Benami Transactions Amendment Act may be next to target black money

Benami Transactions Amendment Act may be next to target black money

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It is generally seen that a substantial part of black money and/or corruption money is held in the form of cash, jewellery, bullion or benami property [which may be movable (including cash or jewellery) or immovable property]. The Central Government, headed by Prime Minister Narendra Modi, has already taken strong action against black money held in the form of cash (which is generally in the form of high denomination notes) by demonetisation of the currency notes of ₹ 1000 and ₹ 500. Now, it is perhaps the time for Modi Government to take action against black money and/or corruption money being held in the form of benami properties.

It is pertinent to point out that with effect from 1 November 2016, i.e., just 7 days before the demonetisation of the high denomination currency notes was announced by Prime Minister Narendra Modi, the  Benami Transactions (Prohibition) Amendment Act, 2016, was brought into force. This Amendment Act makes some crucial amendments in the Benami Transactions (Prohibition) Act, 1988. And, the change in name of the said 1988 Act to “Prohibition of Benami Property Transactions Act, 1988” is not the most important of these amendments. These amendments have several new stringent provisions which are aimed at prohibiting benami transactions and providing for confiscation of benami properties.

It is expected that the benami transactions may see the next “surgical strike” in order to control black money and corruption. Let us see how.

What is benami property?

Firstly, what is a “benami property”? It is now defined as any property which is the subject matter of a “benami transaction” and also includes the proceeds from such property.

Well, what then is a “benami transaction”? It has been given a detailed definition, which can be summarised as under.

A benami transaction is a transaction or an arrangement— (a) where a property is transferred to or is held by a person where the consideration for such property has been provided or paid by another person; and (b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration. Moreover, following transactions are also specifically defined as benami transactions:

  • a transaction or an arrangement in respect of a property carried out or made in a fictitious name; or
  • a transaction or an arrangement in respect of a property where the owner of the property is not aware of or denies knowledge of such ownership;
  • a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious;

However, it is specifically provided that the following transactions shall NOT be benami transactions where a property is held by:

(i) 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) 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) 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) 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.

Property:

Okay. We have seen what is “benami property”. But, what all types of property can be benami? The Amendment Act defines “property” to mean assets of ANY KIND, whether movable or immovable, tangible or intangible, corporeal or incorporeal and includes any right or interest or legal documents or instruments evidencing title to or interest in the property and where the property is capable of conversion into some other form, then the property in the converted form and also includes the proceeds from the property. Thus, it may be seen that all kinds of properties can be subject matter of a “benami property” and it is not merely an immovable property.

Benamidar:

The Amendment Act also defines “benamidar” as a person (or a fictitious person) in whose name the benami property is transferred or held and includes a person who lends his name.

Beneficial owner:

Further, “beneficial owner” is defined as a person (whether his identity is known or not) for whose benefit the benami property is held by a benamidar.

Confiscation of benami property:

This is important. The newly substituted Section 5 of the Act lays down that ANY PROPERTY, which is subject matter of a benami transaction, shall be liable to be confiscated by the Central Government.

So, what is confiscation? It is generally a legal seizure of the property by the Government or other public authority. This means that the property will now vest in the Government which has confiscated the property. It no more belongs to the person from whom it has confiscated.

In particular, in case of confiscation under this Act, Section 27 provides that where an order of confiscation has been made in respect of a benami property, all the rights and title in such property shall vest absolutely in the Central Government free of all encumbrances.

It is noteworthy that NO compensation is required to be paid for confiscation of a benami property [see, section 27(3)].

It is also pertinent to mention that Section 6 of the Act mandates that no benamidar of a property shall re-transfer the benami property held by him to the beneficial owner or any other person acting on his behalf. It further provides that where any property is re-transferred in contravention of the above provision, the transaction of such property shall be deemed to be null and void.

Authorities under the Act:

The amended Act seeks to establish four authorities to conduct inquiries or investigations regarding benami transactions: (i) Initiating Officer, (ii) Approving Authority, (iii) Administrator and (iv) Adjudicating Authority.

All these authorities have the powers of a civil court under the Code of Civil Procedure, such as: (a) discovery and inspection; (b) enforcing the attendance of any person, including any official of a banking company or a public financial institution or any other intermediary or reporting entity, and examining him on oath; (c) compelling the production of books of account and other documents; (d) issuing commissions; (e) receiving evidence on affidavits; and (f) any other matter which may be prescribed.

In addition, there is also an Appellate Tribunal to hear appeals.

Attachment, Adjudication and Confiscation of benami property:

Section 24 of the Act empowers the Initiating Officer (on the basis of material in his possession), where he has reason to believe that any person is a benamidar in respect of a property, to issue a notice to the person to show cause why the property should not be treated as benami property. A copy of the notice shall also be issued to the beneficial owner if his identity is known. Where the Initiating Officer is of the opinion that the person in possession of the property held benami may alienate the property during the period specified in the notice, he may, with the previous approval of the Approving Authority, attach provisionally the property for a period not exceeding 90 days from the date of issue of notice. The initiating authority has the further power to pass an order continuing the provisional attachment of the property with the prior approval of the Approving Authority.

In the case of provisional attachment (in certain cases) and in the case of continuation of provisional attachment, the initiating authority has to draw up a statement of the case and refer it to the Adjudicating Authority. Thereafter, for the purpose of conducting an inquiry, the Adjudicating Authority shall issue notice, to furnish relevant documents, particulars or evidence as is considered necessary on the following persons, namely:—

(a) the person specified as a benamidar therein;

(b) any person referred to as the beneficial owner therein or identified as such;

(c) any interested party, including a banking company;

(d) any person who has made a claim in respect of the property.

The Adjudicating Authority shall, after conducting inquiry in the matter, pass an order— (i) holding the property not to be a benami property and revoking the attachment order; or (ii) holding the property to be a benami property and confirming the attachment order, in all other cases.

As per the provisions of Section 27 of the Act, where an order is passed in respect of any property holding such property to be a benami property, the Adjudicating Authority shall, after giving an opportunity of being heard to the person concerned, make an order confiscating the property held to be a benami property.

Section 27 further provides that where an order of confiscation has been made as above, all the rights and title in such property shall vest absolutely in the Central Government free of all encumbrances and no compensation shall be payable in respect of such confiscation. It is also declared that any right of any third person created in such property with a view to defeat the purposes of this Act shall be null and void.

Where a benami property has been confiscated as above, the Administrator shall have the power to receive and manage the property. He shall take possession of the property.

There is also a provision for establishment of an Appellate Tribunal to hear appeals against the orders of the Adjudicating Authority under the Act. Such appeal can be filed under Section 46 of the Act.

Offences and prosecution:

Section 53 of the Act lays down 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 beneficial owner, benamidar 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. This offence is 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 twenty-five per cent of the fair market value of the property.

Under Section 54 of the Act, furnishing false information or false document in any proceeding under this Act is punishable with rigorous imprisonment for a term which shall not be less than six months but which may extend to five years and shall also be liable to fine which may extend to ten per cent of the fair market value of the property.

Special Courts:

Under Section 50 of the Act, one or more Courts of Session may be designated as Special Court or Special Courts for such area or areas or for such case or class or group of cases as may be specified in the notification. This is done in order to ensure expeditious prosecution for the offences under the Act.

Conclusion:

It may thus be seen that very stringent provisions have been made in the Benami Transactions Amendment Act for attachment and confiscation of benami properties. The expression “benami property” itself has been given a very wide meaning. A benami transaction is made punishable as an offence with rigorous imprisonment up to 7 years.

As mentioned in the beginning of this article, a substantial part of black money and/or corruption money is held in the form of cash, jewellery, bullion or benami property [which may be movable (including cash or jewellery) or immovable property]. Strong action has already been initiated against black money held in the form of cash by demonetisation of the currency notes of ₹ 1000 and ₹ 500. Now, it is perhaps the time for Modi Government to take action against black money and/or corruption money being held in the form of benami properties. The Benami Transactions Amendment Act has already come into operation on 1 November 2016.

Any person can give information / complaint to the initiating authority about the benami properties of others within their knowledge. After this, the initiating authority under the Act can begin taking action against such benami properties. In fact, the Prohibition of Benami Property Transactions Act, 1988 (with the amended provisions) can become a lethal tool to control the menace of black money and/or corruption money, if members of public can give provide information to the authorities about benami properties in their knowledge.

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