Prohibition of Benami Property Transactions Act: What you need to know

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Prohibition of Benami Property Transactions Act: What you need to know

 

There have been instances of purchase of the property in the name of the servants, relatives or even non-existent persons. The purpose was to either invest the black money, to evade taxes & to defeat the provision of any other laws. To counter this, the Benami Transactions (Prohibition) Act was passed in 1988. In its original form, the Benami Act was feeble as it didn’t prescribe adequate penalties or strong enforcement mechanism against the benami transactions. In 2016, the ‘Benami Transactions (Prohibitions) Amendment Act, 2016 was put in place to curb benami transactions & the Act was renamed as Prohibition of Benami Property Transactions (PBPT) Act, 1988. The 1988 Act with 9 sections was converted into an Act of 72 sections wherein not only the scope and ambit of benami transactions & exceptions thereto was widened but also strong penal provisions & mechanism got incorporated.

The Law:
PBT Act, 1988 is enacted to prohibit benami transactions. The term ‘Benami’ denotes ‘no name’ or ‘without name’. Benami transactions or Benami property would be one where a person’s own name is not used but the name of another person or a fictitious person is used. In layman terms, a Benami Transaction is a transaction where a property is purchased in the name of an individual who has not paid for it. Making an investment in the name of another person has consequences under the Benami Act.

Benami Property & Benami Transactions:

PBTA is applicable if there is a Benami Property as a result of Benami Transaction. Let us know about it:


The meaning of Benami Property:

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

Benami Transactions:
Under the PBTA, the following four categories of transactions or arrangements are considered as benami transactions:

  1. A transaction or an arrangement-
    (a) 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
    (b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration.
    However, there is an exception to above if the property is held by;
    (i) a karta, or a member of a Hindu Undivided Family (HUF), 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 HUF;
    (ii) 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 & any other person as may be notified by the central government for this purpose;
    (iii) 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;
    (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 descendent 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
  2. Transaction or an arrangement in respect of a property carried out or made in a fictitious name; or
  3. 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;
  4. Transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious.
    [It may be noted 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 (i) 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; (ii) stamp duty on such transaction or arrangement has been paid; and (iii) the contract has been registered].

 

Few of the live & recent examples of the Benami transactions under PBTA: 

  1. The person has recorded the name of a fictitious person in its books of accounts to justify the investment in the business or properties.
  2. An employee of a listed company having price-sensitive information about the company making investment in the name of a third party to earn the profit. In common parlance, it is referred to as insider trading as such a person is not allowed to trade in the company’s shares.
  3. A borrower siphoning the bank loan amount by investing in the name of the other person so as to avoid the loan liability.
  4. There is a ceiling on land holding agricultural land and once the limit is reached, citizens resort to purchase property in the name of another person.

Penalty under the PBTA:

There are heavy penal consequences if a person is found to have done the benami transaction as under:

  1. Confiscation of benami property:
    Authorities can provisionally attach the benami properties. Attachment implies a prohibition on transfer, conversion, or disposition of property. Once it is adjudicated that a property is benami, it can be confiscated by the Central government.
  2. Prosecution & Fine:
    Section 53 of the PBTA provides for the following types of punishment as well:
    a) When a Benami transaction is entered into to circumvent the provisions of any legislation, evade payment of statutory dues, or avoid payment to creditors, any person who enters or aids/induces another person to engage in such a transaction is liable for imprisonment for 1 to 7 years and fine up to 25% of the property’s fair market value
    b) If a person who is compelled to disclose information under this Act provides false information, he may be liable for Imprisonment for 6 months to 5 years and fine of up to 10% of the property’s fair market value.

 Retrospective Applicability:
The new Benami law was made applicable from 2016. There was a lot of controversy & debate as to its applicability on transactions entered prior to amendment. Recently, the Supreme Court in a landmark case of UOI Vs. M/s Ganpati Dealcom Pvt Ltd has held that the authorities cannot initiate or continue criminal prosecution and confiscation proceedings for transactions entered into prior to this date.

 Conclusion:
Digitization, inter-linking & flow of data from multiple agencies coupled with the artificial agencies has resulted in tracing of cases related to the Benami Transaction. With the Government’s resolve to bring in transparency in the economy, benami law is going to be used as a potent tool in years to come.

 [Readers may forward their feedback & queries at taxtalknew@gmail.comOther articles & response to queries are available at www.theTAXtalk.com ]

Regards,
CA Naresh Jakhotia
Partner – M/s. SSRPN & Co.
10, Laxmi Vyankatesh Apartment
Telephone Exchange Square
Central Avenue Road
Nagpur-440008.

Web     :  www.ssrpn.com

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