asset or property is not considered benami property.
  • If a person purchases any property jointly with brother or sister or relatives for which the required amount was paid from known sources, then also the property does not fall into the category of benami properties.

What is the need for Prohibition of Benami Transactions? 

  • Money Laundering 

When a person tries to conceal the original source of his illegal money, it is known as money laundering. Benami transactions, since enabling the player who is the real owner of the property to be hidden while the Benami-dar, who is the ostensible owner has the property to his name, has become a popular method amongst the corrupt to invest their black money.

  • Tax Evasion 

Since the property is not in the name of the real owner, the property is excluded from the total net property held by him. This enables the person to pay taxes in the lower cap than he actually would be liable to pay if he owned the property legally in his name.

  • Concentration of Land 

Benami transactions lead to concentration of land against the efforts of the state to limit the amount of land to be owned by an individual in order to promote the equal distribution of land.

What are the Penalties for Benami Properties or Transactions?

The penalty for entering into benami transactions is liable for rigorous imprisonment for a period between one year up to seven years, and a fine which may extend to 25% of the fair market value of the benami property.

The Act also specifies the penalty for providing false information to be rigorous imprisonment of six months up to five years and a fine which may extend to 10% of the fair market value of the benami property.

Who can Take Action?

  • An Initiating Officer (Assistant Commissioner of Deputy Commissioner of Income Tax), after taking prior permission from the Approving Authority (Additional Commissioner or Joint Commissioner of Income Tax) can investigate against the benami transactions.
  • After the grant of permission, the initiating officer shall have the power to conduct or cause to be conducted any inquiry or investigation in respect of any person, place, property, books of account documents, assets, or other documents, in respect of any other relevant matters under the amended Benami Act. And a notice has to be issued to the Benami-dar as well as the actual owner if the identity is known.
  • The officer can also attach the property being investigated for a maximum of ninety days. If it needs to be attached for a longer period, the matter has to be referred to a three-member Adjudicating Authority.
  • Adjudicating Authority consist of a chairperson and not less than two other members who must have been a member of Indian Revenue Service or Indian Legal Service.
  • The Adjudicating Authority decides on whether or not a property is benami, after giving a fair hearing to those accused of a benami transaction. When the Adjudicating Authority declares a property benami, the property will pass into the custody of an Administrator.
  • Appeals against the order of the Adjudicating Authority can be made to a three-member Appellate Tribunal within 45 days. The Appellate Tribunal has to deliver its order within one year.

Conclusion

The aim of the Benami Transactions (Prohibition) Act, 1988 was to prohibit benami transactions and punish those who participated in such transactions as they had become a method by the corrupt for tax evasion, land concentration, and money laundering. Due to various loopholes and no proper notification, it was a failed legislation and therefore new bill to repeal and replace the 1988 Act was proposed before the Parliament. However, the bill failed to pass. An effort was made again in the year 2016 to pass The Benami Transactions (Prohibition) Amendment Bill, 2015 which was successfully passed in both the houses and therefore, the Benami Transactions (Prohibition) Amendment Act, 2016 was enforced on 1st November 2016. The act is clearer and has stringent punishments for offenders. It also tries to plug in the loopholes of the previous Act.

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Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

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