Vijay Pal Dalmia, Advocate
Supreme Court of India & Delhi High Court
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Aditya Dhar, Advocate
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At present, Section 2 (9) (A) of The Prohibition of Benami Property Transactions Act, 1988 as amended by The Benami Transactions (Prohibition) Amendment Act, 2016 (PBPT) sets out certain exceptions to the benami transaction including the following:
- When the property is held by 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.
- When the property is held by 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.
Earlier in the Benami Transactions (Prohibition) Amendment Bill 2015, the expression 'known sources of income' was used. However, the Standing Committee on Finance (2015-2016), Ministry of Finance (Department of Revenue) in the Sixteenth Lok Sabha recommended to replace the 'known source of income' with 'known source'. The said recommendation was accepted in the amendments proposed by the Government on 22nd July 2016.
The Standing Committee in its report considered the submissions given by the Institute of Chartered Accountants of India (ICAI) that in case of individual
- "out of the known sources of income" of the individual is of wider import and contemplates situations where loan funds may be provided for acquiring the property.
- loan funds are not income and therefore expression "out of known sources" can be used instead of "known source of income" to bring in clarity in such cases.
The Ministry of Finance, in this context, furnished the following view:
"The term 'known source of income' was used in consultation with Ministry of Law and Justice to provide for investment where the source of funding was clearly identifiable. However, if the Committee recommends, the matter shall be examined in consultation with Ministry of Law and Justice. Although the intention of the provision is that the source of funds should be explained, ambiguity may arise on account of the present language of the provision.
Finally, the Standing in its report recommended that in the exception to benami transaction as laid down in Section 2(1) of the Principal Act [Section 4(9) (i), (iii) and (iv) of the proposed Bill], the expression "out of known sources of income" should be replaced by "out of known sources" so as to bring clarity in cases where loan funds, which are not income, are used as consideration for purchase of a property and not be kept out of purview of the Bill. Further, the words 'and legal' may also be inserted after 'known' so as to safeguard genuine and bonafide transactions.
To conclude, under exception (iii) and (iv) of Section 2 (9) (A) of The Prohibition of Benami Property Transactions Act, 1988 as amended by The benami Transactions (Prohibition) Amendment Act, 2016, known sources of individual will include the loan, gifts, donations & income from other sources. taken by such individual.
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