Be­nami Act: Ef­fec­tive tool to curb black money men­ace

Govt can con­fis­cate the prop­erty with­out pay­ing any com­pen­sa­tion to the buyer or be­nam­dar

Hindustan Times (Chandigarh) - Estates - - NEWS - Nam­rata Kohli feed­back@hin­dus­tan­ (Nam­rata Kohli tracks ev­ery­thing from house to home, from real es­tate to in­te­ri­ors and cap­tur­ing key trends in prop­erty mar­kets in In­dia and glob­ally)

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

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