Background
It is well known that there is wide circulation of black money in the society. Various committees from time to time have estimated the quantum of black money in terms of GDP of the country and the estimate goes as high as up to 40% of GDP. With the intention to check the black money proliferation and circulation in the society efforts have been made by the Government from time-to-time. In this direction an ordinance called “Benami Transactions (Prohibition of the Right to Recover Property) Ordinance, 1988” was promulgated, which was replaced by the Act of Parliament called “Benami Transactions (Prohibition) Act, 1988″. The aforesaid Act provided that no person shall enter into any benami transactions. It was further provided that the beneficial owner will not be entitled to file any claim or suit against the person in whose name the property is held. The Act also provided that all properties held benami shall be subject to acquisition by the Government. The Act, however, did not have comprehensive provisions. Pursuant to the Act, Rules had also not been framed. As a result, the aforesaid Act remained ineffective for a long period, may be for the reason that there was no political will to implement the Act and make the same effective. Subsequently, in the year 2011, a Bill called “The Benami Transactions (Prohibition) Bill, 2011″, was introduced in the Parliament wherein detailed provisions were made in regard to the matter. The Bill, however, could not be passed and it had lapsed. Later on a bill called “The Benami Transactions (Prohibition) Amendment Bill, 2015″, was brought in the Parliament. The Bill after discussions and making certain modifications on the recommendations of the committee became an Act called “Benami Transactions (Prohibition) Amendment Act, 2016″, which amended “Benami Transactions (Prohibition) Act, 1988″. The Act at present is named as “Prohibition of Benami Property Transactions Act, 1988″, and the same has come into force w.e.f. 1-11-2016 pursuant to notification issued by the Government.
The present Act is quite comprehensive and as against only 9 sections in the original Act of 1988, has 72 sections which define the ‘benami transactions’ and also other relevant terms and contain effective provisions to deal with benami transactions. It also contains provisions regarding prosecution and has also provided for mechanism in regard to the relevant matters. Provisions of the Act for discussion purpose can be categorised in following four heads as under:–
(i) Scope of the Act
(ii) Machinery provided under the Act
(iii) Offences and prosecution
(iv) Power of the special courts to deal with offences and prosecution.
Scope of the Act
Section 3 of the Act provides that no person shall enter into any benami transaction. Section 4 provides that no suit, claim or action to enforce any right in respect of any property held benami can be filed or taken against the person in whose name the property is held on behalf of the person claiming to be the real owner and the real owner can also not take any defence based on any right in respect of the property held benami. Section 5 of the Act provides for confiscation of the property by the Central Government. Section 6 provides that benamidar shall not re-transfer the property to the beneficial owner or any other person acting on his behalf, meaning thereby that property cannot be transferred by the benamidar to the real owner or beneficiary. This section, however, has an exception, which was provided in Income Disclosure Scheme, that in case the real owner has declared his undisclosed income under that scheme then benamidar can transfer the property to the real owner before 30-9-2017.
Section 2 of the Act defines the terms like “benami property”, “benami transactions”, “benamidar” and “beneficial owner”. The terms “person” and “property” have also been defined in above section. Definition of above mentioned terms provided in section 2 of the Act are relevant for the purpose of applicability and enforcement of provisions of the Act. “Person” for the purpose of the Act as defined in section 2(24) includes an individual, HUF, a company, a firm, AOP or Body of Individuals and every artificial juridical person. In other words, the term “person” in this Act has been defined on the same lines as has been defined in Income-tax Act and is wide enough to include every person.
The term “property” as defined in section 2(26) of the Act, is also in widest possible term and the definition is as under:
"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”.
The term “Benami Property” has been defined in section 2(8) of the Act to mean any property which is a subject matter of benami transaction and also includes the proceeds from such property. The term “benamidar” has been defined to mean a person or a fictitious person in whose name benami property is transferred or held and includes a person who lends his name. The term “beneficial owner” means a person whether his identity is known or not, for whose benefit benami property is held by a benamidar.
The most important definition which is relevant for the purpose of enforcement of the Act is of the term “benami transaction” and it has been defined in section 2(9) of the Act in following words:
“benami transaction” means –
(A) 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, except when the property is held by–
(i) 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;
(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 and 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 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
(B) A transaction or an arrangement in respect of a property carried out or made in a fictitious name; or
(C) 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;
(D) 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, –
(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.
The Act provides that no person shall enter into any benami transaction or even get any property transferred in his name or hold the same. The term “benami transaction” has been defined quite in detail. The first limb of the definition is quite important and according to it any transaction or arrangement is benami transaction:–
(i) Where a property is transferred to or is held by a person;
(ii) But consideration for such property has been provided or paid by another person; and
(iii) The property is held for the immediate or future benefit, direct or indirect of the person who has provided the consideration.
The clause, however, excludes genuine family cases like holding of property in the name of spouse or children or in the name of Karta or a member of HUF or in a fiduciary capacity by a trustee, executor, partner or director of a company. If the property is held in the name of brother or sister or lineal ascendant or descendant, exemption is available only if same is held jointly with the individual, who has provided the consideration for the property. A question can be raised that if property can independently be acquired in the name of spouse or children, why there is a condition that property in the name of brother or sister or even in the name of father or mother can only be jointly with the individual providing the consideration and not singularly in their names. The obvious reason for above provision is that normally a person would acquire the property in the name of the spouse or in the name of the children out of his own funds, but he will never acquire the property independently in the name of brother or sister with his own money. He would also normally not acquire property in the name of father or mother unless there is intention to hide the real source of investment or to avoid tax on the income arising there from. In case there is no mala fide intention of the individual in acquiring the property in the names of above-mentioned relations, then he can always consider the amount paid by him for purchase of the property as gift to the person, namely, brother or sister or mother or father and in terms of provisions of section 56(2)(vii) of the Act, such gift will also not be chargeable in their hands. The property or the amount, however, will become their asset and they will be holding the same in their own capacity. Income will be their income and chargeable in their case. In that situation property will not be held by them for benefit of the person providing consideration and, therefore, will be out of purview of "benami transactions" They will have full right to deal with the property in that case.
Other three clauses of the definition of the term “benami transaction” provide that transaction will be deemed to be benami transaction if the property is held in fictitious name or the person in whose name the property is held has no knowledge of such ownership. Further, in order to safeguard the genuine transactions of purchase and sale of property an exception has also been provided that a transaction covered by section 53A of Transfer of Property Act will also not be deemed to be benami transaction in case full consideration for the same has been paid by the buyer to the seller and possession of the property has been taken by the buyer and stamp duty on such transaction has also been paid and the contract has been registered though sale deed has not been executed and registered in favour of the buyer.
It may also be stated that the term “property” for the purpose of benami transaction has been defined very widely and it includes assets of any kind whether movable or immovable, tangible or intangible, corporeal or incorporeal and includes any right or interest of legal documents or instruments evidencing title to or interest in the property. The definition further provides that in case property has been converted in any other form then the property in converted form or sale proceeds of the same will also be deemed to be benami property for the purpose of benami transaction. For the purpose of the Act, the term “benami property” has also been defined which also specifically provides that any property which is subject to benami transaction will be covered by the Act and it shall also include proceeds of such property. Therefore, even if benami property is sold or converted in any other form, one cannot avoid applicability of provisions of the Act and save himself from consequences of being involved in benami transaction since provisions are quite comprehensive, same will cover all “benami transactions”, which are not bona fide transactions.
Machinery provided under the Act
The Act provides for attachment and confiscation of benami property. For the purpose of implementing the provisions of Act, the Act provides for appointment of following authorities :-
(a) The Initiating Authority;
(b) The Approving Authority;
(c) The Administrator; and
(d) The Adjudicating Authority.
The “Initiating Authority” has been defined to mean Assistant Commissioner or Deputy Commissioner of Income-tax. The “Approving Authority” refers to Additional or Joint Commissioner of Income-tax. The “Administrator” means the Income-tax Officer. “The Adjudicating Authority” refers to an Authority appointed by the Central Government. and it shall constitute of a Chairperson and at least two other members. Chairperson or the member of Adjudicating Authority has to be a member of Indian Revenue Service who holds the post of Commissioner of Income-tax or a member of Indian Legal Service who holds the post of Joint Secretary or equivalent post thereto. The Central Government shall appoint the seniormost member to be the Chairperson of the Adjudicating Authority. The powers will be exercised by the Adjudicating Authority through a Bench which may constitute of at least two members.
The Authorities appointed under the Act shall have same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit in respect of discovery and inspection, enforcing the attendance of any person compelling the production of books of account and other documents, issuing summons, receiving evidence on affidavits and any other matter which may be prescribed. All the persons summoned by any of the Authorities appointed under the Act shall be bound to attend in person or through agent as may be directed by the Authority and shall be bound to state the truth and produce such documents as may be required. The Act also provides that officers of various Government departments such as officers of Income-tax Department, officers of Customs & Central Excise Department, officers of Reserve Bank of India and other Banks, officers of Police Department, officers of Stock Exchanges and Securities & Exchange Board of India, officers of other Corporate Bodies of Central or a State Government, etc. shall be bound to assist the authorities to enforce the provisions of the Act. Authorities shall also have the powers to call for information from any person and require production of documents or books of account and also to impound the books or documents.
Section 24 of the Act provides for initiation of proceedings under the Act by the Initiating Authority, Assistant Commissioner or Deputy Commissioner as may be designated. Sub-section (1) of section 24 reads as under:
(1) Where the Initiating Officer, on the basis of material in his possession, has reason to believe that any person is a benamidar in respect of a property, he may, after recording reasons in writing, issue a notice to the person to show cause within such time as may be specified in the notice why the property should not be treated as benami property.
The aforesaid section empowers the Initiating Officer to issue a notice only if :
(i) He has some material in his possession;
(ii) On the basis of such material, he has reason to believe that the person holding the property is a benamidar;
(iii) He should record reasons in writing; and
(iv) Opportunity should be given to show cause why the property should not be treated as benami property.
Sub-section (2) of section 24 also provides where a notice has been issued to the benamidar in respect of the property, a copy of same shall also be issued to the beneficial owner if his identity is known. Further sub-section (3) of section 24 provides that if the Initiating Officer is of the opinion that the person in possession of the property may alienate the property during the period specified in the notice, he may, with the previous approval of the “Approving Authority”, by order in writing, attach provisionally the property in the manner as may be prescribed for a period not
exceeding 90 days from the date of issue of the notice.
Sub-section (4) of the section 24 provides that the Initiating Officer shall make such enquiries and call for such reports or evidence as he may deem fit and after considering of relevant material shall within a period of 90 days take a decision whether proceedings have to be taken further in respect of the property or not. In case he has come to a conclusion that no further proceedings are necessary, he shall pass the order accordingly with the prior approval of “Approving Authority” (Additional or Joint Commissioner) and in case the property had been provisionally attached earlier; he shall revoke the attachment. In case he comes to the conclusion that proceedings need to be further continued, he shall pass an order with the prior approval of “Approving Authority” to continue with the provisional attachment or to provisionally attach the property till the matter is decided by the Adjudicating Authority. The Initiating Officer shall within a period of 15 days from the date of his passing the necessary order for continuing the proceedings shall draw up a statement of facts and refer the matter to the Adjudicating Authority.
The Adjudicating Authority on receipt of reference from the Initiating Officer shall issue a notice to the benamidar, beneficial owner or any other interested party, including a banking company or a person having any interest in the property for furnishing such documents, particulars or evidence as may be necessary on a date to be specified in the notice. The notice shall be issued by the Adjudicating Authority within a period of 30 days from the date on which a reference has been received from the Initiating Officer. It has further been provided that the notice shall provide a period of not less than 30 days to the person to whom the notice has been issued to furnish the information sought. In case the property is held jointly by more than one person, notice shall be issued to all persons holding the property. It has, however, been provided that in case notice is served on any of the persons, service shall not be deemed to be invalid on the ground that such notice has not been served to all the persons holding the property. The Adjudicating Authority after considering the material and evidence as may be submitted by the parties concerned, shall pass an order within a period of one year from end of the month in which reference was received from the Initiating Officer holding whether property is in the nature of benami property or not. In case it is held not to be benami property attachment order shall be revoked. In case it is held to be benami property attachment order shall be confirmed. Section 27 of the Act further provides that in case an order has been passed by the Adjudicating Authority holding the property to be benami property, a further order shall be passed by the Adjudicating Authority for confiscating the property after giving an opportunity of being heard to the person concerned. Once the order for confiscation has been passed and the rights and title in such property shall vest absolutely in the Central Government free of all encumbrances and no compensation shall be payable in respect of such confiscation. Any right of any third party created in such property with a view to defeat the purpose of this Act shall also be deemed to be null and void. It has, however, been provided in sub-section (2) of section 27 that if any person has acquired the property from the benamidar for adequate consideration, prior to issue of the notice by the Initiating Officer without having knowledge of the benami transaction, the Adjudicating Authority shall have no power to confiscate such property.
The Act also provides for filing of appeal against the order passed by the Adjudicating Authority for confiscation of the property to the Appellate Tribunal. In case an appeal has been filed, the order of confiscation passed by the Adjudicating Authority shall be subject to the order of the Appellate Tribunal. For the purpose of the Act, the Central Government has the power to constitute an Appellate Tribunal for hearing the appeals against the orders of the Adjudicating Authority and the Appellate Tribunal shall constitute of a Chairperson and at least two other members of which one shall be a Judicial Member and other shall be Administrative Member. Judicial Member shall be a member of Indian Legal Service who holds the post of Additional Secretary or equivalent post. Administrative Member shall be a member of Indian Revenue Service who holds the post of Chief Commissioner of Income-tax or equivalent post. Chairman of Appellate Tribunal shall be either a sitting or a retired judge of a High Court
who has completed not less than five years of service.
It may be stated that the Central Government has not appointed separate Adjudicating Authority and Appellate Tribunal under the provisions of this Act and vide Notification dated 25-10-2016, it has been notified that the Adjudicating Authority and the Appellate Tribunal established under the provisions of the Prevention of Money Laundering Act, 2002, shall discharge the function under this Act until separate authorities are appointed by the Central Government under this Act.
Section 49 of the Act further provides that any party aggrieved by any decision or order of Appellate Tribunal may file an appeal to the High Court within a period of sixty days from the date of communication of the decision or order of the Appellate Tribunal to him on any question of law arising out of such order. The High Court, however, can condone the delay in filing the appeal. In case the Hon’ble High Court is satisfied that a substantial question of law is involved, it shall admit the appeal and formulate the question. The High Court on hearing the matter may pass such order as it may deem fit in appeal filed before it.
Section 28 of the Act provides for management of property confiscated by the Government. The Administrator appointed under the Act, who will be the designated ITO, shall have the power to receive and manage the property. He is empowered to take such measures as may be necessary and as may be directed by the Central Government to dispose of the property vested in the Central Government in such manner and subject to such conditions as may be prescribed. On passing the order of confiscation the Administrator shall issue a notice in writing to the person who is in possession of the benami property to surrender or deliver the possession of the same to the Administrator or any other person authorised by him in writing in his behalf within a period of seven days of the date of service of the notice. He is also empowered to take service of any police officer to assist him in taking the possession of the property.
It may be stated that the powers under the Act have been provided to Income-tax authorities to enforce the provisions of the Act and proper safeguards have been provided in section 24 of the Act for issuing the notice for initiating the proceedings. There are due checks provided in the form of prior approval of Approving Authority and for passing the order by the Adjudicating Authority. It is also important that time limits have been provided under the Act for giving notices and passing the orders by different authorities and accordingly, a time bound procedure has been provided under the Act. Necessary safeguards have been provided in the form of making a provision for appeal to Appellate Tribunal and thereafter to the High Court. Hence, it can be stated a due balance has been maintained while making the provisions in the Act between achieving the purpose of the Act and also avoiding hardships in case of bona fide transaction. It is hoped that machinery appointed under the Act shall also act reasonably while implementing the provisions of the Act.
Offences and prosecution
Apart from confiscation of benami property, sections 53 to 55 of the Act also provide for prosecution of the persons involved in benami transactions. Section 53 provides that where any person enters into a benami transaction in order to defeat the provisions of any law or to avoid payment of statutory dues or to avoid payment to creditors, the beneficial owner, benamidar and any person who abates or induces any person to enter into a benami transaction shall be guilty of the offences of benami transaction. Further the section provides that whoever is found guilty of offences of benami transaction, he shall be punishable with a rigorous imprisonment for a term which shall not be less than one 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. Section 54 of the Act provides that any person who is required to furnish information under this Act knowingly gives false information to any authority or furnishes any false documents in any proceedings under this Act, shall be punishable with rigorous imprisonment for a term which shall not be less than 6 months, but which may extend to 5 years and shall also be liable to fine which may extend to 10% of the fair market value of the property. Section 55 of the Act provides that no prosecution shall be instituted against any person in respect of any offence under the Act without the previous sanction of Central Board of Direct Taxes.
It is stated that provisions of the Act are quite stringent and any person who is involved in benami transaction or any person who abets or induces such transaction shall be liable for the prosecution. Accordingly, even a Chartered Accountant or Legal Consultant who advises or induces the client to enter into a benami transaction
shall be liable for the prosecution under the Act.
Power of the Special Courts
Section 50 of the Act provides that the Central Government in consultation with the Chief Justice of the High Court shall designate one or more Courts of Sessions as special court or courts for respective area or for group of cases for the purpose of trial of offences punishable under the Act. Such special courts shall have all the powers under the Code of Cr. Procedure, 1973. Such designated courts shall take cognisance of any offence on a complaint in writing made by any authority appointed under the Act or any officer of the Central or State Government authorised in this behalf. With a view to have quick disposal of the matters it has also been provided that such courts shall make every endeavour to conclude the trial within a period of 6 months from the date of filing of the complaint. Section 51 of the Act provides for appointment of Public Prosecutor conducting the cases on behalf of the authorities.
Section 52 of the Act also provides for appeal to the High Court against the order passed by the special court.
In conclusion, it is stated that provisions of the Act appear to be quite effective for the purpose of checking the benami transactions and as a result thereof to check evasion of tax and black money circulation in the society. It can be expected that provisions of the Act will be implemented earnestly and with all fairness to achieve the purpose of the Act as well as not causing hardships in bona fide cases.
All power is within you; you can do anything and everything. Believe in that, do not believe that you are weak; do not believe that you are half-crazy lunatics, as most of us do nowadays. You can do any thing and everything, without even the guidance of any one. Stand up and express the divinity within you.
– Swami Vivekananda
Society does not go down because of the activities of criminals, But because of the inactivities of the good people.
– Swami Vivekananda