BENAMI LAW/ BLACK MONEY LAWAT A GLANCE 1
WHAT IS ‘BENAMI TRANSACTION’?
Benami transaction is a transaction or arrangement whereby the identity of real owner (beneficial owner) of property is concealed by showing someone else (benamidar) as owner on record. The beneficial owner provides or pays consideration for purchase of property. Benami transactions can be entered into by ‘any person’ (viz., individual, HUF, firm, company, trust, etc.). The benamidar can be any person. So also, the beneficial owner can be any person.
There are 4 categories of Benami Transactions
CATEGORY I : TRANSACTION OR ARRANGEMENT WHERE CONSIDERATION PROVIDED BY PERSON OTHER THAN THE TRANSFEREE OR THE PERSON IN WHOSE NAME PROPERTY IS HELD
Under category I, all the following conditions must be satisfied for a transaction to be called a benami transaction :
The transaction or arrangement actually takes place;
Transaction or arrangement results in property being transferred to, or property being held, by a person (benamidar);
Consideration is paid or provided by person other than the benamidar. Such person is called ‘beneficial owner’; Neither the benamidar nor the beneficial owner is fictitious or untraceable;
Benamidar is aware of and does not deny the transaction or arrangement;
The possession of property is with benamidar ; and I-9
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The property is held by the benamidar for the immediate or future benefit, direct or indirect, of the person providing the consideration (beneficial owner).
Exceptions to Category I Benami Transactions
In following circumstances transactions shall not be regarded as ‘Benami Transactions’, even though consideration is paid by someone other than the benamidar (person in whose name property is held) and the property is held in benamidar’s name.
1. HUF PROPERTY HELD IN THE NAME OF KARTA/MEMBERS OF HUF - To avail the exception, following conditions need be satisfied :
Property is held by karta or member of HUF; Property is held for benefit of karta or other members of HUF; and
Consideration is paid out of known sources of HUF.
2. PROPERTY HELD IN FIDUCIARY CAPACITY - To avail the exception following conditions need be satisfied :
Property is held by a person standing in fiduciary capacity (viz., as trustee, executor, partner, agent, director of a company, etc.).
Property is held for the benefit of another person towards whom he stands in fiduciary capacity (viz., trust/beneficiary of trust, firm, principal, company, etc.)
3. PROPERTY HELD IN THE NAME OF SPOUSE OR CHILD - To avail the exception following conditions need to be satisfied:
Property is held by individual in name of spouse or child. Consideration is paid out of known sources of individual.
4. Property held by individual in joint names of self and brother/ sister/Lineal ascendent (grandson or grand daughter/great grandson or daughter)/Lineal descendent (Parents/grand parents/ great grand parents) : To avail the exception following conditions need be satisfied :
Property is held by individual in joint names of himself or his brother/sister/lineal ascendent or lineal descendent in a document other than the title deed.
Consideration is paid out of known sources of individual.
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CATEGORY II : WHERE TRANSACTION IS CARRIED OR MADE IN A FICTITIOUS NAME
Transaction or arrangement in respect of property is benami transaction if transaction is carried out or made in a fictitious name.
In other words, the benamidar is fictitious person or entity or nonexistent person or entity.
For example, entry in books show money payable to ‘Mirchi Seth’. However creditor ‘Mirchi Seth’ is not traceable and is a fictitious person.
CATEGORY III : BENAMIDAR NOT AWARE OF OR DENIES KNOWLEDGE OF TRANSACTION
Transaction or arrangement in respect of property is benami transaction if owner is not aware of, or denies knowledge of, such ownership.
For example, a black money hoarder B deposits Rs. 30 lakhs in Jan Dhan bank account of X a labourer. X has no clue how that money landed in his account and expresses shock when told of it. He denies knowing B or ever having met B or ever talking to him personally or over phone. Bank balance of X, to the extent of Rs. 30 lakhs, is benami property.
For example, jewellery seized from the lockers of a corrupt bureaucrat/politician raided by CBI is explained by him as streedhan of wife. Wife denies any knowledge of these jewellery. These jewellery are benami property.
CATEGORY IV : BENEFICIAL OWNER WHO PAID CONSIDERATION IS FICTITIOUS OR IS UNTRACEABLE
Transaction or arrangement in respect of property is benami transaction if beneficial owner is fictitious or is untraceable.
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WHAT IS BENAMI PROPERTY/BENAMIDAR/ BENEFICIAL OWNER
➢ WHAT IS BENAMI PROPERTY?
Benami property is any property which is subject matter of benami transaction. It can be in any form viz., Immovable property
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Movable property e.g. - cash, jewellery, bank deposits
Intangible property
Tangible property
Corporeal or incorporeal property
➢ BENAMIDAR
It means a person (individual/HUF/firm/company/AOP/BOI/ AJP) in whose name benami property is transferred to or held.
Benamidar may be actual person or fictitious/non-existent person or entity.
Benamidar can be even a mere name-lender, i.e., where possession of property is with beneficial owner and not with benamidar and only his name is used.
➢ BENEFICIAL OWNER
Beneficial owner is the person for whose benefit property is held by Benamidar.
It is immaterial that identity of beneficial owner is known or not known.
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CONSEQUENCES OF BENAMI TRANSACTION
➢ BENAMI TRANSACTIONS ENTERED INTO PRIOR 1-11-2016
The following are the legal consequences of benami transactions entered into prior to 1-11-2016 (i.e. prior to the commencement of the Amendment Act of 2016) in States and Union Territories other than the erstwhile state of Jammu and Kashmir (as it existed till 30-10-2019):
➢ CRIMINAL LIABILITY FOR BENAMI TRANSACTIONS
No prosecution/punishment for Benami transactions entered into prior to 1-11-2016
1. In Union of India v. Ganpati Dealcom (P.) Ltd. [2022] 141 taxmann.com 389, the Supreme Court held as under:
As section 3 (punishment benami transactions) read with sections 2(a) [definition of ‘benami transaction’] and 5 [Property held benami liable to acquisition] of unamended 1988 Act which dealt with criminal proceedings were overly broad, disproportionately
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harsh and operate without adequate safeguards in place and as such provisions were still born law and were never utilized in first place, sections 3 and 5 of unamended 1988 Act were unconstitutional from their inception.
Sections 3 and 5 being unconstitutional under 1988 Act, would mean that 2016 amendments were, in effect, creating new provisions and new offences and was not merely procedural in nature and, thus, 2016 amendments containing criminal provisions can only be applied prospectively and not retroactively.
Section 3(2) [sic: section 3(3)] of the unamended 1988 Act is declared as unconstitutional for being manifestly arbitrary. Accordingly, Section 3(2) of the amended Act [erstwhile section 3(3) renumbered in unamended Act as section 3(2) in amended Act] is also unconstitutional as it is violative of Article 20(1) of the Constitution.
Thus, criminal prosecution or confiscation proceedings could not be initiated for transactions entered into prior to coming into force of 2016 Amendments, i.e 25-10-2016.
➢ CIVIL CONSEQUENCES OF BENAMI TRANSACTIONS
Prohibition of the right to recover property held benami
2. No suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a person claiming to be the real owner of such property. [Section 4(1)]
The only claim of a contributor to the purchase consideration of a property, can be for recovery of such purchase consideration and contribution to purchase consideration does not create any title or interest in the property in favour of person so contributing, [Satish Kumar Gupta v. Shanti Swaroop Gupta 2018 SCC OnLine Del 9651 and K.L. Garg v. Rajesh Garg 2013 SCC OnLine Del 323]
The exception to the above rule is transactions covered by exceptions (i),(iii) and(iv) to section 2(9)(A). These transactions would otherwise be considered as benami transactions under section 2(9)(A) but are excluded from the ambit and rigours of the benami law. In case of these transactions, real owner will be the beneficial owner/provider or payer of consideration if the evidence shows that he never intended to benefit the person in whose name property is bought/registered. [Arun Das v. Smt. Aparna Das [2021] 132 taxmann.com 285 (Tripura)]
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No defence shall be allowed in any suit based on any right in respect of any property held benami
3. No defence based on any right in respect of any property held benami, whether against the person in whose name the property is held or against any other person, shall be allowed in any suit, claim or action by or on behalf of a person claiming to be the real owner of such property.
Confiscation proceedings could not be initiated for benami transactions entered into prior to coming into force of 2016 Amendment Act, i.e 25-10-2016
4. In Union of India v. Ganpati Dealcom (P.) Ltd [2022] 141 taxmann.com 389, the Supreme Court held that confiscation proceedings could not be initiated for benami transactions entered into prior to coming into force of 2016 Amendments, i.e 25-10-2016 [See also point no. 4 above]
Prohibition on re-transfer of property by benamidar
5. No person, being a benamidar shall re-transfer the benami property held by him to the beneficial owner or any other person acting on his behalf. Any such re-transfer shall be null and void. However, this prohibition shall not apply where re-transfer is made in accordance with Income Declaration Scheme, 2016 i.e. in accordance with section 190 of the Finance Act, 2016.
No action for specific performance if agreement to sell suffers from vice of benami transaction as it is hit by section 23 of Contract Act
6. If an agreement to sell suffers from the vice of benami transaction, the same falls in the category of contracts forbidden by law as contemplated under section 23 of the Indian Contract Act, the object whereof is unlawful. Hence, in executable in an action for specific performance. [Satish Kumar Khandelwal v. Rajendra Jain Judgment of Madhya Pradesh High Court dated 16 March, 2020 in First Appeal No. 647/2008 (AFR.)]
In case of the erstwhile State of Jammu & Kashmir (as it existed till 30-10-2019), the above consequences shall not apply. Only section 281A of the Income-tax Act,1961 applied to the erstwhile state of Jammu and Kashmir.
➢ BENAMI TRANSACTIONS ENTERED INTO ON OR AFTER 1-11-2016 (A) FOR STATES AND UNION TERRITORIES, OTHER THAN JAMMU & KASHMIR AND LADAKH
CRIMINAL LIABILITY FOR BENAMI TRANSACTIONS
Benami transaction is a punishable offence and is non-cognisable
1. Whoever enters into any benami transaction on or after 1-11-2016 shall be punishable in accordance with section 53 of the Act.
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Section 53(1) provides that where any person enters into a benami transaction in order : to defeat the provisions of any law or to avoid payment of statutory dues or to avoid payment to creditors, the following shall be guilty of the offence of benami transaction: beneficial owner, benamidar and any other person who abets or induces any person to enter into benami transaction
Where any person is found guilty of the offence of benami transaction as above, he shall be punishable with rigorous imprisonment for a term not less than one year but which may extend to 7 years and shall also be liable to fine which may extend to 25% of the fair market value of the property.
The Finance (No. 2) Act, 2024 has inserted a new section 55A in the PBPT Act, with effect from 1-10-2024. Section 55A empowers the Initiating Officer to tender immunity from prosecution to the benamidar on the terms that he turns approver and makes full and true disclosure of all circumstances related to the Benami transaction. The Explanatory Memorandum to the Finance (No. 2) Bill, 2024 explains the provisions of section 55A as follows:
“........ Due to same quantum of penalty & prosecution as is imposable in the case of beneficial owner and abettor, benamidars do not come forward to give evidence against the beneficial owner.
2. Further, many benamidars being of poor means and illiterate, imposing on them the same penalty as the beneficial owner of such a benami transaction could be disproportionate in nature. Alternatively, if such benamidars were to become approvers, it would help in gathering clinching evidence and details about benami properties and result in convictions of the beneficial owners, thus strengthening the regime.
3. Furthermore, various other laws of the land provided for a tender of pardon/immunity from prosecution/reduced penalty in cases where the witness assists in the due process of law.
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4. It is thus proposed to insert a new section 55A in the PBPT Act, 1988, to provide that the Initiating Officer may, with a view to obtaining the evidence of the benamidar or any other person as referred to in section 53, other than the beneficial owner, tender to such person immunity from penalty for any offence under section 53, with the previous sanction of the competent authority as referred to in section 55, on condition of his making a full and true disclosure of the whole circumstances relating to the benami transaction. A tender of immunity made to, and accepted by the person concerned, shall, to the extent to which the immunity extends, render him immune from prosecution for any offence in respect of which the tender was made and from the imposition of any penalty under section 53 of the Act.
5. Further, it is also proposed to provide that if it appears to the Initiating Officer that any person to whom immunity has been tendered under this section has not complied with the condition on which the tender was made or is wilfully concealing anything or is giving false evidence, the Initiating Officer may record a finding to that effect, and thereupon, with the previous sanction of the competent authority as referred to in section 55, the immunity shall be deemed to have been withdrawn, and any such person may be tried for the offence in respect of which the tender of immunity was made or for any other offence of which he appears to have been guilty in connection with the same matter and shall also become liable to the imposition of any penalty under this Act to which he would have otherwise been liable.
6. This amendment will take effect from the 1st day of October, 2024.”
The ingredients of sub-section (1) of section 55A are as under: IO is empowered to make Tender of immunity from prosecution for an offence under section 53.
Tender of immunity is to be made to the benamidar or any other person as referred to in section 53, other than the beneficial owner. In other words, tender of immunity is to be made to benamidar or abettor or any person who induces any person to enter into a beneficial transaction and not to beneficial owner.
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The tender of immunity is to be made with a view to obtaining the evidence of the benamidar, abettor or any other person who induces another to enter into a benami transaction.
Immunity is to be tendered on the condition that the benamidar or such other person makes a full and true disclosure of all the circumstances relating to the Benami transaction.
Before tendering immunity, IO must obtain the previous sanction of the competent authority as referred to in section 55.
Sub-section (2) of section 55A provides as under:
The tender of immunity made to, and accepted by, the benamidar or such other person, shall, to the extent to which the immunity extends, render him immune from prosecution for the offence in respect of which the tender was made and from the imposition of any penalty under section 53.
The immunity will operate subject to compliance with the conditions on which the immunity was tendered. Thus, the immunity from prosecution will operate only when the following conditions are satisfied:
The IO makes the tender of immunity to the benamidar/abettor/ person inducing;
The IO makes the tender on or after the date section 55A comes into force (i.e. on or after 1-10-2024);
The tender of immunity may be made even in respect of Benami transactions entered into before 1-10-2024 (but on or after 1-112016);
The tender of immunity may be made even in respect of proceedings commenced before 1-10-2024 by issue of Show Cause Notice under section 24 of PBPT Act;
The IO may make the tender immunity at any stage of the proceedings. He may do so when sending a copy of the show cause notice to Benamidar, as section 24 of the PBPT Act requires. It may be made even during the proceedings;
The tender of immunity is accepted by the person to whom it is made (benamidar/abettor/person inducing);
After acceptance of the tender of immunity, the person to whom it is made (benamidar/abettor/person inducing) complies with the conditions subject to which the tender is made (including the true and full disclosure is made by the benamidar/abettor/person inducing).
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If the above conditions are satisfied, the immunity from prosecution shall operate in respect of from prosecution for the offence in respect of which the tender was made and in respect of the imposition of any penalty under section 53.
Withdrawal of immunity from prosecution
If it appears to the Initiating Officer that any person to whom immunity has been tendered under this section has not complied with the conditions subject to which the tender was made, or is wilfully concealing anything, or is giving false evidence,
the Initiating Officer may record a finding to that effect and withdraw the immunity tendered with the previous sanction of the competent authority as referred to in section 55.
Consequences of withdrawal of immunity
Any person against whom the immunity tendered is withdrawn in accordance with sub-section (3), may be tried for the offence in respect of which the tender of immunity was made or for any other offence of which he appears to have committed in connection with the same transaction and shall also be liable to any penalty under this Act to which he would otherwise have been liable.
CIVIL CONSEQUENCES OF BENAMI TRANSACTIONS
Prohibition of the right to recover property held benami
2. No suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a person claiming to be the real owner of such property.
The only claim of a contributor to the purchase consideration of a property, can be for recovery of such purchase consideration and contribution to purchase consideration does not create any title or interest in the property in favour of person so contributing, [Satish
Kumar Gupta v. Shanti Swaroop Gupta 2018 SCC OnLine Del 9651 and K.L. Garg v. Rajesh Garg 2013 SCC OnLine Del 323]
The exception to the above rule is transactions covered by exceptions (i), (iii) and (iv) to section 2(9)(A). These transactions would otherwise be considered as benami transactions under section 2(9)(A) but are excluded from the ambit and rigours of the benami law. In case of these transactions, real owner will be the beneficial owner/provider or payer of consideration if the evidence shows that he never intended to benefit
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the person in whose name property is bought/registered. [Arun Das v. Smt. Aparna Das [2021] 132 taxmann.com 285 (Tripura)]
No defence shall be allowed in any suit based on any right in respect of any property held benami
3. No defence based on any right in respect of any property held benami, whether against the person in whose name the property is held or against any other person, shall be allowed in any suit, claim or action by or on behalf of a person claiming to be the real owner of such property.
Property held benami liable to confiscation
4. Any property, which is the subject matter of benami transaction, shall be liable to be confiscated by the Central Government.
Prohibition on re-transfer of property by benamidar
5. No person, being a benamidar shall re-transfer the benami property held by him to the beneficial owner or any other person acting on his behalf. Any such re-transfer shall be null and void. However, this prohibition shall not apply where re-transfer is made in accordance with Income Declaration Scheme, 2016, i.e. in accordance with section 190 of the Finance Act, 2016.
No action for specific performance if agreement to sell suffers from vice of benami transaction as it is hit by section 23 of Contract Act
6. If an agreement to sell suffers from the vice of benami transaction, the same falls in the category of contracts forbidden by law as contemplated under section 23 of the Indian Contract Act, the object whereof is unlawful. Hence, it is in executable in an action for specific performance.[Satish Kumar Khandelwal v. Rajendra Jain Judgment of Madhya Pradesh High Court dated 16 March, 2020 in First Appeal No. 647/2008 (AFR)]
(B) FOR UNION TERRITORIES OF JAMMU & KASHMIR AND LADAKH WHICH CAME INTO EXISTENCE ON 31-10-2019
The above legal consequences shall apply only to benami transactions entered into in UTs of J&K and Ladakh on or after 31-10-2019. For benami transactions entered into from 1-11-2016 to 30-10-2019 in J&K and Ladakh, the above consequences under the PBPT Act shall not apply as the PBPT Act was not applicable to the erstwhile state of J&K of which the two UTs were earlier a part of Benami Transactions entered into between 1-11-2016 and 30-10-2019 in the erstwhile state of J&K shall only be subject to section 281A of the Income-tax Act,1961 and not to the provisions of the PBPT Act.
