BENAMI TRANSACTIONS AND BENAMI PROPERTIES

The Act defines the term ‘Benami Transaction’ as a transaction or an arrangement where a property is held by or transferred to a person, but has been provided or paid by another person or where the property is held for the immediate or future benefit, of the person who has provided the consideration. The Act further amends this definition to add other transactions which qualify as benami, such as where (i) a transaction is made in a fictitious name; (ii) the owner of the property is not aware of or denies knowledge of such ownership of the property, or (iii) the person providing the consideration for the property is not traceable or is fictitious. The Act also specifies certain cases that are exempted from the definition of a Benami Transaction which includes cases when a property is held by: (i) a Karta, or a member of a Hindu undivided family, and is being held for his or another family member’s benefit, and the consideration for such property has been provided for or paid off from sources of income of that family; (ii) a person in a fiduciary capacity; (iii) a person in the name of his spouse or child, and the property has been paid for from the person’s personal income; or (iv) any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and the individual appears as joint-owners of the property and the consideration for such property has been provided or paid out of the known sources of the individual.

Any property held benami is liable for confiscation by the government without payment of any compensation. While the Original Act defined property to mean property of any kind, whether movable or immovable, tangible or intangible, and included any right or interest in such property. The Act has amended and expanded the scope of the definition of ‘Property’ to further include within its ambit assets that can be corporeal or incorporeal, any rights or interest or legal documents or instruments evidencing title to or interest in the property and if the property is capable of conversion then the property in the converted form and also includes within its scope any proceeds from the property.

According to Act, there shall now be four authorities to conduct inquiries or investigations regarding Benami Transactions viz. (i) Initiating Officer; (ii) Approving Authority; (iii) Administrator; and (iv) Adjudicating Authority. The Initiating Officer has the right to issue a notice to any ‘benamidar’ (i.e., a fictitious person is whose name the Benami Property is transferred or held and includes a person who lends his name) on suspicion. The officer may then hold the Property for a period of ninety days from the day the notice was issued, subject to permission from the Approving Authority. Upon the end of the ninety-day period, the Initiating Officer may pass an order to continue holding the Property following which, he/ she may refer the case to the Adjudicating Authority. The Adjudicating Authority will thereafter examine all the documents and evidence, and pass an order on whether the property will be held as benami.

Based on this order, the Administer will receive and handle the Benami Property subject to conditions as prescribed. A Joint /Additional Commissioner of Income-tax, an Assistant / Deputy Commissioner of Income tax, and a Tax Recovery Officer would be notified to perform the functions and exercise the powers of the Approving Authority, Initiating Officer and Administrator, respectively.

The Act has also established an Appellate Tribunal to hear appeals against any orders passed by the Adjudicating Authority while appeals against orders of the Appellate Tribunal will go to the high court. The Tribunal will have a maximum time period of one year, from the last day of the month in which the appeal is filed, to hear and finally decide the appeal. Further, the Act provides for Special Courts to be set up for trial of offences under the Act. Such Courts shall be constituted by the Central Government in consultation with the Chief Justice of the high court and the Special Court so constituted shall take cognizance of an offence punishable under the Act only upon a written complaint made by the Adjudicating Authority or an officer authorized by the State or Central Government.

A shortcoming of the Original Act was that it did not explicitly make entering into a Benami transaction a crime by itself. However, the new Act rectifies this shortcoming by stating that a Benamidar and any other person who abets or induces any person to enter into a Benami Transaction shall be guilty of the offence of a ‘Benami Transaction’ and whoever is found guilty of committing the said offence shall be punishable with rigorous imprisonment of a minimum of one year which may extend to up to seven years along with a fine which may extend to 25% of the fair market value of the property. In addition, the Act also specifies the penalty for knowingly providing false information or furnishing any false document to a 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. However, there shall be no prosecution instituted against any person under this Act without the previous sanction of Central Board of Direct Taxes.