Prohibition on Benami Transactions

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Changes in law dealing with benami transactions by the Benami Transactions (Prohibition) Amendment Act, 2016 (Amended Act)

Introduction

The Parliament had enacted the Benami Transactions (Prohibition) Act, 1988 (Original Act) to prohibit benami transactions and to recover property held benami. However, in the absence of detailed provisions in the Original Act and rules for its implementation, the Original Act could not be enforced in letter and spirit. The Parliament made amendments in the year 2016 to bring substantial changes in the Original Act. The Amended Act is equipped to curb benami transactions and reprimand the persons involved in such transactions.

The Amended Act

The Original Act had only nine sections and there were no comprehensive provisions for dealing with cases of benami transactions.

In recent years, the Central Government has taken several initiatives against black money to bring transparency in the economy. In furtherance of this objective, the Parliament passed the Benami Transactions (Prohibition) Amendment Act, 2016, which brought substantial changes in the Original Act. The Amended Act has a total 72 sections and it has been renamed as the Prohibition of Benami Property Transactions Act, 1988. The Central Government has notified rules vide notification no. G.S.R. 1004 (E) dated 25 October 2016 for effective implementation of the Amended Act.

Important definitions under the the Amended Act

Benami transaction
The Amended Act defines the term “benami transaction” very elaborately. The following types of transactions or arrangements will be considered as benami transactions:

  • If the property is transferred to one person but the consideration for purchase of such property is paid by another person and the property is held for the immediate or future benefit of the person who has paid the consideration. However, such transaction will not be considered as benami transaction if the property is held by:
  • A karta or a member of a Hindu Undivided Family (HUF) for the benefit of members of the HUF and the consideration has been paid from known sources of the HUF
  • A person standing in a fiduciary capacity for the benefit of another person including a trustee, executor, partner, director of a company, depository etc.
  • An individual in the name of his or her spouse or children and the consideration has been paid from the known sources of the individual
  • Where the transaction in respect of a property is carried out or made in a fictitious name
  • Where in a property transaction, the owner of the property is not aware of or denies knowledge of such ownership
  • Where in a property transaction, the person providing the consideration is not traceable or is fictitious

Benami property
Benami property means any property that is the subject matter of a benami transaction and also includes the proceeds from such property.

Benamidar
Benamidar is the person or a fictitious person in whose name the benami property is transferred or held and includes a person who lends his or her name.

Beneficial owner
Beneficial owner is a person for whose benefit the benami property is held by a benamidar.

Property
The Amended Act defines the term “property” as assets of any kind, whether movable or immovable, tangible or intangible, corporeal or incorporeal, and includes any right or interest or legal document or instruments evidencing title to or interests in the property.

Authorities under the Amended Act

  • The Amended Act recognizes certain authorities (Authorities) who will perform the functions and exercise powers conferred on them in accordance with the Amended Act or rules framed thereunder. As per section 18(1) of the Amended Act, these Authorities are:
  • The Initiating Officer: Initiating Officer means an Assistant Commissioner or a Deputy Commissioner of Income Tax.
  • The Approving Authority: Approving Authority means an Additional Commissioner or a Joint Commissioner of Income Tax.
  • The Administrator: Administrator means an Income Tax Officer.
  • The Adjudicating Authority – The Adjudicating Authority will consist of a chairperson and at least 2 other members. For becoming a member or the chairperson of the Adjudicating Authority, a person should be either (i) a member of the Indian Revenue Services who has held the post of Joint Secretary or equivalent in that service or (ii) a member of the Indian Legal Service who has held the post of Joint Secretary or equivalent in that service.

Powers of the Authorities

1. Callall ing ing for information
The Initiating Officer or the Approving Authority or the Adjudicating Authority has the power to require any officer of the Central Government or State Government or a local body or any other person or officer (responsible for registering and maintaining books of account or other documents) to furnish any information in relation to any person, point or matter that his or her opinion will be useful or relevant for the purposes of the Amended Act.

2. Impounding and retainand documents
Any books of account or other documents produced before the Authorities in any proceedings under the Amended Act may be impounded and retained by the Authorities for any inquiry under the Amended Act if they have reason to believe that such impounding and retaining is required.

3. Attachment of benami property

    • If the Initiating Officer is of the opinion that the person in possession of the benami property may alienate the property, the Initiating Officer may, with the prior approval of the Approving Authority, by a written order, attach the property for a maximum period of 90 days (Provisional Attachment) from the date of issue of the notice.
    • After making necessary inquiries and calling for reports or evidence within 90 days from the date of issue of notice, the Initiating Officer may, with the prior approval of the Approving Authority, pass an order for continuation or revocation of the Provisional Attachment.
    • In case the Initiating Officer passes an order for continuation of the Provisional Attachment of a property, the Initiating Officer is required to draw up a statement of the case and refer it to the Adjudicating Authority within 15 days from the date of the attachment.

4. Adjudication of benami property

    • The Adjudicating Authority on receipt of reference from the Initiating Officer will issue a notice to furnish necessary documents, particulars or evidence to benamidar, beneficial owner, any interested party and any person who has made a claim in respect of the property.
    • The Adjudicating Authority, after considering the reply to the notice, making inquiries and taking into account all relevant materials, will provide an opportunity of hearing to (a) the benamidar (b) the Initiating Officer and (c) the person claiming to the owner of the property. Thereafter, if the Adjudicating Authority holds that the property is not a benami property, the Adjudicating Authority will pass an order for revocation of the attachment order passed by the Initiating Officer. Alternatively, the Adjudicating Authority may pass an order holding the property as a benami property and confirming the attachment order.

5. Confiscation and vesting of benami property
Where the Adjudicating Authority holds a property to have been held as a benami property, the Adjudicating Authority, after giving an opportunity of hearing to the concerned person, pass an order for confiscation of such property. On passing of an order of confiscation of a property, all rights and title in such property will vest absolutely with the Central Government and no compensation will be payable in respect of such confiscation. Creation of any third-party interest in respect of such property to defeat the purposes of the Amended Act will be null and void.

6. Management and possession of confiscated property
The Administrator will receive, manage and take measures for disposal of the confiscated property in accordance with the rules framed under the Amended Act. On passing of order of confiscation of a property, the Administrator has the power to take possession of the property in accordance with the provisions contained in section 29 of the Act.

Appellate Tribunal

      • Under the Amended Act, the Central Government has been mandated to establish an appellate tribunal (Appellate Tribunal), which will consist of a chairperson and at least 2 other members — one judicial member and other administrative member.
      • The chairperson of the Appellate Tribunal will be a sitting or retired judge of a High Court, who has completed a minimum of 5 years of service. The judicial member of the Appellate Tribunal should be a person who has been a member of the Indian Legal Service and has held the post of Additional Secretary or equivalent in that service. The administrative member of the Appellate Tribunal should be a person who has been a member of the Indian Revenue Service and has held the post of Chief Commissioner of Income Tax or equivalent in that service.
      • Any person, including the Initiating Officer, aggrieved by the order passed by the Adjudicating Authority may prefer an appeal to the Appellate Tribunal within 45 days from the date of the order.
      • Any person aggrieved by the order passed by the Appellate Tribunal may prefer an appeal to the High Court within 60 days from the date of the order.

Bar of jurisdiction of civil courts

The Amended Act provides that the jurisdiction of civil courts will be barred to entertain any suit or proceeding in matters wherein the Authorities, the Adjudicating Authority or the Appellate Tribunal is empowered to determine under the Amended Act. The courts and other forums cannot grant injunction in respect of any action taken in pursuance of any powers conferred under the Amended Act.

Special courts

The Amended Act makes provision for special courts for trial of offences involving benami transactions. The special courts will try to complete trials within 6 months from the date of filing of the complaint.

Offences and prosecution for benami transaction

  • If any person enters into a benami transaction to defeat the provisions of any law or to avoid payment of statutory dues or to avoid payment to creditors, the beneficial owner, benamidar and any other person who abets or induces any person to enter into the benami transaction will be guilty of the offence of benami transaction.
  • A person found guilty of benami transaction is punishable with rigorous imprisonment for a minimum term of 1 year, which may extend to 7 years and is also liable to a fine, which may extend to 25% of the fair market value of the property.
  •  If any person required to furnish information under the Amended Act knowingly gives false information or furnishes any false document in any proceeding under the Amended Act, that person is punishable with rigorous imprisonment for a minimum term of 6 months, which may extend to 5 years, and is also liable to a fine, which may extend to 10% of the market value of the property.

Transitional provisions

  • The Amended Act provides that till the appointment of the Adjudicating Authority and establishment of the Appellate Tribunal, the Central Government may notify the Adjudicating Authority appointed under the provisions of the Money-Laundering Act, 2002 and the Appellate Tribunal established under the said Act to act as the Adjudicating Authority and the Appellate Tribunal respectively under the Amended Act. A notification dated 25 October 2016 to this effect has been issued by the Ministry of Finance, Government of India.

Implications

  • The income tax authorities are issuing show cause notices for provisional attachment of benami properties by exercising their powers under the Amended Act.
  • A benami property can be confiscated and vested into the Central Government in accordance with the provisions of the Amended Act.
  • The Amended Act provides for a stricter penalty for the offence of benami transactions in comparison to the Original Act.
  • The Amended Act provides for an appellate mechanism, which was not there in the Original Act.