Vijay Pal Dalmia, Advocate
Supreme Court of India & Delhi High Court
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The Hon'ble High Court of Madras in the case of First ITO vs. MR Dhanalakshmi Ammal 1978 ITR 413 held that the true test to determine whether the transaction is benami or not is to look into the intention of the parties viz whether it has been intended to operate as such or it was meant to be colourable. If colourable, the transaction is benami; otherwise the transaction is not benami. It is for the Initiating Officer to establish that there was a motive to undertake a benami transaction. A mere allegation of Benami will not be sufficient. The Initiating Officer has to establish the benefit that a person sought by way of a Benami transaction and whether that motive has been achieved and also whether in order to fulfill that motive there is evidence to show that cash was paid by him.

Moreover, the reasons to believe formed by the Initiating Officer authorized under Section 24(1) of the Prohibition of Benami Property Transactions Act, 1988 (hereinafter referred to as "benami Act") shall not be formed only on the subjective satisfaction on his part or it shall not be merely pretence but such reasons must be held in good faith and have value in the eyes of law.

The powers which are conferred upon the authorities mentioned under the Benami Act, are very wide and also encroaches the right of citizens, and as such the powers under the Benami Act, shall be exercised with

  • extreme caution,
  • higher standard of responsibility and public trust,
  • accountability,
  • transparency and
  • the same must be able to justify the actions as one which conforms to judicially reviewable standards of propriety, legality, and constitutionality.

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