Benami Property Laws in India

Narendra Kumar

06 Jul, 2019

Laws Related To Benami Property in India

In BHIM SINGH & ANR VS KAN SINGH, (1980 AIR 727), Supreme Court held that where a person buys property with his own money but in the name of another person without any intention to benefit such other person, the transaction is called Benami property.

The Benami act was introduced to bring the unaccounted income of people under the scanner. The act attempts to check the black money.

As per The Benami Transactions (Prohibition) Act, 1988, a Benami transaction is wherein any property is transferred to one person for a consideration provided or paid by another person.

The Benami Transactions (Prohibition) Act, 1988 has been amended by The Benami Transactions (Prohibition) Amendment Act, 2016, which came into force from 1^st November 2016. The act has given more powers to the appropriate authority to check the Benami transactions.

The definition of Benami transaction has now been extended to include following:

1. the property held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration;
2. a transaction or an arrangement in respect of a property carried out or made in a fictitious name, or when the person providing the consideration is not traceable;
3. A transaction or an arrangement for the property where the owner of the property either denies knowledge of such ownership or is not aware of the same.
4. a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious;

As per various judgments of the Supreme Court, there may be two types of Benami transactions:

1. Where a person buys a property with his own money but in the name of another person without any intention to benefit such other person. Thus, the transferee holds the property for the benefit of the person who has contributed to consideration and he remains the real owner.
2. The second case is loosely termed as a Benami transaction is a case where a person, who is the owner of the property, executes a conveyance in favor of another without the intention of transferring the title of the property. Thus, the transferor continues to be the real owner.

Though the feature and transaction type differ, yet the common feature in both is that the real title is varied from the apparent title and both vest in different persons Benami property.

Also, it is established that the true character of the transaction is governed by the intention of the parties involved.

• As per the act, “property” means assets whether movable or immovable, corporeal or incorporeal or tangible or intangible and includes any right or interest or legal instruments or documents evidencing the title to or interest in the property. Also, where the property is capable of conversion into some other form then converted the form of the property. It also includes the proceeds from the property

What is not a Benami Transaction?

1. Benami transaction will not include any transaction that involves the allowing taking or holding possession of any property, in part performance of a contract (as per section 53A of the Transfer of Property Act, 1882), if, under any law for the time being in force
   1. Consideration for such a property has been provided by the person to whom possession of the property has been allowed but ownership remains with the person who has granted possession.
   2. The contract has been registered.
   3. stamp duty on such transaction or arrangement has been paid
2. The transaction shall not be Benami when the property is held by-
   1. Any member of a Hindu undivided family including Karta and the property is held for benefit of his own or other members of HUF. Also, the consideration for such property should have been provided or paid out from the known sources of the Hindu undivided family;
   2. Any individual, in the name of his spouse or any of his child and the consideration for such property, has been provided or paid out of the individual ’s known
   3. Any person, in the name of his brother, sister, lineal ascendant or descendant, where such names appear as joint-owners in the legal title and the consideration for such property has been provided or paid out of the individual ’s known
   4. a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity including a trustee, director, partner, executor of a company etc

What are the Penalties for Benami Transaction?

In the 2016 amendment, chapter 7 deals with offenses and penalties.

According to Section 53 of the 2016 amendment,

1. The person who enters into a Benami transaction so as to
   1. defeat the provisions of any law,
   2. to avoid payment of statutory dues
   3. to avoid payment to creditors, the beneficial owner, Benamidar, OR
2. Any person who abets or induces another to enter into the Benami transaction

Shall be guilty of the offense of Benami transaction.

• The persons found guilty of the above offenses shall be punished with rigorous imprisonment for a term not less than 1year, which may extend up to 7years. He shall also be liable to fine up to 25% of the market value of the Benami property.

According to Section 54 of the 2016 amendment, anybody who is required to furnish information under this Act knowingly furnished false information or document to any authority or in any proceeding, shall be punished with rigorous imprisonment for a term not less than 6months, which may extend up to 5years. He shall also be liable to fine up to 10% of the market value of the Benani property.

• Provisions state that for the institution of any prosecution against a person according to the above sections, a previous sanction of the Board is mandatory.
• The Central Government shall appoint one or more Adjudicating Authorities, consisting of a Chairperson and at least two other Members, to exercise jurisdiction, powers, and authority conferred by or under this Act.
• The offense may be tried by Court of Sessions designated as Court of Sessions by the Central Government in consultation with Chief Justice of the High Court.
• According to the 2016 amendment, the property falling under Benami transaction shall be liable to be confiscated.
• A Benamidarcannot re-transfer the Benami property held by him to the beneficial owner or any other person and if re-transferred, such transaction shall be null and void. (exceptions being the transactions under the provisions mentioned in section 190 of the Finance Act, 2016)