Benami Act: Effective tool to curb black money menace
Govt can confiscate the property without paying any compensation to the buyer or benamdar
To deal with the problem of black money, especially in the real estate sector, the government has introduced a Bill to target transactions carried out in other people’s names.
The Act called the Benami Transactions (Prohibition) Amendment Act ,2016, aim sat fixing the loopholes in the earlier Act of Ben ami Property Transactions Act of 1988. The Act will mandate every person to buy properties in their own name rather than some fictitious person whose existence is not trace able. The government can now confiscate the property without paying any compensation to the buyer or ben am dar, thus prohibiting its recovery.
Nam rat a Kohl i spoke to Su dip Mullick, a partner with Khaitan & Co who leads the firm’s real estate practice and Sneha Oak Joshi, Senior Associate Khaitan & Co on the details of the Act. Edited excerpts: The Central Economic Intelligence Bureau estimates that up to 40% of the total unaccounted income in India is parked in real estate. Is the Benami Act, an effective tool to nail down this unaccounted wealth in real estate in India? The Benami Act is definitely an effective tool in the hands of the Government to curb the men ace of benami real estate transactions. Prior to 2016, the Benami Act lacked teeth; in fact, the biggest issue with the Benami Act prior to the amendment of 2016 was that there was no process laid down for prosecuting offenders. Post amendment, the Ben ami Act specifically authorises
(i) the Initiating Officer (i.e. Assistant/ Deputy Commissioner of Income Tax) top ass provisional attachment orders after taking prior approval of the Approving Authority (i.e. Additional/ Joint Commissioner of Income Tax);
(ii) the Adjudicating Authority (i.e. the same authority notified under the Prevention of Money Laundering Act) to adjudicate as to whether the property is actually ‘benami’ or not and pass an order accordingly and
(iii) the Administrator (Income Tax officer) to take possession of properties ordered to be confiscated by the Adjudicating Authority. The aforesaid authorities have to exercise their powers in a time bound manner and as per the rules prescribed under the Benami Act.
Further, there are also provisions for time bound filing of appeals to the Appellate Authority and thereafter, the jurisdictional High Court.
The Ben ami Act also provides for setting up of Special Courts to take cognizance of offence sun der the Benami Act and specifically provides that no prosecution shall be commenced without the previous sanctions of the Central Board of Direct Taxes. Thus, post Amendment the Ben ami Act has a robust process in place for taking swift action against offenders while ensuring that there are several checks and balance sin place in order to curb abuse of process and arbitrary action. All actions taken by the appointed officers/ authorities have to be undertaken judiciously and after following due process thus ensuring that innocent persons are not harassed. How rampant is the act of putting property under fictitious name in India? Is it generally found in the name of spouse or siblings? As regards purchasing property in the name of spouse or siblings, it is pertinent to note that prior to the 2016 Amendment, the Ben ami Act provided that any transaction wherein property is purchased in the name of one person with consideration being provided by another, is‘ ben ami ’. The exceptions to this were properties purchased in the name of a wife or unmarried daughter. Through various judicial pronouncements, the Courts held that not just the fact of payment of con sid- eration but other surrounding circumstances must also be looked into, such as for whose benefit has the property been purchased, motive of purchasing the property in another’s name, conduct of the parties post transaction etc. Post the 2016 Amendment, the statue itself incorporated that a transaction would fall within the definition of ‘benami’, if a twin test is met viz.
(i) the consideration being provided by another and
(ii) the purchase is for the immediate or future benefit of the person providing the considera- tion. Thus, if one can show that the property has been purchased for the benefit of the person in whose name the property has been purchased, then the purchase would not fall under the definition of ‘benami’ under the Benami Act. Further, post 2016, the following specific exemptions have been provided
(i) property held in the name of a spouse if consideration is paid out of known sources and
(ii) property held in the name of a sibling if such property is jointly held by the sibling and the person paying the consideration and consideration is paid out of known sources. Thus, merely because property is held in the name of a spouse or siblings does not automatically make a property ‘benami’ as per the Benami Act and may not attract the punitive provisions of the Act for the reasons discussed above. Has PM Modi hit the nail on its head by tracking down benami or are there other ways to circumvent taxation which will have to be incorporated later? According to me, Benami transaction would principally arise out of ill-gotten wealth or where people would try to circumvent taxing provisions or other restrictions under law like land ceiling limits etc. Let us take the example of an absolutely honest salaried employee, prohibited under the terms of his employment to earn from any other source, very talented in maths, conducts coaching classes and earns huge amount and purchases a house property in the name of the employee’s live in partner. There may be violation of terms of employment and to hide the same the employee did what the employee did. It can hardly be called ill-gotten.
The Central Government has been steadily taking several steps in order to bring the informal economy within the formal process which would be beneficial to all. Some examples of this concerted effort are Demo net is at ion of high value notes, the amendments to the Ben ami Act, promulgation of the Goods and Services Tax, and linking of PAN and A adhar Card( although the last is under challenge before the Supreme Court ). The intention of the Government seems clear, however, the impact of these measures on the economy will have to be seen. If there are loopholes in these systems, to my mind the Government would work towards plugging loopholes, if the need arises. Violations of the stringent Benami Act attracts seven years in prison and a hefty fine. Is this enough deterrent for people? Given that the Benami Act prior to amendment provided for up to 3 year imprisonment or fine or both, the amendment has brought about quite a change. In addition to the above, post the 2016 amendment the following punitive measures have also been brought in: (i) confiscation of benami property, (ii) rigorous imprisonment of 6 months to 5 years and fine of up to 10% of the fair market value of the benami property for knowing ly providing false information or documents to the authorities ,( iii) rigorous imprisonment for 1 year up to 7 years and a fine of up to 25% of the fair market value of the bena mi property for those abetting or inducting a benami transaction (iv) provisional attachment of property. All these put together ought to act as a significant deterrent for the people.
Violations of the Benami Act attracts seven years in prison and a hefty fine