Benami Transactions (Prohibition) Amendment Act, 2016

Literally, Benami means “without name”. The Benami transactions are those transactions in which the real beneficiary is not the person in whose name the transaction {particularly purchase of property} has been done.  In simple terms, the property is held by one person but amount for it is provided by another. The real owner is hidden and this defrauds public revenue.

Earlier the benami transactions are defined as a “transaction where a property is held by or transferred to a person, but has been provided for or paid by another person”. This Act has amended this definition by to add other transactions which qualify as benami, such as property transactions or arrangement where:

1. 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
2. the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration
3. the transaction is made in a fictitious name,
4. the owner is not aware of denies knowledge of the ownership of the property, or
5. the person providing the consideration for the property is not traceable.

The Bill also specifies certain cases which will be exempt from the definition of a benami transaction. These include cases when a property is held by:

(i) 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;

(ii) 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;

(iii) 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;

(iv) 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

This new law has also increased the penal provisions for ,

1. whoever is found guilty of the offence of benami transaction shall be punishable with rigorous imprisonment for a term which shall not be less than one year, but which may extend to seven years and shall also be liable to fine which may extend to 25 per cent of the fair market value of the property.

2. whoever is guilty in providing false information as required to furnish shall be punishable with rigorous imprisonment of six months up to five years, and a fine which may extend to 10% of the fair market value of the benami property

Impact on Real Estate

This act would be applicable on any kind of assets movable, immovable, tangible, intangible, corporeal or incorporeal. It also includes any right or interest or legal documents or instruments evidencing title to or interest in the property; where the property is capable of conversion into some other form, then  the property in the converted form; and the proceeds from the property. The act is expected to adversely impact transaction volumes and lower property prices. The act will ensure that all real estate transactions shall be in the name of actual owner. i.e. actual person paying the consideration from her/his known sources. One of the major problem in real estate transactions is clarity of title which limits investor as well as financial Institution participation in the sector. Transparency issue is one of the negative factor which limits the private equity and NBFCs

Existing law against Benami Transactions

Via the Benami Transactions (Prohibition) Act 1988, parliament has totally prohibited the Benami transactions and made it an offence, prohibiting all suits, claims and actions based upon Benami transactions. This law had several loopholes such as lack of proper implementation machinery, absence of appellate mechanism, lack of provision with centre for vesting confiscated property etc. To plug the loopholes and replace archaic act, UPA Government had introduced a Benami Transactions (Prohibition) Bill 2011. However, that bill had lapsed when 15th Lok Sabha dissolved. The current government had introduced Benami Transactions (Prohibition) Amendment Bill, 2015 in July 2016 in parliament. This bill has been now passed in both the houses of parliament and has become an act {Benami Transactions (Prohibition) Amendment Act, 2016} with effective from 11th August, 2016.

Salient Features

Property which is and which is not Benami.

A Benami transaction is one in which property is held by one person but amount for the same is provided by another.

A property that is held in the name of spouse or child for which the amount is paid out of known sources of income is not Benami. Similarly, joint property of brothers, sisters or other relatives for which amount is paid out of known resources of income is also not Benami. Benami property may include assets of any kind including movable, immovable, tangible, intangible, any right or assets or legal documents. It also includes Gold and financial security.

About the Benami Transactions (Prohibition) Amendment Act, 2016,

The BTP Amendment Act, the existing Benami Transactions (Prohibition) Act, 1988, shall be renamed as Prohibition of Benami Property Transactions Act, 1988 (PBPT Act).

The Act defines benami transactions and also provides imprisonment upto seven years and fine for violation of the Act. The official notification says, ‘The PBPT Act prohibits recovery of the property held benami from benamidar by the real owner. Properties held benami are liable for confiscation by the government without payment of compensation.’

Benami Transactions (Prohibition) Act, 1988 is an Act of Parliament of India that prohibits benami transactions and the right to recover property held benami. It came into force on 5 September 1988.

The benami transaction is any transaction in which property is transferred to one person for a consideration paid by another person.

Benami is a Persian language word that means “without name” or “no name”. In this Act, the word is used to define a transaction in which the real beneficiary is not the one in whose name the property is purchased. As a result, the person in whose name the property is purchased is just a mask of the real beneficiary.

Proceedings against Benami Property Beneficiaries

The act authorizes the government to designate an assistant or deputy income-tax commissioner as initiator to start proceedings into a Benami transaction. The officer will refer the case to “adjudicating authority” under this act, which will decide in one year if the transaction / property or asset was Benami.

 Adjudicating Authority

The act provides that Adjudicating Authority will be established by the Central Government. It shall be consisting of a Chairperson and at least two other members. A person who has been member of Income Tax or Revenue Service only can become member or chairperson of adjudicating authority. Adjudicating Authorities will exercise jurisdiction, powers and authority conferred under this act. Once the initiator has referred the case to adjudicating authority, it will decide the case in one year time.

Appellate Tribunal

Appeals against the adjudicating authority’s decision can be taken to the Appellate Tribunal at New Delhi. This tribunal will be established by the Central Government and will be consisting of one chairperson and two other members of which one shall be Judicial member and other shall be an administrative member. The chairperson can also constitute the benches of appellate tribunal. The person to be appointed as Chairperson to the Appellate Tribunal must be a sitting or retired judge of a High Court. A judicial member must have been a member of Indian Legal Service and have held the post of additional secretary or equivalent in that service. The administrative member must have been a member of Indian Revenue Service and have held the post of Chief Commissioner of Income Tax or equivalent post. 

Confiscation of the Benami Property and Punishment Provisions

Once an order becomes final, the Benami properties will be confiscated. These properties will be managed and disposed off by the designated officers who will be appointed from among the income-tax officers.

The act provides that the Benamidar {owner of Benami Property} or any other person who abets other person to enter into such transactions will face rigorous punishments ranging from one to seven years in jail. Further, the person may be liable for a fine up to 25% of the fair market value of the property.

Summary and Implications

The core aim of the act is to route the unaccounted money into the financial system; seize Benami properties and prosecute / punish those who are involved in these properties. The amended law has tried to give a clear definition of Benami transactions; established adjudicating authorities; set up appellate tribunal and specified the penalties for entering into the Benami transaction. This law will have long term impacts on real estate industry in the country and will increase the practice of including the correct name in property transactions. This in turn would bring transparency in residential market. With an increased transparency, the risks would be minimized and residential properties transactions would get boost. It will also boost the confidence of lenders {banks or private individuals}. The stringent law would also bring down the prices of real estate because such transactions are done by cash rich investors to park their unaccounted wealth in real estate.

The amendment in the act is a means to reduce generation and utilization of unaccounted (black) money. This was a pivotal election promise made by the current government. Through this amendment the government seeks to clearly define ‘Benami‘ transactions, establish adjudicating authorities and an Appellate Tribunal to deal with Benami transactions, and specifies the penalty for entering into Benami transactions. Moreover, this will also increase the tax revenue for the Government by curbing unaccounted money into the system.

In the short term it will lead to a reduction in transaction volumes. However, in the long term it will make India a more attractive investment destination, aligning transactions with ethical standards and will increase international institutional investors and financial institutions participation in this sector.