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THE BENAMI TRANSACTIONS (PROHIBITION) ACT

INTRODUCTION:
The word "Benami" means anonymous or nameless and the term "Benami
Transaction" is used to describe a transaction where one person pays for property but
the property is transferred to or held by somebody else. The person who pays for the
property is the real beneficiary, either at present or at some point in the future, but is
not recorded as the legal owner of the property. This enables the payer to achieve
undesirable purposes such as utilizing black money, evading the payment of tax and
avoiding making payments to creditors.

The Benami Transactions (Prohibition) Act, 1988 ('Primary Act') was enacted in the
year 1988 to prohibit all benami transactions. The Act defined a 'benami transaction'
as "any transaction in which property is transferred to one person for a consideration
paid or provided by another person".

However, the Primary Act was not comprehensive enough and lacked to make a big
impact. The Rules of the Primary Act were not framed and benami transactions
continued in India. The Primary Act had several loopholes, including the absence of
an appellate mechanism and lack of provisions for vesting of the confiscated property
with the Central government. The new law amended the Benami Transactions Act,
1988 and renamed the same as Prohibition of Benami Property Transactions (PBPT)
Act, 1988. The 'Amendment Act' seeks to amend the Primary Act and is aimed at
catching those with black money in the domestic economy hidden through benami
properties. The amendment act strengthens the parent Act in terms of legal and
administrative procedure.

The reason for bringing an Amendment Act instead of a new Act is that the Primary
Act has penal provisions and penal provisions cannot be applied retrospectively. So if
a new Act was passed in 2016, all those who acquired benami properties before 2016
would be given immunity.

SCOPE OF THE AMENDMENT ACT:

The term 'Benami Transaction' covers a transaction or Arrangement

a. where a property is transferred to, or is held by, a person for a consideration

provided, or paid by, another person; and
b. the property is held for the immediate or future benefit, direct or indirect, of
the person providing the consideration.

The Amendment Act increases the scope of transactions which qualify as benami and
includes property transactions where:

i. transaction is made in a fictitious name, or

ii. owner is not aware of or denies knowledge of the ownership of the property, or
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iii. person providing the consideration for the property is not traceable or is
fictitious

The Amendment Act specifies the following cases which are exempted from the scope
of the definition of a benami transaction. When a property is held by:

i. a member of a HUF, and is being held for his or another family member's
benefit, and has been provided for or paid from known sources of income of
that family;
ii. a person in a fiduciary capacity (such as a trustee, executor, partner, director of
a company, depository or participant);
iii. a person in the name of his spouse or child, and the property has been paid from
the person's known sources of income; and
iv. a person in the name of his brother or sister or lineal ascendant or descendant
(where their respective names appear as joint-owners in any document), and
the property has been paid from the person's known sources of income.

BENAMI PROPERTY:
Property of any kind, whether movable or immovable, tangible or intangible, corporeal
or incorporeal and includes any right or interest or legal documents or instruments
evidencing title or interest in the property and where the property is capable of
conversion into some other form, then the property in the converted form and also
includes the proceeds from the property. Under the amendment even securities,
shares and intellectual property can be considered as benami property to attract the
rigors of the Act.

Benami property declared under Income Declaration Scheme, 2016 (IDS) will not be
considered as Benami Property.

Eg- X purchases a property in the name of Y but consideration has flown from X. This
is a classic Benami Transaction.

PARTIES INVOLVED:
In any Benami Transaction the following parties are involved:
(i) Benamidar: It is the person/fictitious person in whose name the property has been
purchased.
(ii) Beneficial Owner: It is the person who has provided the consideration for purchase.
(iii) Seller: It is the person who is selling the property.
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INITIATION OF PROCEEDINGS AGAINST ALLEGED BENAMI
PROPERTY BENEFICIARIES:
The Act establishes four authorities who will be able to conduct inquiries regarding
benami transactions:

i. Initiating Officer (i.e. Assistant Commissioner of Income-Tax or a Deputy

Commissioner of Income-Tax);
ii. Approving Authority (i.e. Additional Commissioner of Income-Tax or a Joint
Commissioner of Income-Tax);
iii. Administrator (Income Tax officer); and
iv. Adjudicating Authority.

PROCESS:

i. Issue of Show Cause Notice by Initiating Officer where he has reason

to believe that any person is a benamidar in respect of a property :
If, upon the material available to the Initiating Officer, he has reason to believe
that any person is a benamidar in respect of a property, he may, issue a notice
to the person to show cause why the property should not be treated
as benami property within the time specified in the notice. He must record the
reasons in writing. Within 90 days order is to be passed. If any person, after
receiving a show cause notice from the Initiating Officer in respect of any
property, attempts to alienate that property, such a transaction will be held null
and void.
ii. Provisional attachment of property : If the Initiating Officer has reason
to believe that the property held is a benami property and the notified person
may alienate such property during the period specified in the notice, he may,
by order in writing, attach provisionally the property in the manner as may be
prescribed, for a period not exceeding ninety days from the date of issue of
notice. Before attaching the property, he must seek the approval of the
Approving Authority. This provisional attachment can be continued by an order
passed by the Initiating Officer. Revoke provisional attachment if satisfied the
property is not benami. The provisional attachment will continue or ordered
where not satisfied that property is not benami and refer a statement of case to
Adjudicating Authority within 15 days from date of attachment.
iii. Attachment and Confiscation: Upon providing notice (within a period of
30 days of receiving reference) and a subsequent reasonable opportunity of
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hearing to the benamidar the Adjudicating Authority may pass an order either
revoking or confirming the order of Attachment. The Adjudicating Authority
shall, after giving an opportunity of being heard to the person concerned, make
an order confiscating the property held to be a benami property.
Where an order of confiscation has been made, all the rights and title in such
property shall vest absolutely in the Central Government, free from all
encumbrances and no compensation shall be payable in respect of such
confiscation.
An appeal from the order of the Adjudicating Authority can be made to the
Appellate Tribunal established under the Act, within 45 days of the date of such
order.
iv. Administration: Administrator to take possession of benami property and
manage it. He is empowered to take such measures as are necessary for
managing such property. He also has the powers to enforce possession by giving
reasonable notice to the occupier of such property. Appeals against orders of
the Appellate Tribunal will be to the respective High Court with jurisdiction.

The Act mandates Central Government to designate one or more Session Court as
Special Court for trial of offence punishable under it.

JUDICIAL OVERVIEW:
The Hon’ble Supreme Court of India has established acid test factors to determine
whether a transaction is Benami in nature. These factors include the source of the
consideration, possession of the property, motive behind the transaction, parties'
positions and relationships, custody of title deeds, and post-sale conduct. The source
of the purchase consideration and the motive behind the transaction are particularly
crucial in identifying Benami transactions. The burden of proof falls on the party
alleging that a transaction is Benami. While these factors guide the courts, they are
not exhaustive, and each case is examined based on its unique facts and circumstances.

OFFENCES AND PENALTIES:

Where any person enters unto a benami transaction in order to defeat the provisions
of any law or to avoid payment of statutory dues or to avoid payment to creditors, the
following shall be guilty of the offence of benami transaction:

• Beneficial owner,
• Benamidar
• Any other person who abets or induces any person to enter into benami
transaction

Before 2016-Fine or imprisonment upto 3 years or both

The offences are non-cognizable and non-bailable.

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Fair Market Value is a price that the property would ordinarily fetch on sale in open
market. In cases where the price is not ascertainable, another procedure will be
prescribed.

The benami property will be confiscated and no compensation shall be given for
said confiscation.

CONCLUSION:

The Amendment Act seeks to clearly define the benami transactions, establish
adjudicating authorities and an Appellate Tribunal to deal with benami transactions,
and specifies the penalty for entering into benami transactions.

The Act is necessary to reduce generation and utilization of unaccounted black money.
Real estate is considered as one of the major avenues for investment of unaccounted
money in India.

All real estate transactions shall now be in the name of the actual owner who is paying
the consideration from his known sources. The practice of including the correct name
in property transactions will bring transparency in the sector. With increased
transparency, title risks would be minimised and buyer confidence in property
transactions will get a boost. A fresh breath of professionalism will be ushered in.

Moreover, this will also increase the tax revenue for the Government by curbing
unaccounted money into the system. In the long term it will make India a more
attractive investment destination, aligning transactions with ethical standards and will
increase international institutional investors and financial institutions participation in
this sector. Along with other regulatory changes such as implementation of Goods and
Services Act (GST), Real Estate Regulation Act (RERA), this amendment is a step in
right direction to improve the overall confidence in the real estate sector.