After surgical strike on black money, NaMo has warned benami property holders that his next step would be against them. While addressing the nation in Goa Prime Minister Modi has said that taking action against benami property would be the major step towards eradicating black money and corruption. If reports are to be believed 200 teams have already been formed to prepare lists of benami property throughout the country. So in this article we will learn about benami transactions and consequences of holding benami properties.
History of Benami Transaction Act
The Benami Transactions (Prohibition) Amendment Act, 2016 is a modified version of older Benami?Transactions (Prohibition) Act 1988 and was tabled in Lok Sabha last year by Finance Minister Arun Jaitley. The same is passed by the Lok Sabha on 27th July and Rajya Sabha on 2nd August this year respectively. The rules and provisions of the Benami Transactions (Prohibition) Act made effective from 1st November, 2016 and is now renamed as Prohibition of Benami Property Transactions Act, 1988 (PBPT Act).
What is the meaning of Benami Property / Transaction?
Benami means a ?Property without a Name?. Here property includes movable, immovable, tangible, intangible, any right or interest, or legal documents, even gold or financial securities could qualify to be benami.
In the layman term Benami Transaction is a transaction where the property is purchased in the name of the person who has not paid for it. The person who has rendered the required money for the said transactions is not named in the transaction but the property is held for the immediate or future benefit, direct or indirect, of the person who has provided its payment. For example if you want to buy a piece of land but don?t want your name to be appeared in the deal then you can buy the same in the name of your sister. This is called benami transaction because you have paid the money but the owner is your sister.
The act defines the benami transaction as a transaction or an arrangement where a property is held by or transferred to a person, but has been provided for or paid by another person.
This concept is used widely by con people to do fraudulent activities. For instance if Mr A is highly indebted, he would purchase property in the name of Mr Z, so that Mr A?s creditors could not attach such property for recovery.
This malpractice is also adopted by corrupt Government official who take bribe in kind such as land, properties, cars, jewellery etc. Since they cannot directly get these on their or their family member?s name, the same is done in name of their in-laws, cousins, close friends etc.
What are Benami Transactions?
As per Benami Transaction Bill, a property is named as benami property if any of the following conditions are fulfilled:
- A property which is purchased using a fictitious/fictional name means the owner does not exist.
- Person holding the property has no knowledge about the transaction mode or ownership of the property.
- A person who has provided the required money for the transaction is no longer traceable.
- Person holding the property or the person on whose name the property has been transferred has not paid the money or the price of the property in question is paid by someone else.
The bill defines benamidar as the person whose name is appeared on the paper i.e. the person on whose name the benami property is bought held or transferred.
What are not benami transactions?
Finance Minister Aurn Jaitley already assured that genuine religious trusts would be kept out of the purview of this new legislation. Apart from it, Benami Transaction Act has provided more exclusion which are as follows:
- In case of Hindu Undivided Family (HUF), Karta or any other member of HUF owns or held any property for his benefit or for the benefit of the family members and the consideration for the same is paid out of the known source income of HUF.
- A person acting within fiduciary capacity for the benefit of another person i.e. transaction involving trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 and any other person as may be notified by the Central Government for this purpose.
- Any individual transacting in the name of his/her spouse or any of his/her children (excluding married daughter) and consideration of such property is paid out of the known source of income of the individual.
- In case the property is purchased using known sources of fund as joint ownership with wife, children, siblings includes brother or sister or lineal ascendant or descendant.
- If a property is transferred but the contract of transferring the property is partly executed, the same shall not be considered as benami property.
- If the property transaction is done based on General Power of Attorney (GPA), through a registered contract and even stamp duty is paid, such property is not considered as benami property.
- Benami Property declared under Income Declaration Scheme 2016 (IDS) will no longer be treated as Benami Property.
How to determine whether the property is a Benami Property or not?
There are instances where an individual may acquire property from the known source of income in the name of his wife or unmarried daughter for the benefits of rebates or interest charged on home loan, or for saving charges of property registration or stamp duty or for saving taxes on rental income from the property etc. These types of transactions cannot be termed as benami transaction. But determination of the actual status of the property lies with the competent authorities, however few factors which shall be taken into considerations are:
- Sources of the fund which were used for making the payment for the property is disclosed by the buyer or not.
- Intention behind buying property in the name of another person i.e. spouse, children, siblings etc.
- Actual Possession of the property and custodian of the documents of the property.
- Disclosure of the income from the property, if any, while filing income tax return.
If above questions lead to the fact that property is purchased to take various benefits under government schemes, interests, rebates etc. and not to hide black money or any fraudulent activities, the said property will not be treated as benami property.
Authorities under Prohibition of Benami Property Transactions Act
Under this new legislation, four authorities have been formed to conduct inquiries or investigation benami transactions i.e. Initiating Officer, Approving Authority, Administrator and Adjudicating Authority.
The initiating officer after assessing the transaction, if believes that person is benamidar than he may issue the notice to that benamidar. Initiating office may hold the property for a period of 90 days from the date of issue of notice. However, in order to keep the property, permission from Approving Authority is required.
To further hold the property, the case is referred to Adjudicating Authority which will examine all the documents and evidence relating to the matter and then pass an order on whether or not to hold the property as benami.
Based on the order of Adjudicating Authority, the Administrator will confiscate the property in a manner and subject to the conditions as prescribed under the law.
In case the individual is not satisfied with the order of adjudicating authority, he can challenge the same with Appellate Tribunal, and if he is not satisfied with the order of Appellate Tribunal, the appeal can be made with High Court.
What is the penalty for entering in benami transactions or holding benami property?
As per the new law of Prohibition of Benami Property Transactions Act (PBPT Act), the guilty person shall be punishable with rigorous imprisonment for not less than one year which may be on severity of the offence extended to seven years. He shall also be charged with a fine which may extend to 25 percent of the fair market value of the benami property. Under the old law, the violation of the act would lead to imprisonment up to three years, or a fine, or both.
The New Law also has a provision of penalty for providing false information. Any person, required to furnish information under this Act, intentionally provided false information or document to any authority shall be punishable with rigorous imprisonment for not less than six months which may be on severity of the offence extended to five years. He shall also be charged with a fine which may extend to 10 per cent of the fair market value of the benami property. However, no prosecution shall be initiated against any person under this law without the prior approval of Central Board of Direct Taxes (CBDT).
The point to ponder is that benami transactions are not confined only to purchases, leasing of immovable property in the name of another person or mortgaging property for a fictitious consideration is also considered as a benami transaction and is subject for prosecution under Benami Transaction Act.