India: Benami Transactions (Prohibition) Amendment Act, 2016

Introduction:

In a regime to wash off black money from the Country, the Indian Government took another laudable leap by initiating the Benami Transactions Bill, 2015 for amending the Benami Transactions (Prohibition) Act, 1988. The Benami Transactions (Prohibition) Amendment Act, 2016(hereinafter referred to as the "Act") received the President's assent on August 10, 2016 and has come into force from November 1, 2016. The Act provides for expedite procedures to deal with benami property, authorities to execute such procedures and stringent punishment for offenders. In other words, the Act makes the erstwhile Act more executable and practicable.

There are many forms of transactions where people prefer to deal in another person's name instead of their own, either to evade taxation, to surpass property ceiling laws or to invest their black money etc. It was also a prevalent custom in traditional Hindu families to buy properties in the name of daughters, sons, fathers or wives. The Act seeks to deal with all such transactions which are carried out by a certain person but the consideration is provided and benefits are availed by some other person. With this, the beneficiary/financer enjoys the property but does not fulfill legal responsibilities towards such properties. This article discusses the major implications of the amended Act.

What is a Benami Transaction? Who is a Benamidar?

A benami transaction, as defined under Section 2(9) of the Act is a transaction in which:

  1. the property is held by one person and paid for by another; or
  2. it is held in a fictitious name; or
  3. the owner of such property is unaware of or denies having knowledge of such ownership; or
  4. the person financing such transaction is not traceable.

However, the Act prescribes certain exceptions to benami transactions under Section 2(9). These exceptions include property held by:

  1. karta for his or his family member's benefit; or
  2. a person standing in fiduciary capacity for the benefit of another, including a trustee, an executor, a partner, a company director or a depository participant or agent; or
  3. a person for the benefit of his spouse or child; or
  4. a brother or sister or lineal ascendant or descendent.

Provided the consideration paid for such transactions comes from known and traceable resources.

Also, the Central Government may, by notification, exempt any property relating to charitable or religious trusts from the operation of this Act.

A Benami transaction applies to properties (assets) whether movable or immovable, tangible or intangible, corporeal or incorporeal. A Benamidar is 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.

What are the Authorities established under the Act?

The Act provides for 4 major Authorities ie. The Initiating Officer, the Approving Authority, the Administrator and the Adjudicating Authority as appointed by the Central Government. The office of the Initiating Officer will be held by an officer who is the Assistant Commissioner or a Deputy Commissioner as required by the Income Tax Act, 1961. The authorities will have the same powers as those of the Civil Courts under Civil Procedure Code, 1908.

What will happen to the Benami Property?

1. Issuing a show cause notice:

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.

2. Effect of Alienation after notice:

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.

3. Provisional Attachment:

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.

4. Reference to Adjudicating Authority:

Where the Initiating Officer passes an order continuing the provisional attachment of the property

or passes an order provisionally attaching the property, he shall, within fifteen days from the date of the attachment, draw up a statement of the case and refer it to the Adjudicating Authority.

5. Attachment and Confiscation:

Upon providing notice (within a period of 30 days of receiving reference) and a subsequent reasonable opportunity of 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.

6. Administration

The Administrator shall have the power to receive and manage the property, in relation to which an order of confiscation is made. 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.

What are the Penalties under this Act?

The Act prescribes that whoever is found guilty of the offence of a benami transaction shall be punishable with rigorous imprisonment for a term which shall not be less than 1 year, but which may extend to 7 years and shall also be liable to fine which may extend to 25 % of the fair market value of the property. Further, if any person knowingly provides false information to any authority or furnishes any false document he/she shall be punishable with rigorous imprisonment for a term which shall not be less than 6 months but which may extend to five years and shall also be liable to fine which may extend to 10% of the fair market value of the property.

These provisions of penalty are stricter than those given in the erstwhile Act, which prescribed penalty by way of imprisonment only upto 3 years. Also, there was no provision related to fine in the earlier Act.

Conclusion:

The detailed procedure and authorities prescribed under the Act are appreciable as they will

expedite the process of adjudication. The Act is a considerable leap in the regime for eradication of black money. The subsequent rapid developments of demonetization, amendments to the income tax laws and introduction of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 altogether form a tough barricade for cornering corruption and making it difficult for the corrupt to escape. There is evident optimism in the Nation and even the remotest of places are showcasing support Indian Government's regime against black money.

It is further notable, that all these new policies of the Government directly or indirectly lead towards a cashless (transactions) society (and maybe later towards a classless one!).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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