Prohibition of Benami Property Transactions Act

Benami is technically a Persian word that comprises of two parts where Be means without, and Nami means name. In the layman term, a Benami Transaction is a transaction where a property is purchased in the name of an individual who has not paid for it. The person who has rendered the necessary money for the said transaction is not named in the deal. However, this property is held for immediate or future benefit, direct or indirect, of the person who has provided its payment. In the year 1973, the Law Commission of India studied various Acts and the prevailing benami system in the country in the hope to formulate an Act to tackle the issue. Accordingly, Prohibition of Benami Property Transactions Act of 1988 was implemented by the Parliament which came into force on the 19th of May, 1988.

The Act

To understand the goal of the Prohibition of Benami Property Transactions Act of 1998, it is essential to know how a benami transaction works in the first place. When an individual wants to buy a piece of land but does not want their name to appear in the deal, then the individual has the option to purchase the property in the name of a sibling or a relative. This is known as a benami transaction because the individual has paid the money for the land, but the actual owner of the property is a person of their choice. The objective of the Act is mentioned as "An Act to prohibit Benami transactions and the right to recover property that is held in benami". Therefore, this Act aims to act as a deterrent to prohibit people from entering into benami transactions as well as given the right to the Government to confiscate benami properties.

Benami Property

The actual meaning of benami is without any name. A benami property means a property that is purchased on the name of someone else. The holder of a benami property is called as a benamidar. A property that does not stick to the following criteria is considered to be a Benami property as stated in the Act.

A piece of property that is held in the name of a spouse or child for which the amount is paid out of knows sources of income.
A joint property that is held with a sibling such as a brother or a sister or any other relatives for which the amount is paid from known sources of income.
Property that is held by someone in a fiduciary capacity.

These are three types of properties that are generally purchased for the direct or indirect benefit of a person paying the money for the purchase. A few examples of property falling under the category of a benami property are given below.

A property that is purchased on a fictitious/ fictional name meaning the owner does not exist.
The owner of a property is missing or not traceable.
The property owner defined on paper but has no knowledge of such a transaction in their name or ownership of the property.
The amount for the property is paid from an undisclosed income or black money, and when the PAN card number is not mentioned.
In cases where the beneficiary and the owner of a property are not the same individuals.

Determination of Benami Property

Assets of any kind that is movable, immovable, tangible, intangible, any right or interest, or legal documents could qualify to be benami including gold and financial securities under this Act. As per Section 2(8) of the Act, benami property includes proceeds from such property. There are situations where an individual may acquire a property from a known source of income in the name of a spouse or child for the benefits of rebated or interest charged on a home loan, or for the savings charges from the property and so on. These types of transactions can not be termed as a benami transaction. However, a few factors shall be taken into consideration for determining the actual status of the property that lies with the competent authorities. A few factors are mentioned below.

The buyer discloses sources of the fund which were used for making the payment for the property or not.
The intention behind buying property in the name of another person such as a spouse, children, siblings etc.
The actual possession of the property and custodian of the documents of the property.
The disclosure of the income from the property, if any while filing income tax return.

If the factors as mentioned earlier lead to the fact that the property is purchased to take various benefits under government schemes, interests, rebate etc. and not to hide black or illegal money or conduct any fraudulent activities, the said property will not be treated as a benami property.

Determination of Benami Transactions

To determine benami transactions, it is important to cross check the factors mentioned below.

The source of the purchase relating to the transaction.
Possession of the property.
The position of the parties and their relationship to each other.
Circumstances, financial or otherwise, of the alleged transfer.
The motive for the transfer.
The custody and production of the title deeds.
The previous and subsequent conduct of the parties.
Combination of some or all of them and a proper weighing and appreciation.
Every benami transaction the intention of the parties is the essence and the outcome of the test.

In other words, the competent authorities consider the following factors to identify benami properties.

The competent Authorities will look at the source of the fund used for purchasing the property. They would recheck the tax on this fund is paid or not.
If the property is purchased on someone else's name, the reason and the property behind buying the property is questioned.
The Authority will find out individuals who are holding a document of the property in question.
If the individual is earning revenue from this property and if it has been declared in the income in return or not.
The authority will also assess the individual who possesses the property in question.

Note: Benami transactions are not confined only to purchase, leasing of immovable property in the name of another person or mortgaging property for a fictitious consideration is also considered as a benami transaction and is subject for prosection under the Benami Transaction Act.

Penalties for Benami Transactions

The following sections determine the situations and the penalties when it comes to Benami Transactions.

Section 53(1)

This Section talks about a person who enters into a benami transaction with the intention to defeat the provisions of any existing law or to avoid any payment of statutory dues or to avoid the payment to creditors. The beneficial owner, benamidar and any other individual who abets or induces any person to enter into a benami transaction shall be guilty of the offence of benami transaction.

Section 53(2)

This Section states that any individual found guilty of the offence of a benami transaction reported to in sub-section (1) shall be considered punishable with imprisonment for a term which shall not be less that one year. This punishment may extend up to seven years and the offender is liable to pay a fine which may extend up to twenty-five per cent of the fair market value of the property in question.

Section 54: Penalty for providing false information

Any individual who is required to furnish information under this Act knowingly provides false information to any official authority or furnishes any false document in any of the proceedings under this Act, shall be punishable with rigorous imprisonment. The term which shall not be less than six months but may extend to five years and shall also be liable to pay an amount as fine which may extend to ten per cent of the property's fair market share value.

Prosecution

As per the relevant provisions under the Act, filing of prosection complaints is not linked with attachment or confiscation of the benami property. Therefore, attachment or seizure is not a pre-requisite for filing prosection complaint under the Act. However, fulfilment of necessary ingredients of the offence(s) under the Act is required for filing of the prosecution complaint(s), subject to the requisite previous sanction of the Central Board of Direct Taxation.

Who can file prosecution complaints

As per the provisions stated in Section 50(3) of the Act, the authority defined under Section 2(6) r.w.s 18(1) can file prosecution complaint under the Act. As per Section 18(1) r.w.s 2(6) of the Act, the Initiating Officer, Approving Authority, Administrator and Adjudicating Authority are empowered to fie prosection complaints under the Act. However, the primary responsibility rests with the Initiating Officer.

Section 55: Previous sanction of the Board

In view of provisions stated in Section 55 of the Act, no prosecution shall be initiated against any individual with respect of any offence under Sections 3, 53 or Section 54 without the previous sanction of the Board.

Section 45: Bar of jurisdiction for Civil Courts

No civil court in the country has the authority to entertain any suit or proceeding in respect of any matter which any of the bodies including an Adjudicating Authority and the Appellate Tribunal is empowered under or by this Act to determine. No injunction shall be granted by any court or other forums in respect of any action to be taken in or taken in pursuance of any power conferred by or under this Act.

Section 64: Action taken in good faith

No prosecutions, suits or other proceedings shall lie against the Government including any officer of the Government and the Appellate Tribunal, or the Adjudicating Authority stated under this Act, for anything intended to be done in the view of good faith under this Act.