Benami Transactions Act [Including Amendment, 2016] – Complete Overview

Recently, Govt. has introduced a law which has given a sudden jolt to the real estate sector. But the fact is, it is not only the real estate sector which would be affected by this law but it would have an impact on all types of properties be it movable or immovable. This law is called the Benami Transaction Act.

Although, It is not a new act and it was originally created way back in 1988 but it was only the recent amendment brought in 2016 which has made a complete overhaul of this act and has made it really strong.

But, of course, you might be thinking right now; what is it? How does it affect me? why should I concerned about it? Well, you’ll get to know all these things by the end of this article.

So, Let’s analyze it in a very simple language and step by step:-

1. What is Benami Property?

Benami literally means something “without a name”. Therefore, you could easily assume it that any property without a legal name and the valid owner is called Benami. It is a Property which is purchases/sold under a Benami Transaction and it also includes the money involved in such property.

Property here means; assets of any kind, whether movable or immovable, tangible or intangible and it will include any right, interest, title to any property.

2. What is a Benami Transaction?

Benami Transaction means; a transaction or an arrangement where:

(A) A property is transferred to a person but the Consideration for such property has been given by another person. & Such property is held for the ultimate benefit of the person who has provided the consideration.

(B) A Property has been taken in a fictitious name. [i.e. Purchased in Fake name]

(C) A Property which has been taken in such manner that the owner (as per documents) of the property is not aware of such ownership. [i.e. Purchased in some unknown person name]

(D) The Person giving the consideration for purchase is not traceable or is Fictitious. [i.e. Purchase money is coming from unknown sources]

EXCEPTIONS: There are also some specific Exceptions to the general rule which means if Property has been taken in such manner then it will not be considered as Benami. These Exceptions would be in cases WHEN THE PROPERTY IS HELD BY:

– A Karta/Member of HUF and the property is held for his own benefit or benefit of other members in the family and considerations for such property is coming from known sources of HUF.

[Important Note- If a Member of HUF purchases property in the name of Another Member then that would not be taken as Exception.]

– A Person standing in a fiduciary capacity (i.e. working on behalf of and benefit of other). If s/he is holding any property for the benefit toward whom he stands in such capacity then that would not be called as Benami.

e.g. A share marketing company (say, Sharekhan) hold shares in the fiduciary capacity on behalf of their clients then that would not be considered as Benami.

– Any Individual (buying property) in the name of his/her spouse or in the name of any child & consideration for such property is coming from the known sources of such individual.

– Any Individual (buying property) in the name of Brother or Sister or lineal ascendant/ descendants, where the name of brother or sister or lineal ascendant/descendant AND the Individual appear AS JOINT-OWNERS in any document & consideration for such property is coming from the known sources of such individual.

3. Why People involved in Benami Transactions?

It is generally used to enter into by the people who have unaccounted money; more commonly known as Black money.

People make the Benami Transactions to hide their name and use the black money in various types of properties in such names which is either fake or which are not under the lenses of tax departments.

Also, Another reason for entering the Benami Transactions is to hide the true ownership of the property from their lenders, creditors, and banks etc.

4. Who are the Parties involved in it?

In any Benami Transaction the following parties are involved:

(i) Benamidar: It is the person/fictitious person in whose name the property has been purchased.

(ii) Beneficial Owner: It is the person who has provided the consideration for purchase.

(iii) Seller: It is the person who is selling the property.

5. Which people would be affected by this Act?

The people who have entered in any way transactions which are covered under Benami especially the one who has the Black Money and invested the same into Benami Transactions would be hugely affected by this act.

They have to bear the Huge penalties and prosecutions under the Act. Also, the real estate sector would be certainly impacted with this and every party involved must be very clear about the true ownership of the property.

People who have taken properties from their genuine sources and for their own direct benefit would not be affected by this law.

6. What are the Penalties & Prosecutions under the Act?

The Act prescribes the different penalties and prosecutions for different defaults which are as follows:

(i) Penalty for Benami Transactions:

Where any person enters into a Benami Transaction the beneficial owner, benamidar and any other person who supports any person to enter into the benami transaction shall be guilty under the act and punishable with rigorous imprisonment for a term between 1 year to 7 years (+) shall also be liable to fine which may be extend up to 25% of the Market Value of the Property.

(ii) Penalty for False Information:

Any person who is required to furnish information under this Act knowingly gives false information to any authority or furnishes any false document in any proceeding under this Act, shall be punishable with rigorous imprisonment for a term between 6 months to 5 years (+) shall also be liable to fine which may extend up to 10% of the Market value of the Property.

[Note: An offence under this Act shall be non-cognizable which means it will need a warrant before arresting any such person.]

(iii) Other Restrictions:

Benami Property liable to Confiscation: Any Property, which is the subject matter of Benami Transaction, shall be liable to be CONFISCATED by Central Govt. without payment of any compensation.

Prohibition on re-transfer of Property by Benamidar: Benamidar shall not re-transfer the Benami Property held by him to the Beneficial Owner or Any Other Person acting on his behalf. If, so transferred then such Transaction would be null and void.

7. What if the defaulter is a Company?

Where a company is contravening any provision of this Act, then the Company itself AND Every Person (including Director, manager, secretary, CEO etc.) who was responsible for such Transaction shall be deemed to be guilty of the contravention; and shall be liable to be proceeded against and punished accordingly.

But if such person proves that such transaction was made without his/her knowledge then such a person would not be considered as guilty.

Important Note: Here;

Company shall mean: Company, Firm, & AOP/BOI

Director shall mean: Director, Partner, Any Member in case of Company, Firm & AOP/BOI respectively.

8. SOME IMPORTANT POINTS:

The Central Govt. shall appoint Adjudicating Authorities which will see of the cases of Benami Transactions and take the relevant actions against the same.

It will not bound to follow the Code of Civil Procedure, 1908 but shall be guided by the given provisions under this Act. The Authority shall have the power to regulate its own procedure.

The officers of other departments e.g. income tax authorities, officers of CBIC, officers of any recognized stock exchange, officers of SEBI, officers of RBI, Police, officers of enforcement directorate under FEMA etc would extend their assistance to the Adjudicating Authorities.

Apart from this, the Central Govt. shall also from Appellate Tribunal and any party aggrieved by the decision of the Adjudicating Authority may proceed to the Appellate Authority.