Benami deals are quite common in India. Large scale benami deals happened when agricultural land ceilings were introduced after Independence. With increasing new taxes, people began parking their assets under benami transactions to reduce their personal liabilities. Under the Modi Government’s drive to clean out the black money market in the country, the Benami Transactions (Prohibitions) Amendment came into effect on November 1, 2016. The Act is an amendment of the 1988 Act of the same name.
Finance Minister Arun Jaitley first introduced it in the Lok Sabha in May 2015 and was then referred to by a Standing Committee on Finance. The Committee submitted its report on April 28 and was subsequently, passed in the Lok Sabha on July 27 and Rajya Sabha on August 2.
The Central Board for Direct Taxes (CBDT) stated that after coming into effect, the Benami Transactions (Prohibition) Act, 1988 will be renamed as the Prohibition of Benami Property Transactions Act, 1988 (PBPT Act).
What is a benami transaction?
The Act defines a benami transaction as a transaction where a property is held by or transferred to a person but has been provided or paid by another person. The definition also includes property transactions where:
1) A transaction been made under a fictitious name;
2) The owner is not aware or denies knowledge of ownership of the property; and
iii) The person providing the property is not traceable.
Punishments under the Act
The amended law has strict provisions to confiscate benami properties and imposes stiff penalties for those making such transactions. Earlier, any instances of people keeping ‘benami’ properties to evade taxes resulted in imprisonment of up to three years, or a fine, or both. Under the amended Act, offenders will be punished with rigorous imprisonment of up to seven years and be charged a fine which may extend to 25% of the fair market value of the benami property.
The punishment for those providing false information to any authority or provides false documents will be punished with rigorous imprisonment for a time period of not less than six months which may extend to five years and will also be liable to a fine of up to 10% of the fair market value of the benami property. According to the Government, the new stricter provisions will check domestic black money in the real estate sector.
Who is in charge?
The Government has stated that there will be four authorities responsible for conducting inquiries or investigations –
(a) The Initiating Officer who can issue a notice to any benamidar on suspicion. The Officer can also hold the property for 90 days from the day of issuing the notice, subject to permission from the Approving Authority.
(b) The Approving Authority
(c) The Adjudicating Authority. At the end of the 90-day period, the Initiating Officer may pass an order to continue holding the property following which they may refer the case to the Adjudicating Authority. The Adjudicating Authority will then examine all the documents and evidence, and then pass an order on whether the property will be held as benami.
(d) The Administrator. Based on this order, the Administrator will receive and handle the property as per the conditions prescribed. A Joint /Additional Commissioner of Income-tax, an Assistant / Deputy Commissioner of Income-tax, and a Tax Recovery Officer would then be notified to perform the functions and exercise the powers of the Approving Authority, Initiating Officer and Administrator, respectively.
Appeals against any orders passed by the Adjudicating Authority will be heard by an Appellate Tribunal while appeals against the orders of the Appellate Tribunal will be heard by the High Court. The Tribunal has been provisioned with a maximum time period of one year, from the last day of the month in which the appeal is filed, to hear and give a final decision on the appeal. The Appellate Tribunal will comprise of a Chairperson and at least two other Members, one of them to be a Judicial Member and the other an Administrative Member. The new Act also mandates the Central Government to designate one or more Session courts as Special Court for trial of offence punishable under it.