What Is Litigation On Benami?
The Benami Transactions (Prohibition) Amendment Act, 2016 is an amendment to the existing Benami Transactions (Prohibition) Act 1988 and renamed as the Prohibition of Benami Property Transactions Act, 1988 (PBPT Act) come in effect from November 1, 2016 is one of the major source of increase in litigation on Benami in India.
The need to amend the 1988 Act arises as this Act contains only 9 Sections very limited scope of the definition of benami transactions, benami property and absence of adjudication machinery and strict penalty provisions. The Government with the very clear objective chose to amend the existing law of 1988 instead of coming with the new law all together, so as to ensure applicability of the new provisions effective from 1988 which enhances litigation on benami.
Therefore the key objectives of the amendment are:
- To amend the definition of benami transactions
- To establish adjudicating authorities and an Appellate Tribunal to deal with benami transactions, and
- To specify the penalty for entering into benami transactions.
As a leading chartered accountant firm in India, we specialize in providing expert guidance and support for Litigation on Benami cases. With a team of experienced tax consultants, we are committed to helping our clients in resolving the complicated legal issues involving Benami properties.
Learn Key Definition Of Litigation On Benami
Litigation On Benami is due to non-clear definition of certain terms under Benami Act.
“Benami transaction” means a transaction or an arrangement where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration;
(A part consist of 3 ingredients of benami Transactions separated by and therefore all the 3 should be present)
Except when the property is held by:
– a Karta, or a member of a Hindu undivided family, as the case may be, and the property is held for his benefit or benefit of other members in the family and the consideration for such property has been provided or paid out of the known sources of the Hindu undivided family
– a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a 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 person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual;
– 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 appear as joint-owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual;
– OR
- a transaction or an arrangement in respect of a property carried out or made in a fictitious name; OR
- a transaction or an arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership; OR
- a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious
Explanation.—For the removal of doubts, it is hereby declared that benami transaction shall not include any transaction involving the allowing of possession of any property to be taken or retained in part performance of a contract referred to in section 53A of the Transfer of Property Act, 1882, if, under any law for the time being in force,
- consideration for such property has been provided by the person to whom possession of property has been allowed but the person who has granted possession thereof continues to hold ownership of such property;
- stamp duty on such transaction or arrangement has been paid; and
- the contract has been registered
“benami property” means any property which is the subject matter of a benami transaction and also includes the proceeds from such property;
“property” means assets 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 to 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;
“benamidar” means a person or a fictitious person, as the case may be, in whose name the benami property is transferred or held and includes a person who lends his name;
“beneficial owner” means a person, whether his identity is known or not, for whose benefit the benami property is held by a benamidar;
Authorities and Adjudication Process
Under this new legislation to handle litigation on benami, four authorities have been formed to conduct inquiries, investigation and adjudication of 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 enhances litigation on 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.
Penal Provision
As per Prohibition of Benami Property Transactions Act, 1988 (PBPT Act), there are 3 persons who may be held guilty for entering into benami transactions i.e. the beneficial owner, benamidar and any other person who abets or induces any person to enter into the benami transaction, shall be punishable with rigorous imprisonment for not less than one year but which may be 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 a new source of litigation on benami.
Further any person who is required to furnish information under this Act knowingly gives false information to any authority or furnishes any false document in any proceeding under this Act, shall be punishable with rigorous imprisonment for a term which shall not be less than six months but which may extend to five years and shall also be liable to fine which may extend to ten per cent of the fair market value of the property.
Having understood some of the basics of the ‘Benami Act’, Let us now analysis with the help of some case studies how and when the provisions of this Act can be invoked in a given situation. Before that we should note that this Act provides mandatory rigorous imprisonment unlike the penal provision as mentioned in the Income Tax Act, therefore needs proper attentions in the adjudication process.
Case Study 1:
A acquired a land registered in the name of his relative B in 1990 and paid the consideration for such land without having known source of funds.
- Whether such transaction can be termed as benami transactions under the amended law?
- What are the penal provisions applicable on this transaction?
- What if the said transaction entered in Dec., 2016?
Case Study 2:
A acquired some property in the name of the Company and B, C & B are the shareholders of the Company who do not have any source of funds.
Analysis the impact and applicability of law considering that property was acquired before amendment and after amendment??
Case Study 3:
A Real estate developer acquired the land in the name of local people in view of the local laws with a understanding to transfer the same in the name of the Company at a later date.
Analysis the impact and applicability of law considering that property was acquired before amendment and after amendment??
We at DSRV, advise our clients to deal with any issues on litigation under Benami from initiation of the proceeding till the finalization of the proceedings.