Benami Transactions (Prohibition) Amendment Act, 2016

Literally, Benami means “without name”. The Benami transactions are those transactions in which the real beneficiary is not the person in whose name the transaction {particularly purchase of property} has been done.  In simple terms, the property is held by one person but amount for it is provided by another. The real owner is hidden and this defrauds public revenue.

Existing law against Benami Transactions

Via the Benami Transactions (Prohibition) Act 1988, parliament has totally prohibited the Benami transactions and made it an offence, prohibiting all suits, claims and actions based upon Benami transactions. This law had several loopholes such as lack of proper implementation machinery, absence of appellate mechanism, lack of provision with centre for vesting confiscated property etc.

To plug the loopholes and replace archaic act, UPA Government had introduced a Benami Transactions (Prohibition) Bill 2011. However, that bill had lapsed when 15th Lok Sabha dissolved. The current government had introduced Benami Transactions (Prohibition) Amendment Bill, 2015 in July 2016 in parliament. This bill has been now passed in both the houses of parliament and has become an act {Benami Transactions (Prohibition) Amendment Act, 2016} with effective from 11th August, 2016.

Salient Features

Property which is and which is not Benami

A Benami transaction is one in which property is held by one person but amount for the same is provided by another.

A property that is held in the name of spouse or child for which the amount is paid out of known sources of income is not Benami. Similarly, joint property of brothers, sisters or other relatives for which amount is paid out of known resources of income is also not Benami.

Benami property may include assets of any kind including movable, immovable, tangible, intangible, any right or assets or legal documents. It also includes Gold and financial security.

Proceedings against Benami Property Beneficiaries

The act authorizes the government to designate an assistant or deputy income-tax commissioner as initiator to start proceedings into a Benami transaction. The officer will refer the case to “adjudicating authority” under this act, which will decide in one year if the transaction / property or asset was Benami.

Adjudicating Authority

The act provides that Adjudicating Authority will be established by the Central Government. It shall be consisting of a Chairperson and at least two other members. A person who has been member of Income Tax or Revenue Service only can become member or chairperson of adjudicating authority. Adjudicating Authorities will exercise jurisdiction, powers and authority conferred under this act.

Once the initiator has referred the case to adjudicating authority, it will decide the case in one year time.

Appellate Tribunal

Appeals against the adjudicating authority’s decision can be taken to the Appellate Tribunal at New Delhi. This tribunal will be established by the Central Government and will be consisting of one chairperson and two other members of which one shall be Judicial member and other shall be an administrative member. The chairperson can also constitute the benches of appellate tribunal.

  • The person to be appointed as Chairperson to the Appellate Tribunal must be a sitting or retired judge of a High Court.
  • A judicial member must have been a member of Indian Legal Service and have held the post of additional secretary or equivalent in that service.
  • The administrative member must have been a member of Indian Revenue Service and have held the post of Chief Commissioner of Income Tax or equivalent post.

Confiscation of the Benami Property and Punishment Provisions

Once an order becomes final, the Benami properties will be confiscated. These properties will be managed and disposed off by the designated officers who will be appointed from among the income-tax officers.

The act provides that the Benamidar {owner of Benami Property} or any other person who abets other person to enter into such transactions will face rigorous punishments ranging from one to seven years in jail. Further, the person may be liable for a fine up to 25% of the fair market value of the property.

Summary and Implications

The core aim of the act is to route the unaccounted money into the financial system; seize Benami properties and prosecute / punish those who are involved in these properties. The amended law has tried to give a clear definition of Benami transactions; established adjudicating authorities; set up appellate tribunal and specified the penalties for entering into the Benami transaction. This law will have long term impacts on real estate industry in the country and will increase the practice of including the correct name in property transactions. This in turn would bring transparency in residential market. With an increased transparency, the risks would be minimized and residential properties transactions would get boost. It will also boost the confidence of lenders {banks or private individuals}. The stringent law would also bring down the prices of real estate because such transactions are done by cash rich investors to park their unaccounted wealth in real estate.

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