Benami Transactions

(Prohibition) Act 1988

BY- PALAK BEHL

INTRODUCTIONBenami means “ property without name”

Benami Transaction: According to section 2(a) means any transaction in which a person buys property in the name of another person or gratuitously transfers property to another person without an intention to benefit that other person.

HISTORY Benami purchases are purchases in false name of another

person, who does not pay consideration but merely lend his name, while the real title vest in another person who actually purchased the property and he is the beneficial owner.

In 1778, in Gopeekrist Gosin Vs. Gungapersuad held that benami transaction is a custom of the country and must be recognised by law.

In 1882 section 81 and 82 of Indian Trust Act gave legal recognition to the practice of benami transaction.

These kind of benami transaction abused and defrauded public revenues and creditors. The Parliament for the first time intervened in 1976 when it introduced section 281A in the Income tax Act 1961 barring the institution of suit in relation to benami properties.

The Parliament in order to stop the abuse and fraud by the benami transaction property without compensation repealed section 82 of Indian Trust Act and section 281A of the Income tax Act alongwith other consequential repeals.

The Law Commission submitted its 57th Report. To implement the recommendations of the Law Commission promulgated the Benami Transaction (Prohibition of the Right to Recover Property) Ordinance, 1988.

The Ordinance was converted into an Act by introduced of a Bill in the Parliament.

DefinitionsBenamidar A person or fictitious (false) person in the name of whom the benami property is transferred and held.

PropertyUnder Section 2(c)of the Benami Transactions (Prohibition) Act, 1988 states,” Property means property of any kind, whether movable or immovable, tangible or intangible, and includes any right or interest in such property.”

Beneficial OwnerA person who enjoys the benefits of ownership even though title is in another name.

Why Benami

Transactions

The desire to evade tax thereby

committing frauds on the

state

to find a way with the land

ceiling laws, so the real owner can have more

landed property.

Commit frauds on creditors

To avoid certain political and social risks

to conceal black money obtained through corrupt

practices

BENAMI TRANSACTION (PROHIBTION) ACT, 1988

Enacted on September 5,

1988.It extends to whole

of India except to the state of Jammu and

Kashmir.Purpose of this act to prohibit

benami transactions and prohibit the right to recover

property held benami.

Contd. Section 3 of the Benami Transaction Act lays down

Prohibition of Benami Trasactions

(1) No person shall enter into any benami transaction.

(2) Nothing in sub- section (1) shall apply to the purchase of property by any person in the name of his wife or unmarried daughters and it shall, be presumed , unless contrary is proved, that the said property had been purchased for the benefit of wife or the unmarried daughter.

(3) whosoever enter into benami transaction shall be punishable with the imprisonment for a term which may extend to three years or with fine or with both.

Contd. Section 4 of the Benami Transaction Act lays down

Prohibition of right to recover property held benami

(1) No suit, claim and action to enforce any right in respect of any property held benami against the person in whose name the property is held and against any other person shall lie by, or, on behalf of, a person claiming to be real owner of such property.

(2) No defence based on any right in respect of any property held benami against the person in whose name the property is held and against any other person shall lie by, or, on behalf of, a person claiming to be real owner of such property.

Contd. Section 5 of the Benami Transaction Act lays

down Benami Property liable to acquisition.

(1) All properties held benami shall be subject to acquisition by such authority, in such manner and after following such procedure as may be prescribed.

(2) For the removal of doubts, it is hereby declared that no amount shall be payable for the acquisition of any property under sub-section (1)

Penalty

for Benami

Transaction

punishable with imprisonment for a term which shall not be less than six months, but which may extend to three years and shall be liable to fine or with both

for False informati

on

punishable with imprisonment for a term which shall not be less than three months which may extend to two years or with fine which may extend ten percent of the fair market value of the property

Burden of Proof

According to the Benami Transactions (Prohibition) Act, 1988 the burden of proof lies on the person who is claiming and/or asserting that the transaction entered is the kind of benami transaction. While initially the person aeerting the same has established his contentions in the Court of Law the burden of proof shifts on the person on whom it has alleged that he has been part of benami transactions. The rules of onus probandi applies here.

Deficiencies

Due to lack of proper machinery the provisions of the Act could not be properly and/or strictly implemented.

The scope of the Act was quite restricted for this restricted scope the Act  was unable to solve the problems, render justice and security to the people who were distress as a result of the benami transaction.

The Act was also unable to acquire the properties which were in hands of benamidar and therefore the Government could not been able to use those lands in favour and/or for the benefit of the people at large. Though Section 5 of the Act had the clear provision for acquisition of the benami properties.

Case laws

Mithilesh Kumari & Anr. v. Prem Behari Khare

In this case the Division Bench of the Supreme Court had laid down that Section 4 (1) of the Act had retrospective operation and it will apply to all the pending cases, whether such cases are pending in the trial court or the appellate court or the revision court. Thus, as per this judgement, all the suits pending in the cases all over India were barred after coming into force of this Act.  .

R.RAJAGOPAL REDDY Vs. PADMINI CHANDRASEKHARAN

In this case Hon’ble judge of Supreme Court held that  the Act cannot have retrospective operation to the pending cases because when those cases were filed, there  was  a substantive right in the plaintiff  under  the existing  laws  which had sanction of more than  a  century, under  which   consistently such  benami  transactions  were recognized  and  could be enforced by courts of  law.   So, unless there is expressly anything to suggest that Section 4(1) of the Act is retrospective in operation, it could not be treated to be retrospective at all.

Bhargavy P. Sumaathykutty v. Janaki Sathyabhama, AIR 1995 Ker 42

In this case it was held that section 5 Benami Transaction Act 1988, applies only to tripartite or benami transactions and not to bipartite or sham transactions, for if it had been so, the property covered by bipartite transactions would also be liable to be acquired without compensation or payment of any amount and the Legislature too has not declared it as opposed to public policy

Smt. Usha Bhar v Sanat Kumar Bhar ([2004] 135 Taxman 526) In this case Calcutta High Court held that  in a suit

claiming a property as benami, there should be cogent and sufficient evidence to conclude that the apparent is not the real. In order to ascertain whether a particular sale is benami and the apparent purchaser is not the real owner, the burden lies on the person asserting to prove so. Such burden has to be strictly discharged based on legal evidence of a definite nature. Such evidence directly proves the fact of benami or establishes circumstances unerringly and reasonably

Recommendations

Need to amend

provisions of section

3

There is need to provide

mechanism and procedure for confiscation of property held

benami

Nothing is contained in sub-section (1) shall apply to a

benami transaction entered by into by any person, being an individual, in the name of his- spouse, brother or sister, any

lineal ascendant or descendant.

Property held benami liable to confiscation by

Government authority after serving the notice by the authority and satisfaction that the person possessing the property under benami

transaction

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