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Benami Transactions

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Benami means holding someone else name to confirm the identity of the beneficial owner. Benami property means any property which is the subject matter of a benami transaction, and it correspondingly includes the proceeds from such property. The property consists of movable, immovable, tangible, intangible, corporeal, incorporeal, property in the converted form, proceeds from the property, legal documents/instruments evidencing–title or interest in the right and interest in such property.

Benami Transaction includes

  1. A transaction or an arrangement
  • When a person transfers the property and another person has paid the consideration of such property.
  • When the property held, by a person, for immediate or future benefit, direct or indirect, for the person who has paid the consideration.
  • When the property-related transactions are carried out under a fictitious name.
  1. A transaction or an arrangement where the possessor of the property is not aware of ownership or denies knowledge of right;
  2. A transaction or an arrangement where the person provided that consideration either is not traceable or is fictitious.

Key Highlights and introduction of Act
For benami transaction restrictions, an act came into force, i.e. benami transactions (Prohibition) Act, 1988. This Act prohibits benami transactions and the right to recover property held by benami and substances modified in addition to that, providing an active regime for prohibition of benami transactions, the benami Transactions (Prohibition) Act, and 1988 amended through the benami Transactions (Prohibition) Amended Act, 2016. The amended law permits the specified establishments to attach benami properties which can finally be confiscated provisionally. Besides, if a person is found liable for benami’s offence by the competent court, he shall be responsible for the rigorous imprisonment and fine and both as the case may be. The legislation is also intended to commendably prohibit benami transactions and consequently prevent evasions of law through unfair practices.

Salient Features

  • It defines a benami transaction and benami property that provides for exclusion and transactions that shall not be constructed.
  • It provides the outcome of entering into a prohibited benami transactions
  • It assigns the strategy for determination and related penal outcomes in prohibited benami transactions.
  • It also provides that the civil court’s powers shall be available to authorities under the said Act.
  • Miscellaneous provisions have been provided for services of notice, protection of action taken in good faith, etc.
  • It enables the Government to consult with the High Court’s chief justice to nominate one or more courts of the session as Special Court or Special Courts for the Bill.
  • It provides the transfer of suit or proceedings regarding benami transaction pending in any court (other than High Court) or tribunal or before any higher tribunal authority.

Factors to determine benami transactions

  • Source of purchase consideration relating to the transaction
  • Nature and ownership of the property after purchase
  • The motive behind the transaction
  • Position of the parties and their relations to one another
  • Responsibility and production of the title deeds
  • The previous and subsequent conduct of the parties

Exclusion benami transaction:
Transaction enclosed by section 53A of Transfer of Property Act, 1882 not considered benami Transaction, if; examination for such property has provided by the person to whom ownership of the property has permitted. Still, the person who has granted possession thereof remains to hold the right of such property stamp duty on transaction or arrangement has been paid, and the contract has recorded. A person acts in a depository capacity – executor, Trustee, Partner, Director, Karta, Spouse or Child and Brother or sisters or legal ascendant or descendant; consideration is paid out of known sources.

Authorities under benami Law:

  • Initiating Officer (IO): Assistant / Deputy Commissioner of Income Tax
  • Approving Authority: Additional / Joint Commissioner of Income Tax
  • Adjudicating Authority: Bench of three members chaired by CIT / Joint Secretary
  • Appellate Tribunal: Bench of three members
  • Administrator: Income Tax Officer

Punishment under the benami Act
The various forms of punishment under the Benami Act are as follows:

  1. Seizure of benami Property
  2. The benami transactions have been crossing the threshold to defeat the provision of any law, evade payment of statutory dues or evade payments to creditors, any person who enters or assists or includes another person into such a transaction would be punishable with:
  • A person must be imprisoned between 1 to 7 years.
  • Fine up to 25% of the market value of the property.
  1. A person who is mandatory to provide information under this Act includes false information; he shall be punishable with:
  • A person must be imprisoned between 6 months to 5 years.
  • Fine up to 10% of the market value of the property.

At AJSH, we assist our clients in dealing with various income tax compliances, including income tax assessments, TDS returns, ITR filings, tax advisory and other related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about Benami Transactions, kindly contact us.

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