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PROHIBITION OF BENAMI PROPERTY TRANSACTION ACT, 1988

NRRC, LUCKNOW 17/3/2018

BACKGROUND

• Ill effects of Benami Transactions (then identified):

• Extensive litigation between Benamidar and Real Owner regarding ownership of property

• Litigation arising on transfer of property.

• One of the views adopted by Courts was that a benamidar had no interest in benami property

and he represented the real owner as a mere trustee holding the benami property in trust.

• Sections 81, 82 and 94 of the Indian Trusts Act, 1882 actually gave statutory footing to Benami

transaction.

• Most importantly- There was no element of ‘criminality’

• In the present context a Benami Transaction is viewed as one involving some offence,

black money etc.

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JAYDAYAL PODDAR (DECEASED) THROUGH L.RS. AND ANR. VS. MST. BIBI HAZRA AND ORS. (AIR 1974 SC 171)

• The burden of proving that a particular sale is benami and the apparent purchaser

is not the real owner, always rests on the person asserting it to be so.

• This burden has to be strictly discharged by adducing legal evidence of a definite

character which would either directly prove the fact of Benami or establish

circumstances unerringly and reasonably raising an inference of that fact.

• The essence of a benami is the intention of the party or parties concerned; and such

intention is shrouded in a thick veil which cannot be easily pierced through. But

such difficulties do not relieve the person asserting the transaction to be benami of

any part of the serious onus that rests on him; nor justify the acceptance of mere

conjectures or surmises, as a substitute for proof.

JAYDAYAL PODDAR (DECEASED) THROUGH L.RS. AND ANR. VS. MST. BIBI HAZRA AND ORS. (AIR 1974 SC 171)

• The reason is that a deed is a solemn document prepared and executed after

considerable deliberation and the person expressly shown as the purchaser or

transferee in the deed, starts with the initial presumption in his favour that the

apparent state of affairs is the real state of affairs.

• Though the question, whether a particular sale is Benami or not, is largely one of fact,

and for determining this question, no absolute formulae or acid tests, uniformly

applicable in all situations, can be laid down; yet in weighing the probabilities and for

gathering the relevant indicia, the Courts are usually guided by these circumstances:

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CONTD…..

• The source from which the purchase money came;

• the nature and possession of the property, after the purchase;

• motive, if any, forgiving the transaction a benami colour;

• The position of the parties and the relationship, if any between the claimant

and the alleged benamidar;

• the custody of the title-deeds after the sale and

• The conduct of the parties concerned in dealing with the property after the

sale.

JOURNEY OF THE “UNKNOWN”!

The Benami Transactions (Prohibition of Right to Recover Property) Ordinance 1988

The Benami Properties Transactions (Prohibition) Act, 1988

The Benami Transactions (Prohibition) Bill, 2011- could not be passed

The Benami Transactions (Prohibition) Amendment Bill, 2015

The Prohibition of Benami Properties Transactions Act, 2016

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SO, WHAT HAS CHANGED?????

Sections Act Of 1988 Amended

Name Benami Transactions (Prohibition) Act, 1988

Prohibition of Benami Property Transactions Act, 1988

Number of Definitions

3 31

Number of sections

9 72

EVERYTHINGEVERYTHINGEVERYTHINGEVERYTHING

!!!!!!!!!!!!!!!!!!!!

SOME NOTABLE AMENDMENTS

• Wider coverage

• Administration of the Act

• Appeal mechanism

• Provision for provisional attachment and confiscation of Benami

property

• Harsher penalties

• Provision for Prosecution

• Liability of Directors etc.

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I.T. DEPARTMENT IN ACTION

• 235 cases and instances have been registered under the said Act upto

mid February 2018

• Provisional attachment made in more than 900 cases.

• Rs.3500 crores’ worth of property has been provisionally attached.

• Attachment confirmed in 5 cases for property worth Rs.150 crores.

UNDERSTANDING “BENAMI’’ PROPERTY/TRANSACTION

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BENAMI Property- Section 2(8)

• A Benami Property means any property which is the

• subject matter of a benami transaction

• And

• also includes the proceeds from such property.

Property- Section 2(26)

• Assets of any kind, whether moveable or immoveable, 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.

• The definition of ‘property’ under the erstwhile Act did not include

• The property in any converted form

• Proceeds from the Property

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BENAMI Transaction – Section 2(9) TYPE-1

• A Benami Transaction means,

• a transaction or an arrangement,

• where a property is transferred to, or is held by, a person, and

• the consideration for such property has been provided, or paid by,

another person and

• the property is held for the immediate or future benefit, direct or

indirect, of the person who has provided the consideration,

CONTD…………..EXCEPTIONS

Except when the property is held by-

• 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;

• 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;

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Except when the property is held by-

• 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.

• 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; or

CONTD…………..EXCEPTIONS

BENAMI Transaction – Section 2(9) TYPE-2, 3 AND 4

• (B) a transaction or an arrangement in respect of a property carried out

or made in a fictitious name; or

• (C) 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;

• (D) a transaction or an arrangement in respect of a property where the

person providing the consideration is not traceable or is fictitious;

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APPLICABILITY W.E.F.???

• Section 1(3) of the 1988 Act read as under:

“The provisions of Sections 3, 5 and 8 Shall come into force at once, and the

remaining provisions of this Act shall be deemed to have come into force on the 19th

day of May, 1988.”

• Section 1(2) of the Benami Transactions (Prohibition) Amendment Act, 2016 reads as

under:

(2) It shall come into force on such date as the Central Government may, by

notification in the Official Gazette, appoint, and different dates may be appointed

for different provisions of this Act and any reference in any such provision to the

commencement of this Act shall be construed as a reference to the coming into force

of that provision.

SATYENDER JAIN’S PLEA- DELHI HC- ASK‘S THE DEPTT. ABOUT APPLICABILITY OF THE ACT!

• The Delhi High Court, on October 11, 2017, asked the Income Tax (I-T) Department whether it

intended to examine, under the new benami law, all accommodation entries made prior to 2016

when it came into effect.

• Justice Vibhu Bakhru said that if the newly amended benami law was being interpreted by the tax

department in such a manner, as to give it retrospective effect from 1988, when the legislation was

first enacted, then, it would lead to the reopening of 20-30-year-old cases, many of which would

have gone all the way to the Supreme Court. “You have to take a clear stand on how this Act would

be administered,” the court told the tax department and added that the issue would have ‘huge

ramifications’. It also asked the department whether assets held now by a company, in which

accommodation entries have been made in the past, would be construed as being a benami

transaction under the Prohibition of Benami Property Transactions Act 2016

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SATYENDER JAIN’S PLEA- DELHI HC- ASK‘S THE DEPTT. ABOUT APPLICABILITY OF THE ACT!

• Assessee’S lawyers sought that either the proceedings under the benami law be

stayed, or the tax authorities be directed not to pass a final order, till his petition in

the high court is finally decided. The court, however, declined to grant any interim

relief and allowed the tax department to proceed in the way they want.

• The court also said that if the I-T Department finds such assets, bought from

proceeds of benami transactions, in the hands of a company, it should tax it there and

not in the hands of the shareholder

ARTICLE 14 OF THE CONSTITUTION

• . Equality before law The State shall not deny to any person equality before the law

or the equal protection of the laws within the territory of India Prohibition of

discrimination on grounds of religion, race, caste, sex or place of birth

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ARTICLE 20 OF THE CONSTITUTION

• Protection in respect of conviction for offences

• (1) No person shall be convicted of any offence except for violation of the law in force

at the time of the commission of the act charged as an offence, nor be subjected to a

penalty greater than that which might have been inflicted under the law in force at

the time of the commission of the offence

• (2) No person shall be prosecuted and punished for the same offence more than once

• (3) No person accused of any offence shall be compelled to be a witness against

himself

ARTICLE 20(1)

• It means that legislature can not make a law which provides for punishment of acts

which were committed prior to the date when it cam into force. This means that a

new law can not punish an old act. This is called Ex-Post facto Law.

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ARTICLE 20(3)

• Immunity from Self-Incrimination

• No individual can be forced to accuse himself. The accused is presumed to be innocent till his guilt is

proved. It is the duty of the prosecution to establish his guilt.

• The scope of this immunity has, prima facie, been widened by the Supreme Court by interpreting the word

‘witness’ as inclusive of both oral and documentary evidence. Hence, no person can be compelled to

furnish any kind of evidence, which is reasonably likely to support a prosecution against him. This ‘Right

to Silence’ is not called upon in case any object or document is searched and seized from the possession of

the accused. For the same reason, the clause does not bar the medical examination of the accused or the

obtaining of thumb-impression or specimen signature from him.

• This immunity is only limited to criminal proceedings.

• The Article 20 (3) can be rightfully used as an anchor only by those accused of an offence and against

whom an FIR has been lodged, which in normal course would result in prosecution.

CASE STUDY 1

• Mr.Honest buys a residential property in the name of Mrs.Honest for a consideration of

Rs.1 crores in the year 2012.

• In a Search u/s 132 of the Income Tax Act, 1961, the Department seizes a loose paper

containing details of cash payment of Rs.50 lakhs in respect of the property, over and

above, the sale consideration as per the Deed.

• Mr.Honest has no option but to surrender this amount and pay tax on the same.

• The AO has issued a notice under the Prohibition of Benami Properties Transactions Act.

• Will it make any difference if the amount of cash was surrendered by Mrs. Honest as her

undisclosed income?

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CASE STUDY 2

• In the proceedings u/s 148 of the Income Tax Act for A.Y. 2007-08 (completed on

31.12.2013), the Department has made an addition of Rs.5 crores on account of Bogus Share

Capital in the hands of M/s Futuristic Industries (P) Ltd. The company is in appeal before

the CIT(A). On 01.02.2018, the AO issued a Notice u/s 24 of the PBPT Act. The company has

approached you and raised the following queries:

• Whether completed assessments can form a basis for proceedings under the PBPT Act?

• How is this a Benami Transaction, because, once the money is presumed to belong to

the company, there is nothing benami!

• What is the ‘Property’ and how can it be attached since the entire capital was used in

business and invested in stocks, debtors etc.

• Can the proceedings be kept in abeyance until disposal of the appeal?

CASE STUDY 3

• M/s Excellent Institutions Ltd. Has bought some land and constructed an educational

Institute on the same. The land was purchased in the following manner:

• The company provided funds to One Mr. Longlife (a person covered under the

definition of Scheduled caste), who purchased the land.

• Thereafter Mr.Longlife converted the land use.

• The company bought the land from Mr.Longlife through a registered Sale Deed.

Being a high value transaction, it got reported to the IT Authorities, who have also

initiated proceedings under the PBPT Act. Is there a case at all, considering that entire

funds belonged to the company and the property also ultimately vests with the

Company.

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CASE STUDY 4

M/s ASS Enterprises is a partnership firm having 3 partners, with the following profit

sharing Ratio:

a) A - 98%

b) S - 1%

c) S - 1%

During the course of survey at M/s ASS, on a statement recorded, both Mr.S’ stated that they

are dummy partners and were actually employees for the group and are working as per the

directions of Mr A. They did not contribute any partners’ capital but were entitled to salary

which was being paid to them as per the partnership deed and were entitled to the profit

which had been credited to their account but never paid to them. Examine whether the case

can fall under the Benami Act?

CASE STUDY 5

• M/s XYZ Pvt. Ltd. has taken an entry (in form of unsecured loan) of Rs 1 cr in its

books of account from ABC Ltd. During the course of search ABC Ltd. states that he

has received cash and given an entry to XYZ P Ltd and has got a commission of 3%

for the same. Examine the applicability of Benami Act. What if XYZ Pvt. Ltd

surrenders the same stating the same to be its undisclosed income and accepting the

entry to be an accommodation entry.

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CASE STUDY 6

• Mr A buys a plot of land in cash for Rs.5 lacs in the name of his mother in law Mrs.R

(She had no son). His father in law (Mr.R) had died and left this amount with the son

in law. Mr A sold part of the land at Rs 1 cr and invested the same in his firm as

unsecured loan from Mrs.R. Mrs.R was summoned by the Initiating Officer and she

stated that she does not know anything about the acquisition of land and its sale

proceeds but she had signed some registration deed and bank account cheques and

income tax returns as per the direction and instruction of her son in law. The

Initiating officer issues a provisional attachment of the property. Is his action

correct?

CASE STUDY 7

• Mr Seth forms an OPC Viz. M/s Seth OPC. He gives an unsecured loan to the OPC

which buys a flat duly registered in its name. Mr X stays in the flat without paying any

rent. Is the relation between Mr X and the OPC a relation of benamidar and beneficial

owner? The sources of the loan are fully explained.

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CASE STUDY 8

• X, a Charitable Trust receives certain anonymous donations. A notice is issued to it

under the provisions of Benami Act. Please advise. What if the Trust is a Private

Beneficiary Trust, and has shown certain receipts as gifts from non relatives in its

Return of Income?

CASE STUDY 9

• Mr. Ramesh gives his property for a builder developer agreement to M/s Buiders Pvt.

Ltd. The possession is handed over and Builder Pvt. Ltd would give the compensation

in form of 40% of built up area. They execute this MOU of a Rs 100 stamp paper and

the same is not registered with the registering authority. Examine the applicability

under the Benami Act.

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CONSEQUENCES

• Confiscation of Property- Section 5- Any property, which is subject matter of a

Benami Tranasction shall be liable to be confiscated by the Central Government.

• Other consequences-

• for the Benamidar, Beneficial Owner and any person who induces or abets any

person to enter into a Benami Transaction. Fine and Prosecution

• Any person furnishing false information/document knowingly in any proceedings

under this Act- Fine and Prosecution

• No prosecution, unless without previous sanction of the Board

CONSEQUENCES

Whether Benami Transaction undertaken?

a. Defeat any law b. Avoid payment of any

statutory dues c. Avoid payment to

creditors

Section 5- Confiscation of Benami Property

Section 53- Imprisonment for Minimum 1 and maximum 7 years

AND Fine upto 25% of the value of the

Benami Porperty

With an intention to:

Yes

Yes a. Beneficial owner b. Benamidar c. Any other person

who abets/induces any person to enter in a Benami Transaction

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CONSEQUENCES FOR OTHER PARTIES

• Other Parties- any person who is required to furnish information under the PBPT

Act.

• Offence- gives any false information/document in any proceeding under the Act

• Consequences-

• Rigorous imprisonment for not less than 6 months which may extend upto 5 years; and

• Fine upto 10% of the Fair Value of the Benami Property

CAN A BENAMI TRANSACTION BE REVERSED?

• Section 6 of the Act:

a) Prohibits Re-transfer of benami property to the Beneficial owner or

any other person acting on his behalf.

b) Treats a transfer, if made, as null and void.

• The definition of ‘Property’ includes proceeds from such property.

The only exception is transfer made u/s 190 of the Finance Act, 2016

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ADMINISTRATION OF THE ACT

• Important Definitions:

• Section 2(19)- Initiating Officer

• Section 2(4)- Approving Authority

• Section 2(1)- Adjudicating Authority

• Section 2(2)- Administrator

PROCEEDINGS UNDER THE ACT

Initiating Officer

• Asst/Deputy Commissioner (Inv)

Approving Authority

• Joint/Addl. Commissioner (Inv)

Adjudicating Authority

• AA under the PMLA Act

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INITIATION OF PROCEEDINGS UNDER THE ACT- SECTION 24

• Where the Initiating Officer,

• on the basis of material in his possession,

• has reason to believe that any person is a benamidar in respect of a property,

• he may, after recording reasons in writing,

• issue a notice to the person to show cause within such time as may be specified in the

notice why the property should not be treated as benami property

INITIATION OF PROCEEDINGS UNDER THE ACT

• Initiating Officer- Jurisdiction? Whether of the Beneficiary or the Property or the

Benamidar???

• Material in his possession- what constitutes ‘Material’.

• has reason to believe – reference to case laws under Income Tax Act 1961

• issue a notice to the person- Issue of notice is to be to the Benamidar(s) and a copy of

the same is to be sent to the Beneficial Owner, if known.

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REASON TO BELIEVE- SCOPE IS WIDER THAN THAT U/S 148 OF THE I.T.ACT, 1961

• Some settled principles which may not apply to the proceedings under the

PBPT Act:

• Change of opinion w.r.t. material already in the possession of the

Department, will also get covered.

• No requirement for any ‘fresh’ material- Material already available with

AO, but not considered in the assessment proceedings .

PROVISIONAL ATTACHMENT OF PROPERTY

If, an IO, by a written Order, opines that person in possession of the Benami Property may alienate the property, he may provisionally attach the property, after prior approval of the Approving Authority

If property is Provisionally Attached- Within 90 days of issue of notice, IO to pass Order, with prior approval of App. Ath. For continuation or revocation of Prov. Attachment; after making enquiries etc. deemed necessary..

If property is not Provisionally Attached- Within 90 days of issue of notice, IO to pass Order, with prior approval of App. Ath. for provisional attachment or deciding for not attaching property.

Attachment for max 90 days from date of issue of notice for initiating proceedings

Attachment upto passing of Order by the Adjudicating Authority. IO to draw up and forward statement of case to the Adj.Authority within 15 days of Order

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ADJUDICATION AND TIME LINES

Initial Enquiry by IO

90 days

Forward Report to Adj. Auth.

15 days

Adj. Auth- issue notice

30 days

Min. no. of days’ opportu-nity

30 days

Final Order

1 yr from end of month of reference

CONFISCATION OF PROPERTY HELD BENAMI

• Adjudicating Authority, after holding a property to be a Benami property has to give

an opportunity of being heard to the person concerned, prior to confiscation of

property.

• If Order of Adj.Authority is appealed against- Confiscation to be deferred and to

be subject to Order passed by the Appellate Tribunal.

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WHERE PROPERTY SOLD BY BENAMIDAR BEFORE THE ISSUE OF SCN –SECTION 27(2)

• Nothing in sub-section (1) shall apply to a property held or acquired by a person

from the benamidar for adequate consideration, prior to the issue of notice under

sub-section (1) of section 24 without his having knowledge of the benami

transaction.

ADJUDICATION – OTHER POINTERS

• Can provisionally attach any property other that the referred property, if trace of

offence under the Act is found and it has reason to believe..

• Where, though there is indication of Benami transaction and the authority is unable

to specifically identify such a property, the authority may record a finding ti the best

of his judgemnt,

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ADMINISTRATION OF THE ACT

• Central Government vide Notification No.SO 3290 (E) dated 25.10.2016: notified duties

for administration of the Act as under:

• Approving Authority-Addl/Jt CIT

• Initiating Officer-DCIT/ACIT

• Administrator- TRO

working in Range 1 of every Region

• Central Government vide Notification No.SO 3288 (E) dated 25.10.2016: notified that

Adjudicating Authority and Appellate Authority under PMLA shall act as Adjudicating

Authority and Appellate Tribunal.

• Notification No.3290 stands superseded by Notification No.1621(E) dated 18.05.17

• Standard Operating Procedure (SOPs) issued by CBDT for implementation of the Act.

• Setting up of dedicated Benami Prohibition Units (BPU) under each Pr.DIT (Inv)

• 24 BPUs created across the Country

• Each BPU consists of –

• One Addl/Jt. CIT (BP)

• One Dy/Asst. CIT (BP)

• ITO (BP)

• Other officers/officials

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APPEALS AND RECTIFICATION

• AA may rectify any Order for any mistake apparent from record, within 1 year from the end of

the month in which the Order was passed. Opportunity of being heard to be given to the person

effected.

• Appeal against Order of the Adjudicating Authority

• Appeal before the Appellate Tribunal constituted under PMLA

• Appeal to be filed within 45 days of the Date of the Order

• Tribunal may, as far as is possible, decide the appeal within 1 year from the end of the month in

which the appeal is filed.

• Appeal against Order of the Appellate Tribunal

• Appeal before the High Court

• Within 60 days of communication

THANK YOU!!

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