Amid steps of the Modi government to crackdown on ‘Black Money’, the 28 yr old law of Benami Transactions (Prohibition) Amendment Act was amended in July 2016. The amended act came into effect from 1st November, 2016.

What is Benami?

Benami in Hindi means without name. This Act uses the word ‘benami’ to define a transaction in which the actual beneficiary is not the one in whose name the property is purchased – who is basically an identity cloak – the “benamidar”. The actual beneficiary is the person financing the deal.

So, a property bought by an individual not under his or her name is benami property. It can include property held in the name of spouse or child for which the amount is paid out of known sources of income. A joint property with brother, sister or other relatives for which the amount is paid out of known sources of income also falls under benami property. The transaction involved in the same is called benami transaction.

In India people would invest their black money in buying benami property to evade taxation. The real owner of these properties would be hard to trace due to fake names and identities.

The person on whose name the property is purchased is called benamdar.

What is Benami Property

Under the 2016 Act, the term “Benami Property” under section 1(8) has been defined as under:

  • A Benami Property means any property which is the subject matter of a benami transaction AND also includes the proceeds from such property.

What assets fall under the Act’s purview?

These may include buying assets of any kind — movable, immovable, tangible, intangible, any right or interest, or legal documents, and even gold or financial securities – could qualify to be benami.

Scope of the law: The transactions covered will be

  1. (a) Where the property was held by or transferred to one person but the consideration was provided for or paid by another individual; and (b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration.
  2. Deals are in a fictitious name;
  3. The owner is unaware of or denies knowledge of the ownership, or
  4. The person providing the consideration for the property is not traceable or is fictitious

The Act prohibits resale of the benami property from the benamidaar to the real owner (or to any person acting on his behalf). Such transactions will be null and void.

Penalty Applicable on Benami

  • Any person who had entered into any benami transaction prior to the commencement of the 2016 Act shall be punishable with imprisonment for a term which may extend to three years or with fine or with both.
  • Under Section 53 of the 2016 Act, whosoever enters into any benami transaction on and after the date of commencement of the 2016 Act i.e. 11th November 2016, and any other person who abets or induces any person to enter into the benami transaction, shall be guilty of the offence of benami transaction and shall be punishable with rigorous imprisonment for a term which shall not be less than one year, but which may extend to seven years and shall also be liable to fine which may extend to 25% of the fair market value of the property.

Exceptions to the Benami Law

The Benami Law is not enforceable where transactions such as below are entered into

(i) Property is held by 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) Property is held by 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) 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.

(iv) 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.

Read on for Impact Analysis of the Benami Transactions (Prohibition) Amendment Act.

 

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