Demonetisation in India had brought on surface a very important fact – the hoarders of ‘black’ money could escape the unpleasant consequences of demonetisation due to various benami transactions.
It was learnt that many people having unaccounted funds had hoarded them or routed these funds through their relatives or third person or even fictitious persons. In order to curb the generation and hoarding of such unaccounted money, the Benami Transaction (Prohibition) Act was amended to give it more teeth and since then has been implemented very seriously by the Government.
What is benami transaction?
Benami transaction, in simple words is a transaction where the legal owner and real owner of a property are two different persons. Here the monies are paid by one person, say Mr. A but property is held in the name of Mr. B. While Mr. B is the legal owner, Mr. A is the real owner of the property. All the incomes and proceeds of sale will be credited to account of Mr. A.
Under Benami Transactions (Prohibition) Act, a benami transaction is:
- A transaction where a property is transferred to or held by one person for direct or indirect, immediate or future benefit of another person, who has provided or paid the consideration, except when:
- An HUF is purchasing a property in the name of a Karta, or any other member from known sources;
- A person is holding the property in a fiduciary capacity (e.g. trustee, executor, partner of a partnership firm, director of a company, a depository participant, etc.);
- An individual is purchasing a property in the name of his spouse or any child provided the consideration is paid out of the known sources;
- Any person is purchasing a property in the name of his brother or sister or lineal ascendant or descendant, where he is one of the joint-owners, provided the consideration is paid out of the known sources;
- A transaction carried out in a fictitious name;
- A transaction where the owner of the property is not aware of or denies knowledge of such ownership;
- A transaction where the person providing the consideration is not traceable or is fictitious.
What is benami property?:
A benami property means assets of any kind, whether movable or immovable, 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;
Benami Transactions – illustrations:
- A, a non-resident does not hold an OCI card. As a result he cannot buy immovable property in India in his name. So he wishes to buy property in the name of his brother from his funds. Any rent income from this property or any sale proceeds from sale of this property will be enjoyed by Mr. A only. This is clearly a benami transaction.
- A, a USA citizen transfer monies to his mother’s account regularly. He then buys units of mutual funds paying monies from his mother’s account and in the name of his mother with an intention that the benefits/ proceeds etc. will be ultimately passed on to him – is a benami transaction.
- A’s father had certain unaccounted funds which he routed through Mr. A’s account. Mr. A will still become benamidar in this case. Though child is an exception, since the source of the funds is not known, Benami Transaction Act will be applicable.
- B, an NRI purchased a property in the name of his wife from his NRO account – is not a benami transaction since property is purchased in the name of wife and from sources known to Mr. B.
- C had purchased a house in the name of his daughter-in-law, D. His son and daughter-in-law have now moved to UK. Mr. C has now sold of the house for Rs. 5 crore. The first transaction – purchasing house in the name of Mrs. D was a benami transaction. The sale proceeds out of this transaction will also retain the character of benami property.
- Confiscation of benami property
Where a benami transaction has been entered into to defeat the provisions of any law, avoid payment of statutory dues or avoid payment to creditors, any person who enters or abets/induces another person to enter into such a transaction would be punishable with:
- Imprisonment between 1 to 7 years and
- Fine up to 25% of the fair market value of the property
Where a person provides false information, he shall be punishable with:
- Imprisonment between 6 months to 5 years and
- Fine up to 10% of the fair market value of the property
Officers to assist:
The following officers can assist the authorities under this Act:
(a) income-tax authorities
(b) officers of the Customs and Central Excise Departments;
(c) officer appointed under Narcotic Drugs and Psychotropic Substances Act,
(d) officers of the stock exchange
(e) officers of the Reserve Bank of India
(g) officers of enforcement under the Foreign Exchange Management Act, 1999
(h) officers of the Securities and Exchange Board of India
(i) officers of any other body corporate constituted or established under a Central or a State Act;
In other words, any finding by the above officers can also be used as for determining whether the transaction is benami in nature.
With advent of technology and exchange of information between the Government departments, it has become reasonably easy for the Government to track down Benami transactions. Further, the responsibility to prove that a particular transaction is not a benami one, lies on the owner (be it real or benami) of the property.
Hence, it is very important to prepare and preserve proper documents. Some of the pointers are given below:
- In case of gift, especially to your parents or siblings, make sure there is a gift deed in place demonstrating your intention to gift the property / money and not simply route it for your benefit.
- It is always prudent and advisable to keep a proper record of all your bank accounts and disclose them in Income tax returns.
- While crediting monies to any other person’s account, make sure to mention the purpose of such transaction.
- In case of high value transaction, it is advisable to consult a legal expert