Troubled deals

Anirudh Sharma 

A benami transaction in layman terms can be defined as a property which is held or purchased in the name of one person/entity and provided for by a third party to its advantage. In other words it is a nameless property whose benefit is reaped by the person who illegally purchases it under the alias of someone else. The misuse of such transactions is highly prevalent in India. These transactions are commonly misused by various parties for illegally acquiring property, and the key element of such transactions is the increasing circulation of black money. Such deals lead to practices of tax evasion, violation of land ceiling laws, cheating etc. In an attempt to remove subjectively and set out a common standard, the Supreme Court has laid down the following tests to ascertain whether a particular transaction is benami or not: 

• Source of the purchase - i.e. who paid the price?
• Nature of possession of the property after the purchase i.e. who had the possession?
• Motive, if any for benami transaction i.e. why the property was purchased in the name of another person?
• The relationship between the parties i.e., whether the real owner and the ostensible owner were related to each other or were strangers or friends?
• Conduct of the parties in dealing with the property i.e., who used to take care of and had control over the property?
• Custody of the title deeds after the sale.

Therefore, the key determining factor is intention as well as the source of consideration from which the payment for the transaction has been made. 

Benami Transactions (Prohibition) Amendment Act, 2016

The 1899 Act, though concretely worded, was not able to efficiently check such transactions due to the lack of government initiative, implementation and enforcement rules. It also had several loopholes which were exploited by offenders to hoard black money and launder illicit wealth. 

The new Prohibition of Benami Property Transactions Act, (PBPT Act), 2016 has been brought in  to clamp down on the loopholes and introduce an efficient enforcement mechanism. Under the new provisions the IT department can prosecute the benamidar as well as the financer and such properties will be confiscated without any compensation. The definition of benami has been broadened to include property transactions where:

n A transaction been made under a fictitious name;

n  The owner is not aware or denies knowledge of the ownership of the property

n  The person providing the property is not traceable.

Next, in case of violation the imprisonment has been increased from a maximum of three years to seven years, along with a fine which can extend up to 25 per cent of the market value of the benami property.

In terms of the enforcement aspect, the initiating officer, the approving authority, administrator, and the adjudicating authority are required to hold investigations in regard to these transactions. The Initiating Officer after issuing notice to the benamidar can hold the suspected property for 90 days. The Adjudicating Authority then, after examining evidence, passes an order on whether the property will be held as benami. A Joint/Additional Commissioner of income tax, an Assistant/Deputy Commissioner of income tax, and a Tax Recovery Officer are eligible to perform the functions and exercise the powers of the Approving Authority, Initiating Officer and the Administrator. Also the Act is retrospective in nature and the CBDT has  directed the IT authorities to investigate and look into all suspicious cases under the purview of the department. Therefore, all existing benami properties come under the purview of this legislation. The IT department has been monitoring and keeping track of such transactions for a long time and it will begin investigation and enforcement soon. The scope of Section 3(2) has also been expanded in the new Act, as Section 2(9) (3) uses the word 'spouse' and not 'wife'  which in effect broadens the applicability of Section 41. Section 2(9) (iv) also expands to include brothers, sisters and lineal antecedents and descendants as exceptions.. The new Act introduces water tight provisions and enforcement tactics which the government hopes will be effective.