PAGE About the Author I-5 Preface I-7 Chapter-Heads I-11 1 EVOLUTION OF THE CONCEPT OF BENAMI TRANSACTION IN INDIA - AN OVERVIEW 1.1 Introduction 1 1.2 Meaning of the term ‘Benami’ 1 1.3 Codification of law by legislation - Various stages 1 1.4 Why amendment of Principal Act, 1988 - Why not new law? 2 2 CONCEPT OF ‘BENAMI’ - (PRINCIPLES EVOLVED IN SOME LANDMARK JUDGMENTS) 2.1 Introduction 4 2.2 Some of landmark cases 4 2.3 Summing up of important principles enunciated by courts 9 3 SHAM TRANSACTION AND ITS CHARACTERISTICSCHANGES EFFECTED IN PBPT ACT, 1988 3.1 Introduction 11 3.2 Sham transactions - Its characteristics 11 Contents I-15
CONTENTS I-16 PAGE 3.3 A sham transaction is not a benami transaction (landmark decisions) 11 3.4 Scope of sham transaction under PBPT Act, 1988 13 4 COMPARATIVE TABLE OF VARIOUS PROVISIONS OF THE PRINCIPAL ACT, 1988 AND THE PBPT ACT, 1988 - AT A GLANCE 4.1 Introduction 15 4.2 Table of various provisions 15 5 DEFINITION OF ‘PROPERTY’ AND ITS SCOPE [SECTION 2(c) OF THE PRINCIPAL ACT, 1988 AND SECTION 2(26) OF THE PBPT ACT, 1988] 5.1 Introduction 25 5.2 Meaning of ‘Property’ 25 5.3 Different shades of meaning of ‘Property’ (As judicially defined) 26 5.4 Enlarged meaning of ‘Property’ in the PBPT Act, 1988 27 5.5 Movable property - Meaning in various statutes 28 5.6 Immovable property - Meaning in various statutes 29 5.7 Tangible property 30 5.8 Intangible property 30 5.9 Corporeal property 30 5.10 Incorporeal property 30 5.11 Property rights 31 5.12 Interest in property 31 5.13 Legal documents or instruments evidencing title to and interest in the property 32 5.14 Instrument 32 5.15 Attestation 32 5.16 Actionable claim 33 5.17 Fair market value 33 5.18 ‘If sold in the open market’ - Connotation of 33
I-17 CONTENTS PAGE 5.19 Land 33 5.20 Right title or interest 34 5.21 Registration of a document 34 5.22 License 35 5.23 Evidentiary value of unregistered documents 35 5.24 ‘Asset’ and ‘Capital asset’ 36 5.25 ‘Assets of any kind’ and ‘Any property’ 36 6 BENAMI PROPERTY [SECTION 2(8) OF THE PBPT ACT, 1988] 6.1 Introduction 37 6.2 ‘Benami Property’ and ‘Proceeds’ of Benami Property 37 6.3 Whether benami property only includes immovable property? 37 6.4 Situs of the benami property 38 6.5 Legal position regarding an undervalued property 38 6.6 Part of the property - Whether can be regarded as ‘Benami Property’? 39 6.7 Benami property held by joint owners 39 6.8 Non-identification of benami property 39 6.9 Non-Identification of ‘Benami Property’ - Effect on issue of Show Cause Notice (SCN) 39 6.10 Proceeds of benami property deposited in bank 40 6.11 Cash deposits in the bank - Source of money 40 6.12 Property acquired out of income from undisclosed source in ones own name 40 6.13 Property acquired by a third party from the benamidar without having any knowledge about the nature of the property [Section 27] 41 7 ‘BENAMI TRANSACTION’ - ITS SCOPE [SECTION 2(a) OF PRINCIPAL ACT, 1988 AND SECTION 2(9) OF THE PBPT ACT, 1988] 7.1 Introduction 42 7.2 Key definitions relating to Benami transaction 42
CONTENTS I-18 PAGE 7.3 Scope of “Benami Transaction” in the Principal Act, 1988 and in the PBPT Act, 1988 43 7.4 Essential ingredients of Benami transaction under section 2(9)(A) of the PBPT Act, 1988 - At a glance 44 7.5 Meaning of some key expressions in section 2(9)(A) of the PBPT Act, 1988 46 7.6 ‘ Transaction’ 46 7.7 ‘Arrangement’ 46 7.8 ‘Consideration’ 47 7.9 ‘Paid or Provided’ 49 7.10 ‘Hold’ - Meaning of 50 7.11 ‘Proceeds’ 50 7.12 ‘Conversion’ 51 7.13 ‘Benefit’ 51 7.14 ‘Direct or indirect benefit’ 51 7.15 ‘ Immediate or future benefit’ 52 7.16 ‘Benamidar’ (ostensible owner) 53 7.17 ‘Beneficial owner’ (real owner) 53 7.18 ‘Fictitious person’ 54 7.19 ‘Transferor’ 54 7.20 ‘Transferred to’ or ‘held by’ 54 7.21 ‘Possession’ 55 7.22 A genuine commercial arrangement - Not a benami transaction 55 7.23 Acquisition of property - Finance from bank 55 7.24 Acquisition of property in one’s own name with genuine unsecured loan 56 7.25 Utilisation of genuine unsecured loan to acquire a property in the name of another person 56 7.26 Bona fide transactions and applicability of benami Law 56 7.27 Property acquired in the name of a relation without enjoying any benefit from the property 57 7.28 Treatment of cash vis-a-vis Benami Transaction - Various situations 57
I-19 CONTENTS PAGE 7.29 Cash kept in locker - Benami Transaction [ref: Chapter 10] 59 7.30 Unclaimed Cash [no claimant] 59 7.31 Cash deposits in bank in post - Demonetization period 60 7.32 Cash deposited in the bank accounts of a relative 61 7.33 A mere custodian of a movable property - Benami transaction 61 7.34 On - Money received in a property transaction by a real estate dealer 61 7.35 On-Money paid in purchase of property by the transferee 62 7.36 Share Capital and share premium - Benami transaction 62 7.37 Company fails to produce the shareholder 62 7.38 Purchase of property by the company out of its share capital - Benami Transaction 63 7.39 Unsubstantiated cash credit and Benami Transaction 63 7.40 Agreed assessment and cash credit under section 68 63 7.41 Unexplained expenditure under section 69C of the Income-tax Act, 1961 - Benami transaction 64 7.42 Source of payment of consideration-out of disclosed and undisclosed source - Impact on Benami transaction 64 7.43 Bogus purchase (accommodation entry) 65 7.44 ‘Gift’ - Benami transaction 65 7.45 ‘Exchange’ - Benami transaction 66 7.46 ‘Relinquishment’ - Benami Transaction 66 7.47 Application of section 64 of Income-tax Act, 1961 - Benami transaction 66 7.48 Acquisition of property out of mixed sources in the name of spouse or in the name of ones child - Benami transaction 67 7.49 Acquisition of property in the names of relations 67 7.50 Splitting of deposits by a retired person in multiple namesEffect of benami law 68 7.51 Share trading in stock exchange 68 7.52 Exclusion of bona fide transactions from the purview of benami transaction 68
CONTENTS I-20 PAGE 8 EXCEPTIONS TO OPERATION OF SECTION 2(9)(A) OF PBPT ACT, 1988 DEFINING ‘BENAMI TRANSACTION’ 8.1 Introduction 70 8.2 Why exceptions? 70 8.3 Exception to clause (A) 71 8.4 Exceptions and exclusions under section 2(9)(A), (B), (C) and (D) of the PBPT Act, 1988 - At a glance 73 8.5 Non-application of exceptions to certain relatives under section 2(9)(A) of PBPT Act, 1988 76 8.6 Holding of property in the name of wife-Changes effected in the PBPT Act, 1988 77 8.7 Import of some key expressions 77 8.8 “Known sources” 77 8.9 Whether ‘Streedhan’ could be a ‘known source’? 78 8.10 Hindu undivided family 79 8.11 Child, step child and illegitimate child 80 8.12 Lineal descendant and lineal ascendant 81 8.13 Cousin 81 8.14 Property falling under section 53A of TP Act [Explanation to section 2(9) of the PBPT Act, 1988] 81 8.15 Joint ownership 82 8.16 Fiduciary capacity and application of benami law [Section 2(9)(A)(ii) of PBPT Act, 1988] 82 8.17 Trustee 83 8.18 ‘Author of the trust’: ‘Trustee’: ‘Beneficiary’: ‘Trust-property’: ‘Beneficial interest’: ‘Instrument of trust’ 83 8.19 Firm and Partner 84 8.20 Burden of proof of fiduciary capacity 84 8.21 Holding of property by the firm in the name of the partner 84 8.22 Holding of property in the name of the director of a company 84
I-21 CONTENTS PAGE 9 EXCLUSIVE CATEGORIES OF BENAMI TRANSACTIONS STIPULATED IN CLAUSE (b), CLAUSE (c) AND CLAUSE (d) TO SECTION 2(9) OF THE PBPT ACT, 1988 9.1 Introduction 86 9.2 Exclusive categories of cases 86 9.3 Transaction covered in clause (b) 87 9.4 Transactions covered in clause (c) 89 9.5 ‘Not aware of and denies his knowledge’ - Impact on benami proceeding 92 9.6 Transactions covered in clause (d) 92 9.7 Cash and jewellery in transit 93 9.8 Application of section 110 of Evidence Act - Benami transaction 93 9.9 Jewellery found in course of search and benami transaction 94 9.10 Dummy director of a company and benami transaction 94 9.11 Anonymous donation 94 10 BENAMIDAR (OSTENSIBLE OWNER) v. BENEFICIAL OWNER (REAL OWNER) [SECTION 2(10) AND 2(12) OF THE PBPT ACT, 1988] 10.1 Introduction 95 10.2 Benamidar (ostensible owner) 95 10.3 Attributes of ostensible ownership 96 10.4 Attributes of beneficial ownership 97 10.5 Source of purchase consideration of benami property - Its implication 97 10.6 Consideration paid out of explained sources by the beneficial owner - Effect of 98 10.7 Taxation of real owner under Income-tax law and its relevance under benami law 98 10.8 Case of a mere license holder 98 10.9 Non-genuine firm and its assessment 99 10.10 Source of income of the benamidar 100
CONTENTS I-22 PAGE 10.11 Ignorance about real state of affairs by the benamidar 100 10.12 Source of income of the benamidar and its relevance 101 10.13 Liquor business-assessment in the hands of license holderA different view 101 10.14 Common partners in the firms 101 10.15 Possession and enjoyment 102 10.16 Possession of the property - Impact on benami transaction 102 10.17 Relationship with managing partner 103 10.18 Joint ownership 103 10.19 Transaction between a company and firm belonging to the same group-test of commercial transaction 104 10.20 Evidences collected by AO cannot be brushed aside in a benami proceeding 104 10.21 Summing up of the principles 105 11 ‘TRANSFER’ UNDER THE PBPT ACT, 1988 & OTHER ALLIED CONCEPTS [SECTION 2(29) & SECTION 57 OF THE PBPT ACT, 1988] 11.1 Introduction 106 11.2 Transfer [Section 2(29) of the PBPT Act, 1988] 106 11.3 Meaning of the word ‘transfer’ 106 11.4 Sale - Its attributes of under TP Act and benami law 107 11.5 Contract for sale of property 109 11.6 Agreement of sale of immovable property 109 11.7 Movable property and sale thereof 110 11.8 Exchange and sale 111 11.9 Gift and sale 112 11.10 Lease 112 11.11 Will and transfer 113 11.12 Transfer of right, title and possession 113 11.13 Lien 114 11.14 Power of Attorney Transfer (POA) 114
I-23 CONTENTS PAGE 11.15 Transfer of immovable properties [landmark judgment in Suraj Lamp’s case] 115 11.16 Transfer of property to be null and void [section 57 of PBPT Act, 1988] 116 12 CONSEQUENCES OF ENTERING INTO BENAMI TRANSACTIONSASPECTS OF DEFENCE [SECTION 3, SECTION 4 AND SECTION 5 OF THE PRINCIPAL ACT, 1988 AND SECTION 3, SECTION 4, SECTION 5 AND SECTION 6 OF THE PBPT ACT, 1988] 12.1 Introduction 117 12.2 Consequences of entering into benami transactions - Principal Act, 1988 and the PBPT Act, 1988 117 12.3 Essential aspects of section 3, section 4 and section 5 of the Principal Act, 1988 and section 3, section 4, section 5 and section 6 of the PBPT Act, 1988 119 12.4 Exceptions to operation of section 4 of the Principal Act, 1988 vis-a-vis the section 2(9)(A) of the PBPT Act, 1988 120 12.5 Objectives behind provisions of section 4 of the Principal Act, 1988 121 12.6 Conjoint reading of section 3 and section 4 of the Principal Act - A requirement 122 12.7 Section 4 and its application to rights of the third partiesSham transaction 122 12.8 Sections 3 and 4 of the PBPT Act, 1988 - Burden of proof 123 12.9 Whether provisions of section 3 of the Principal Act, 1988 is declaratory and can have retrospective operation? 123 12.10 Scope of section 4 of Principal Act, 1988 - Aspects of defence-judicial precedents 124 12.11 Purchase of property by any person in the names of son or married daughter - Effect of [Principal Act, 1988] 125 12.12 Section 5 of the PBPT Act, 1988 - Property held benami liable to confiscation 126 12.13 Section 6 of the PBPT Act, 1988 - Prohibition on re-transfer of property by benamidar - Effect of 126 12.14 Retrospective operation of section 4 of the Principal Act, 1988 (aspects of defence) 127
CONTENTS I-24 PAGE 12.15 Meaning of some key expressions in PBPT Act, 1988 128 12.16 ‘Enter into’ 129 12.17 ‘Any’ 129 12.18 ‘Suit’ 129 12.19 ‘Action’ 129 12.20 ‘Claim’ 129 12.21 ‘Lie’ 129 12.22 ‘Hold’ 130 12.23 Chapters 4 & 3 after Apex Court’s decision in Ganpati Dealcom’s case 130 13 POWERS OF AUTHORITIES TO CONDUCT ENQUIRY [SECTIONS 18, 19, 20, 21, 22, 23 OF THE PBPT ACT, 1988] 13.1 Authorities [Section 18] 131 13.2 Power of authorities [Section 19] 132 13.3 Certain officers to assist in enquiry [Section 20] 132 13.4 Power to call for information [Section 21] 133 13.5 Power of the authority to impound documents [Section 22] 133 13.6 Powers of authority to conduct enquiry etc. [Section 23] 133 13.7 Powers of IO to impound books while exercising the powers under section 23 134 13.8 Detection and identification of benami property 134 13.9 Informers 135 13.10 Whether an inspector of income-tax is an authority under PBPT Act, 1988? 135 13.11 Whether all assistant/Deputy Commissioner can initiate a proceeding under section 24 of the PBPT Act, 1988? 136 14 POWERS OF AUTHORITIES [ISSUE OF SUMMONS UNDER SECTION 19 OF PBPT ACT, 1988] 14.1 Introduction 137 14.2 Statutory framework [Section 19] 137
I-25 CONTENTS PAGE 14.3 ‘For the purposes of the act’ - Connotation of 138 14.4 ‘While trying a suit’ - Connotation of 138 14.5 Meaning of ‘proceeding’ 139 14.6 Meaning of ‘pending’ 140 14.7 Proceeding must relate to a direct but not a related proceeding 140 14.8 Is investigation a proceeding? 140 14.9 Application of mind before issue of summons 140 14.10 Issue of summons for production of ‘all’ documents 141 14.11 No right of silence - Article 20 of the constitution of India 142 14.12 Refusal to answer questions - Section 132 of the Indian Evidence Act 142 14.13 Statement recorded by a person not competent to recordEvidentiary value 142 14.14 Issue a warrant of arrest against a person who intentionally avoids service of summons - Rule 10(3) of order XVI of C.P.C. 142 14.15 Can the authorized representative be present and assist the witness in course of giving evidence? 143 15 POWER TO IMPOUND DOCUMENTS [SECTION 22 OF PBPT ACT, 1988] 15.1 Introduction 144 15.2 Salient features of the provision [Section 22] 144 16 ISSUE OF SHOW CAUSE NOTICE (SCN) AND PROVISIONAL ATTACHMENT [SECTION 24 OF THE PBPT ACT, 1988] 16.1 Introduction 146 16.2 ‘Cause of action’ - Exercise of jurisdiction by BPU 146 16.3 Show cause notice - Importance of 147 16.4 Issue of show cause notice under section 24 - Essential requirements 148 16.5 ‘Reasons to believe’ - Its attributes 149
CONTENTS I-26 PAGE 16.6 Need for recording satisfaction - Finance Minister’s clarification 151 16.7 ‘Material’ - Import of 151 16.8 Information and material 152 16.9 Tangible material - Basis of show cause notice 152 16.10 Recording of reasons and principles of natural justice 153 16.11 Whether initial satisfaction or an order can be improved? 154 16.12 ‘Reasons to believe’ under section 147 of Income-tax Act, 1961 and under section 24 of the PBPT Act, 1988 154 16.13 Rules of natural justice and cross examination at the stage of issuance of notice under section 24(1) 155 16.14 Reasons recorded - Contradictions or inconsistencies of facts 156 16.15 Borrowed satisfaction - Basis of show-cause notice 156 16.16 Statement recorded by another authority - Whether could be the sole basis for initiation of proceeding under section 24? 156 16.17 Asking for reasons recorded for initiation of proceeding under section 24 156 16.18 Identification of benami property - A prior requirement before issue of SCN 157 16.19 Property should be held by the benamidar as on the date of SCN 157 16.20 Fate of benami property transferred after receipt of notice under section 24(1) of PBPT Act, 1988 158 16.21 Nature of transaction (demonetization period) - Issue of SCN 158 16.22 A Prima facie case of benami transaction should be brought out in the SCN [Section 2(9) of PBPT Act, 1988] 158 16.23 Derivation of benefit - Satisfaction note 159 16.24 Information collected from sub-register’s office-basis for initiation of proceeding 159 16.25 Evidence to be gathered before issue of SCN u/s 24(3) 159 16.26 Mere assumption of some non-existent facts - Issue of SCN 160 16.27 Violation of statutory requirement of section 24(1) - Effect of 161 16.28 Every cash transaction cannot take the character of a benami transaction 162
I-27 CONTENTS PAGE 16.29 ‘Consideration’ from legitimate and known source - Issue of SCN 163 16.30 Regular commercial transaction - Whether benami? 164 16.31 Re-initiation of fresh proceeding under section 24(1) - Validity 165 16.32 Transfer of property void after issue of notice under section 24(1) of PBPT Act, 1988 - Section 57 of the PBPT Act, 1988 165 16.33 Re-issue of SCN after the adjudicating authority passes the order holding the property as not a benami property 166 16.34 Whether adjudicating authority has power to remand the case to IO for issue of a SCN afresh? 166 16.35 Principle of res judicata - Reissue of notice under section 24(1) 166 16.36 Failure to draw up the statement of the case within 15 daysEffect on provisional attachment 167 16.37 Rules of procedure - Non-observance of 167 16.38 Exercise of power - Its scope and limitation 168 16.39 Matters relevant, partly irrelevant and neutral evidenceEvaluation of 168 16.40 Writ jurisdiction - Invocation of 168 16.41 Initiation of proceeding after considerable of lapse of time 169 17 PROVISIONAL ATTACHMENT [SECTION 24(3), 24(4) AND 24(5) OF THE PBPT ACT, 1988] 17.1 Introduction 170 17.2 Provisional attachment - Various stages 170 17.3 Exclusion of the period of limitation by Finance Act, 2019 172 17.4 Issue of provisional attachment under section 24(3) statutory requirements 172 17.5 Property acquired prior to coming into force of PBPT Act, 1988 - Effect of 173 17.6 Cancellation of purchase order - Provisional attachment 173 17.7 Provisional attachment under section 24(3) should follow show cause notice under section 24(1) 174 17.8 Scope of provisional attachment - Madras High Court’s view 174
CONTENTS I-28 PAGE 17.9 Can adjudicating authority confirming the provisional attachment as an interim measure and direct the IO for further enquiry [Section 26] 174 17.10 Provisional attachment under section 281B of Income-tax Act, 1961 and its applicability to benami law 175 17.11 ‘Opinion’ - Meaning of 176 17.12 Procedure of attachment - Rule 5 of the PBPT Rules, 2016 read with second schedule of the Income-tax Act, 1961 (immovable property) 177 17.13 Second schedule of the Income-tax Act, 1961 (immovable property) 177 17.14 Filing of writ against provisional attachment 178 18 ATTACHMENT, ADJUDICATION AND CONFISCATION [SECTIONS 24, 26, 27, 28, 29, 30 TO 48, 49, 50 TO 52 & SECTION 66 OF THE PBPT ACT, 1988] 18.1 Introduction 179 18.2 Process of adjudication 179 18.3 Drawing of statement of the case - Reference to adjudicating authority [Section 24(5)] 180 18.4 Adjudication of benami property by the adjudicating authority [Sections 26 and 27] 180 18.5 Need for comprehensive reply by the affected party 181 18.6 Order of adjudicating authority [Section 26] 182 18.7 Show-cause notice issued by the adjudicating authorityWhether an ‘order’ and appealable? 183 18.8 Power of remand by the adjudicating authority 183 18.9 Order of confiscation, vesting of benami property and consequences [Section 27] 183 18.10 Confiscation of the property [Rule 6 of PBPT Rules, 2016] 184 18.11 Role of the administrator under PBPT Act, 1988 [Sections 28 & 29] 185 18.12 Management of confiscated property [Sections 28 & 29 of PBPT Act, 1988 read with Rule 8 of PBPT Rules, 2016] 185
I-29 CONTENTS PAGE 18.13 Disposal of the confiscated property [Rule 9 of PBPT Rules, 2016] 186 18.14 Attachment and confiscation 187 18.15 Multi-story building and confiscation of benami property [Section 26(4)] 187 18.16 Protection to a bona fide purchaser [Section 27(2) of PBPT Act, 1988] 187 18.17 Communication of the order 188 18.18 Principles of natural justice 188 18.19 Violation of principles of natural justice - Effect on order 189 18.20 Appeal against the order of adjudicating authority before appellate tribunal [Section 46 of PBPT Act, 1988 read with rule 10 of PBPT Rules, 2016] 189 18.21 Procedure of filing appeal [Section 46 read with rule 10 of PBPT Rules, 2016] 191 18.22 Powers of appellate tribunal [Section 40 of the PBPT Act, 1988] 191 18.23 Constitution of bench - Discretion of chairperson 192 18.24 Appellate Tribunal’s power while deciding the appeal [Section 46(4) of PBPT Act, 1988] 192 18.25 Condonation of delay for filing appeal before tribunal [Section 46(2) of PBPT Act, 1988] - Sufficient cause 193 18.26 Rectification of mistake [Section 47] 193 18.27 Right to representation before the appellate tribunal [Section 48] 194 18.28 Provisions of Civil Procedure Code - Applicability [Section 40 of the PBPT Act, 1988] 194 18.29 Jurisdiction of the civil court barred [Section 45 of the PBPT Act, 1988] 195 18.30 Appeal to High Court [Section 49 of the PBPT Act, 1988] 195 18.31 What is substantial question of law? 196 18.32 Writ jurisdiction - Various aspects 197 18.33 Proceedings etc. against legal representative [Section 66 of the PBPT Act, 1988] 198 18.34 Whether a show cause notice issued under section 26(3) is an appealable order before appellate tribunal? 198
CONTENTS I-30 PAGE 19
COURT - OFFENCE AND PROSECUTION [SECTIONS 50 TO 55, 62, 64 AND SECTION 2(16) OF THE PBPT ACT, 1988] 19.1 Introduction 199 19.2 ‘Offence’ - Meaning of 199 19.3 ‘Prosecution’ - Meaning of 200 19.4 ‘Cause of action’ - Meaning of 200 19.5 ‘Complaint’ - What should it contain? 201 19.6 Cognizance of an offence - What it connotes? 201 19.7 Special court - Its constitution and function [Sections 50, 51, 52 & 2(28) of the PBPT Act, 1988] 201 19.8 Difference between penalty and prosecution 202 19.9 Should prosecution proceeding await till the decision by the appellate tribunal? 203 19.10 Penalty for benami transaction [Section 53 of the PBPT Act, 1988] 203 19.11 Scope of confiscation and prosecution 204 19.12 Persons coming under section 53 of the PBPT Act, 1988 204 19.13 ‘Abet’ - Meaning of 204 19.14 Punishment under Principal Act, 1988 and the PBPT Act, 1988 206 19.15 ‘Fair market value’ [Section 2(16) of the PBPT Act, 1988] 206 19.16 Confiscation of benami property under section 5 and prosecution under Chapter VII of the PBPT Act, 1988 208 19.17 Offences by companies [Section 62 of the PBPT Act, 1988] 208 19.18 Penalty for false information [Section 54 of the PBPT Act, 1988] 209 19.19 Previous sanction for launching prosecution [Section 55 of the PBPT Act, 1988] 209 19.20 Release of confiscated property and compensation 210 19. 21 Penalty for non -compliance to notices or furnish information [Section 54A of PBPT Act, 1988 with effect from 1-9-2019] 210 19.22 Proof of entries in records and documents [Section 54B with effect from 1-9-2019] 211 19.23 ‘Record’ - Meaning of 211
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I-31 CONTENTS PAGE 19.24 Notings in loose slips - Whether constitutes record? 211 19.25 ‘Document’ - Meaning of 211 19.26 ‘Double jeopardy’ - Its applicability under benami law 212 19.27 Mens rea 212 19.28 Presumption of culpable mental state - Benami law 213 19.29 Nature of offence 213 19.30 Compounding of offences 213 20 ISSUE AND SERVICE OF NOTICE AND COMMUNICATION OF ORDER [SECTIONS 25 AND 63 OF THE PBPT ACT, 1988 & ORDER V OF CIVIL PROCEDURE CODE, 1908] 20.1 Introduction 214 20.2 Statutory framework of section 25 of the PBPT Act, 1988 214 20.3 Procedure for issue and service of notice - Code of Civil Procedure (Order V of Civil Procedure Code, 1908) 215 20.4 Section 27 of General Clauses Act, 1987 - Service of notice 215 20.5 Service through e-mail and whatsapp 216 20.6 Service on non-residents with no agent in India 216 20.7 ‘Issue’ and ‘service’ of notices 216 20.8 Date of signature of the order - Significance of 217 20.9 Notice etc. not to be invalid on certain grounds [Section 63 of PBPT Act, 1988] 218 20.10 Judicial precedents - Service of summons/notices 218 20.11 Participation in the proceeding and waiver of jurisdiction 220 21 OPERATION OF BENAMI LAW & ITS INTERPLAY WITH INCOMETAX ACT, 1961 [SECTIONS 68, 69, 69A, 69B, 69C AND 69D OF THE IT ACT SECTIONS 60 AND 67 OF THE PBPT ACT, 1988] 21.1 Introduction 221 21.2 Basic principles of interpretation of a statute - Clash of jurisdiction 221 21.3 Exercise of exclusive jurisdiction by various authorities 222
CONTENTS I-32 PAGE 21.4 Operation of section 60 and section 67 of the PBPT Act, 1988 222 21.5 Interplay between benami law and income-tax law [Sections 68, 69, 69A, 69B, 69C] 223 21.6 Application section 56(x) of Income-tax Act - Benami law 226 21.7 Capital building cases - Benami transaction 227 21.8 Capital or revenue expenditure - Impact on benami transaction [Section 37] 228 21.9 Penalty under section 271 AAB and benami transaction [search cases] 228 21.10 Penalty under section 270A and misreporting of income 229 21.11 Income offered to buy peace and avoid litigation - A word of caution 229 21.12 Is there any conflict between benami law with income-tax law? 229 21.13 Income-tax assessment - Effect on operation of benami law 230 21.14 Provisions of sections 3 and 4 of the PBPT Act, 1988 - Effect on income-tax proceeding 230 21.15 Section 147 of IT Act and benami law 230 21.16 Estimated income and benami law 231 21.17 Settlement commission and benami law 231 22 INTERPLAY BETWEEN BENAMI LAW WITH OTHER ENACTMENTS 22.1 Introduction 232 22.2 Income-tax law, law relating to Prevention of Corruption Act and benami transaction 232 22.3 Benami law and PMLA 233 22.4 Objectives behind PMLA and Benami Act 234 22.5 Scope of attachment under PBPT Act, 1988 and under PMLA Act, 2002 235 22.6 Interplay between benami law and provisions of Companies Act 235 22.7 Section 41 of Transfer of Property Act, 1882 - Transfer by ostensible owner-effect on benami transaction 236 22.8 Immunity provided under IDS Scheme 2016 and PMKGY Scheme 238
I-33 CONTENTS PAGE 23 OPERATION OF BENAMI LAW [RETROSPECTIVITY AND PROSPECTIVITY] 23.1 Introduction 239 23.2 Different stages of operation of benami law over the years 239 23.3 Maxwell on the interpretation of statutes - Issue of retrospectivity 240 23.4 Parliament’s power to enact law - Constitutional provisions 240 23.5 Observations in 130th report of law commission on ‘benami transactions’ 241 23.6 Cardinal principles of operation of law 241 23.7 Clarification by the finance minister on the issue of retrospectivity 242 23.8 Scope of substantive law and procedural law - Essential aspects 242 23.9 Judicial precedents on retrospectivity 243 23.10 Declaratory law and clarificatory law - Retrospectivity 245 23.11 ‘Doctrine of fairness’ - Operation of law 246 23.12 Issue of retrospectivity - Some landmark judgments 246 23.13 Scope of operation of benami law contained in principal Act, 1988 vis-a-vis PBPT Act, 1988 - Recently decided cases 250 23.14 Divergent views on operation of benami law - Summing up 261 23.15 Differing views 263 24 BURDEN OF PROOF IN BENAMI TRANSACTION 24.1 Introduction 267 24.2 Burden of proof by operation of law 267 24.3 Burden of proof and onus of proof 267 24.4 Burden of proof relating to a document 268 24.5 Various stages in a trial - Evaluation of evidence 268 24.6 Preponderance of probabilities - Standard of proof 269 24.7 Burden of proof in benami transactions and judicial precedents 270
CONTENTS I-34 PAGE 24.8 Burden of proof in benami transaction- Recent legal precedents 273 24.9 Applicability of sections 91 and 92 of Indian Evidence Act to benami transaction - Discharge of initial burden 276 24.10 Discharge of burden in benami transaction - The predominant view 276 25 INTENTION AND BENAMI TRANSACTION 25.1 Introduction 277 25.2 Intention in criminal and civil proceedings 277 25.3 Importance of intention - View of the parliamentary committee 277 25.4 Ingredients of intent in a benami transaction 278 25.5 Intention and motive 279 25.6 Knowledge and intention 279 25.7 Is payment of consideration by the real owner enough to infer motive behind a benami transaction ? 279 25.8 Tests to judge the import of intention 280 25.9 Attempt, intention and Criminal Act - Various aspects 281 25.10 Evidence of intent in benami transaction 281 25.11 Documentary and circumstantial evidence indicating intention 281 25.12 Suspicion and benami transaction 282 25.13 Motive to avoid payment of income-tax - How far relevant in the context of benami transaction? 282 26 BONA FIDE TRANSACTION - SCOPE OF 26.1 Introduction 284 26.2 What is ‘bona fide’ and what is not? 284 26.3 Ingredients of bona fide transaction 284 26.4 Exclusion of bona fide transactions from the purview of benami transaction 285
I-35 CONTENTS PAGE 27 FRAUD AND BENAMI TRANSACTION 27.1 Introduction 287 27.2 Benami transaction and fraudulent motive 287 27.3 Impact of fraud in a suit 287 28 DOCTRINE OF SUBSTANCE OVER FORM - BENAMI LAW 28.1 Introduction 289 28.2 Raison d’etre behind a benami transaction 289 28.3 Attributes of the doctrine 290 28.4 ‘Form’ and ‘substance’ theory 290 29 BENAMI LAW AND RULES OF EVIDENCE 29.1 Introduction 292 29.2 Strict rules of evidence - Taking of official notice by quasi judicial authorities 292 29.3 Documentary evidence and benami transaction 293 29.4 Evidentiary value of photocopy of a document 293 29.5 Utilisation of electronic/digital evidence - Procedure to be followed 294 29.6 Oral evidence - Evaluation of 294 29.7 Modes of proving contents of a document 295 29.8 ‘Best evidence rule’ - Relevance in benami transaction 295 29.9 ‘Consideration’ mentioned in a written document benami transaction 297 29.10 ‘Best evidence rule’ under Indian Evidence Act and section 67 of the PBPT Act, 1988 297 29.11 Use of circumstantial evidence and benami transaction 298 29.12 Supreme court on circumstantial evidence 299 29.13 Surrounding circumstances - Benami transaction 300 29.14 ‘Balance of probabilities’ - Benami transaction 301
CONTENTS I-36 PAGE 29.15 Presumption and benami transaction 302 29.16 Benefit of doubt and proof beyond reasonable doubt - Application to benami transaction 302 29.17 Absolute certainty - Benami transaction 303 29.18 Affidavit - Evidentiary value 303 29.19 Notings on loose papers - How far relevant in a benami transaction? 304 29.20 ‘Books of account’ - Import of 304 29.21 Entries in books of account - How far relevant in a benami proceeding? 305 29.22 Relevancy of entry in public records and benami transaction (section 35 of Indian Evidence Act) 305 29.23 Admission - Scope of 306 29.24 Retraction - Its relevance 307 29.25 Examination of witness - Various stages 309 29.26 Cross - Examination 309 30 ACTION POINTS AND TIME LIMITS FOR VARIOUS ACTIONS UNDER PBPT ACT, 1988 - AT A GLANCE 30.1 Introduction 311 30.2 Table 311 31 FREQUENTLY ASKED QUESTIONS (FAQs) Introduction 321 APPENDICES APPENDIX 1 : SECTION 28, READ WITH SECTION 59, OF THE PROHIBITION OF BENAMI PROPERTY TRANSACTIONS ACT, 1988 AND SECTION 166 OF THE INCOME-TAX ACT, 1961 - CONFISCATED PROPERTIES - MANAGEMENT OFNOTIFIED INCOME-TAX AUTHORITIES 349 APPENDIX 2 : BENAMI TRANSACTIONS INFORMANTS REWARD SCHEME, 2018 362
3 : SECTION 50 OF THE PROHIBITION OF BENAMI PROPERTY TRANSACTIONS ACT, 1988 – SPECIAL COURTS
4 : ALLOCATION OF JURISDICTION AMONG COMPETENT AUTHORITIES AUTHORIZED UNDER SECTION 5(1) OF SMUGGLERS AND FOREIGN EXCHANGE MANIPULATORS (FORFEITURE OF PROPERTY) ACT, 1976 FOR THE PURPOSE OF SECTION 7 OF THE PROHIBITION OF BENAMI PROPERTY TRANSACTIONS ACT, 1988
I-37 CONTENTS PAGE APPENDIX
– DESIGNATED COURT(S) OF SESSION AS
COURT(S) FOR TRIAL OF OFFENCES PUNISHABLE UNDER PROVISIONS OF SAID ACT 379 APPENDIX
388
SPECIAL
2.1 INTRODUCTION
The connotation of the term ‘benami’ was the subject matter of deliberation over a period of years by various courts as also by Text Book writers. However, some essential principles enunciated in these cases although in the past, forms the sheet anchor of various decisions rendered both under the Principal Act, 1988 as also under the PBPT Act, 1988. These principles are time tested and key to interpretation of law on benami transaction.
2.2 SOME OF LANDMARK CASES
(i) Sree Meenakshi Mills Ltd. v. CIT 1957 AIR 49
In this case, the main issue was taxability of income under Income-tax Act in the context of transactions effected by an assessee in the names of dummy firms and companies. While deciding the issue, the connotation of the term ‘benami’ was subject matter of deliberation. The ITAT on the basis of factual evidence came to the conclusion that sales effected by the assessee-company in the names of certain intermediaries, firms and companies were solely for the purpose of concealing the profit. These entities were found to be fictitious and actual transactions were done by the assessee-company directly with various parties and only entries were made in the books as if the goods were sold through these intermediaries. Although the case related to taxability of the transactions effected in the names of intermediaries, the issues relating to benami and sham transaction also came up for consideration. The observations of the Court were:-
The question of benami is purely a question of fact and not a mixed question of law and fact as the same does not involve the application of any legal principle.
It was observed that-“In this connection, it is necessary to note that the word ‘benami’ is used to denote two classes of transactions which differ from each other in their legal character and
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CHAPTER 2
Concept of ‘Benami’ –(Principles evolved in some Landmark Judgments)
incidents. In one sense, it signifies a transaction which is real, as for example when A sells properties to B but the sale deed mentions X as the purchaser. Here the sale itself is genuine, but the real purchaser is B, X being his benamidar. This is the class of transactions which is usually termed as benami.”
“But the word ‘benami’ is also occasionally used, perhaps not quite accurately, to refer to a sham transaction, as for example, when A purports to sell his property to B without intending that his title should cease or pass to B. The fundamental difference between these, two classes of transactions is that whereas in the former there is an operative transfer resulting in the vesting of title in the transferee, in the latter there is none such, the transferor continuing to retain the title notwithstanding the execution of the transfer deed. It is only in the former class of cases that it would be necessary, when a dispute arises as to whether the person named in the deed is the real transferee or B, to enquire into the question as to who paid the consideration for the transfer, X or B. But in the latter class of cases, when the question is whether the transfer is genuine or sham, the point for decision would be, not who paid the consideration but whether any consideration was paid.”
In effect, the Court held that a sham transaction cannot be held as a benami transaction.
(ii) Jayadayal Poddar (Deceased) through LRs v. State of Bihar v. Mst. Bibi Hazira and Others 1974 AIR 171
The appeal in this case arose out of a suit for possession of a house and also for damages for use and occupation the said house. This resulted in determination of two connected issues - (a) the issue of benami and (b) burden of proof. It was held that in order to decide whether a particular sale is benami or not, facts of the case are required to be judged. For the purpose, no absolute formulae or acid tests, can be uniformly laid down in all situations. Yet, the Courts can take into account probabilities of the case. It led down some useful and basic guiding principles to decide whether a transaction is benami or not. the source from which the purchase money came; the nature and possession of the property after the purchase; motive, if any, for giving the transaction a benami colour; the position of the parties and the relationship, if any between the claimant and the alleged benamidar; the custody of the title deeds after the sale;
5 SOME OF LANDMARK CASES Para 2.2
the conduct of the parties concerned in dealing with the property after the sale;
The Court further observed:-
“It is well settled that the burden of proving that a particular sale is benami and the apparent purchaser is not the real owner, always rests on the person asserting it to be so. This burden has to be strictly discharged by adducing legal evidence of a definite character which would either directly prove the fact of Benami or establish circumstances, unerringly and reasonably raising an inference of that fact. The essence, of a benami is the intention of the party or parties concerned; and not unoften such intention is shrouded in a thick veil which cannot ‘be, easily pierced through. But such difficulties do not relieve the person asserting the transaction to be benami of any part of the serious onus that rests on him; nor justify the acceptance of mere conjectures or surmises, as a substitute for proof. The reason is that a deed is a solemn document prepared and executed after considerable deliberation and the, person expressly shown as the purchaser or transferee in the deed, starts with the initial presumption in his favour that the apparent state, of affairs is the real state of affairs. Though the question, whether a particular sale is Benami or not, is largely one of fact, and for determining this question, no absolute formulae or acid tests, uniformally applicable in all situations, can be laid down; yet in weighing the probabilities and for gathering the relevant indicia, the courts are usually guided by these circumstances.”
(iii) Thakur Bhim Singh (Dead) Through LRs v. Thakur Kan Singh [1980] 3 SCC 72
This case related to ownership of a property. The decision in the case laid down some important guiding principles to determine whether a transfer can be characterized as a benami transaction or not ? Following guidelines were laid down by the Court:
The burden of showing that a transfer is a benami transaction lies on the person who asserts that it is such a transaction;
If it is proved that the purchase money came from a person other than the person in whose favour the property is transferred, the purchase is prima facie assumed to be for the benefit of the person who supplied the purchase money, unless there is evidence to the contrary;
The true character of the transaction is governed by the intention of the person who has contributed the purchase money;
The question as to what was his intention has to be decided on the basis of the surrounding circumstances, the relationship of the parties, the motives governing their actions in bringing about the transaction and their subsequent conduct etc.;
Para 2.2 CONCEPT OF BENAMI 6
The Court while referring to other decisions laid emphasis on the source of purchase money and intention of the parties to the transaction in order to determine the question of benami and
The conduct of the parties concerned in dealing with the property after the sale.
(iv) Smt P. Leelavathi (D) by LRs v. V. Shankarnarayana (D), Civil Appeal No. 1099 of 2008 Order dt.9-4-2019 (SC)
Facts of this case were that Smt P. Leelavathi (Plaintiff), daughter of late Sri G. Venkata Rao had filed a civil suit in the Trial Court against her brothers (Defendants) for partition and for recovery of one-fourth share from the suit properties. These properties comprised of immovable properties and movable properties like deposits in banks and investment in shares held in the names of defendants. Her contention was that her father was a man of substantial means and had purchased these properties out of his sources. These properties were acquired benami in the names of her brothers. Therefore, she was entitled to one-fourth share in all the properties. The contentions raised by the plaintiff that the properties owned by the defendants were benami properties was repelled by the Trial Court. In the first round of appeal before the High Court, the plaintiff was successful and it was held that the properties in the names of defendants were benami properties. Thus, the plaintiff was entitled to one-fourth share in the said property. In this background the short question for consideration by Supreme Court was whether in the facts and circumstances of the case and merely because some financial assistance has been given by the father to the sons to purchase the properties, can the transactions be said to benami in nature? The Court laid down the following principles:Merely because some financial assistance was given by someone to acquire a property, that would not make the transaction a benami transaction.
Providing some money for acquisition of a property cannot be the sole determining factor. The Court has to strictly evaluate the attendant facts and circumstances of the case and go beyond the source of fund to decide whether a transaction benami or not. It was held that consideration cannot be sole criterion although the same may be one of the essential ingredients of benami transaction.
It was observed that the factum of benami should be proved beyond doubt.
7 SOME OF LANDMARK CASES Para 2.2
(
The burden of proof that the apparent purchaser is not the real owner lies on the person asserting so. He should adduce legal evidence of a definite character which would prove the benami nature of the transaction. In the alternative, if the evidence adduced by the plaintiff is based on circumstantial evidence, the same should be unerring and reasonable to proof the nature of transaction to arrive at any inference. The Court relied on the tests laid down in Jayadayal Poddar’s case.
It was observed that intention of the parties is key to decide the nature of transaction. In the case before the Court, the father provided financial assistance to both the plaintiff and defendants for various purposes in acquiring properties by them. In a case of such type, the intention has to be proved beyond doubt.
It was observed that the intention behind a benami transaction is shrouded in a thick veil. Such a veil although cannot be pierced so easily, the same would not relieve the party who wishes the court to believe that the transaction is benami, from discharge of onus.
With all the above observations, the Court dismissed the case of the plaintiff.
v) In Mangathai Ammal (Dead) through LRs v. Rajeswari (Civil Appeal Number 4805 of 2019 Order dt. 9.5.2019)
The main contention of the plaintiff was that suit properties were ancestral properties. Her late husband had inherited the same being legal heir for his share along with others. The suit was resisted by Defendant No. 1 (namely Mrs. Mangathai Ammal) on the ground that suit properties were her self-acquired properties. Therefore, the plaintiffs have no right of inheritance in it. The Trial Court decided in favour of the Plaintiffs with a finding that the Plaintiffs are entitled to share in suit properties the same being ancestral properties and as the Plaintiffs are legal heirs. The High Court confirmed the order of the Trial Court giving rise to appeal before Supreme Court. In this factual background, the issue of benami came up for consideration before the Apex Court. The Court followed the decision in the case of Jaydayal Poddar v. Bibi Hazra (Mst.) (1974) 1 SCC 3:
It was held that the burden of proving that a particular sale is benami and the apparent purchaser is not the real owner, rests on the person asserting to be so.
The Court also followed the principles enunciated in the case of Thakur Bhim Singh v. Thakur Kan Singh (1980) 3 SCC 72.
Para 2.2 CONCEPT OF BENAMI 8
ENUNCIATED BY COURTS Para 2.3
The Court expressed the view that the payment of part sale consideration cannot be the sole criteria to hold the sale/ transaction as benami. The intention of the person who contributed the purchase money is determinative of the nature of transaction. The intention of the person, who contributed the purchase money, has to be gathered and decided on the basis of the surrounding circumstances; the relationship of the parties; the motives governing their actions in bringing about the transaction and their subsequent conduct etc.
Another crucial finding related to the issue of retrospectivity.
The Court following the principle enunciated in the case of Binapani Paul v. Pratima Ghosh 2007 6 SCC 100 as under:—
“It is required to be noted that the benami transaction came to be amended in the year 2016. As per Section 3 of the Benami Transaction (Prohibition) Act, 1988, there was a presumption that the transaction made in the name of the wife and children is for their benefit. By Benami Amendment Act, 2016, Section 3(2) of the Benami Transaction Act, 1988 the statutory presumption, which was rebuttable, has been omitted. It is the case on behalf of the respondents that therefore in view of omission of Section 3(2) of the Benami Transaction Act, the plea of statutory transaction that the purchase made in the name of wife or children is for their benefit would not be available in the present case. Aforesaid cannot be accepted. As held by this Court in the case of Binapani Paul (Supra) the Benami Transaction (Prohibition) Act would not be applicable retrospectively.”
A reading of this decision would show that the issue of retrospectivity was not the subject matter of dispute before the Court. The opinion expressed by the Court appears to be an obiter dicta. It did not lay down the principle that the PBPT Act, 1988 is prospective. Hence, reliance placed on this decision that the PBPT Act, 1988 is prospective may not be correct at this stage till final decision by the Apex Court is pronounced.
2.3 SUMMING UP OF IMPORTANT PRINCIPLES ENUNCIATED BY COURTS
Following are some of the important principles laid down in various decisions as discussed above:—
The question of benami is a question of fact. Various tests laid down by Courts have to be appreciated cumulatively. A single test will not characterize a transaction as benami. Providing some money or financial assistance in a property transaction is not determinative of judging whether a transaction is benami or not.
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PRINCIPLES
IMPORTANT
Evidences should take into account documentary, oral and circumstantial evidence. Circumstantial evidence should be prima facie unerring. It should not base on suspicion and surmise.
Burden of proof lies on the person who asserts that the transaction is benami
Intention or motive of the parties to the transaction is an important factor.
Para 2.3 CONCEPT OF BENAMI 10
