What is Benami Property?

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‘Benami’ literally translates to ‘without any name’. In the case of real estate transactions, a benami property is one, where the person actually paying money to buy a property, does not buy it in his/her own name. In such a transaction, the person who finances the purchase of the property is its real owner and not the person under whose name it has been purchased. A benami property is bought and held for the direct or indirect benefit of the purchaser of the property. As such, assets other than real estate can also be declared as benami, including gold, financial securities, legal documents and so on.

Benami is essentially an Indian origin word which means holding in someone else’s or a fictitious name to cover up the identity of the beneficial owner. Benami property means any property which is the subject matter of a benami transaction and also includes the proceeds from such property.

What is Benami Property?

Benami in Hindi means without name. So, a property bought by an individual not under his or her name is benami property. It can include property held in the name of spouse or child for which the amount is paid out of known sources of income. A joint property with brother, sister or other relatives for which the amount is paid out of known sources of income also falls under benami property. The transaction involved in the same is called benami transaction. As a usual practice, to evade taxation, people invest their black money in buying benami property. The real owner of these properties are hard to trace due to fake names and identities. The person on whose name the property is purhcased is called benamdar. The benami transactions include buying assets of any kind — movable, immovable, tangible, intangible, any right or interest, or legal documents.

Exceptions:

The following type of transactions will not be treated as Benami transactions:
1. Property is held by a member of the HUF for the benefit of the HUF and the consideration is paid from the known sources of income of such HUF;
2. A person who holds the property in a fiduciary capacity for the other person – for example, a trustee for the trust, a director for his company, a depository/depository participant for a trader (holder of shares in demat form), etc.;
3. An individual holding property in the name of his spouse or child and where the consideration is paid from the known sources of such individual ;
4. An individual holding property jointly with a brother, sister or lineal ascendant/descendant and where the consideration is paid from the known sources of such individual.

Benami Transaction

The word Benami Transactions is defined in Section 2(9) of the Prohibition of Benami Property Transactions Act, 1988 (PBPT Act)to mean 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. Benami transaction includes a transaction or an arrangement in respect of a property carried out or made in a fictitious name; or where the owner of the property is not aware of, or, denies knowledge of, such ownership; or where the person providing the consideration is not traceable or is fictitious.

Some factors for determining Benami Property

•  The source from which the purchase money came;
• The nature and possession of the property, after the purchase;
• Motive, if any, for giving 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.

"Benami" Law

The Benami Transactions (Prohibition) Act, 1988 ('Primary Act') was enacted in the year 1988 to prohibit all benami transactions. The Act defined a 'benami transaction' as "any transaction in which property is transferred to one person for a consideration paid or provided by another person".

The Hon'ble Supreme Court in Bhim Singh v. Kan Singh AIR 1980 SC 727, explained Benami Transaction as "Where a person buys a property with his own money but in the name of another person without any intention to benefit such other person, the transaction is called benami. In that case the transferee holds the property for the benefit of the person who has contributed the purchase money, and he is the real owner."

However, the Primary Act was not comprehensive enough and lacked to make a big impact. The Rules of the Primary Act were not framed and benami transactions continued in India. The Primary Act had several loopholes, including the absence of an appellate mechanism and lack of provisions for vesting of the confiscated property with the Central government. The Benami Transactions (Prohibition) Amendment Act, 2016 ('Amendment Act') seeks to amend the Primary Act and is aimed at catching those with black money in the domestic economy hidden through benami properties.

The reason for bringing an Amendment Act instead of a new Act is that the Primary Act has penal provisions and penal provisions cannot be applied retrospectively. So if a new Act was passed in 2016, all those who acquired benami properties before 2016 would be given immunity. There are many forms of transactions where people prefer to deal in another person's name instead of their own, either to evade taxation, to surpass property ceiling laws or to invest their black money etc.

 Authorities established under the Act

•  The Initiating Officer
• Approving Authority
• Administrator
• Adjudicating Authority

Post of authorities and responsibilities are discussed in next paragraph.

Initiation of Proceedings against alleged Benami Property Beneficiaries:

The Act establishes four authorities who will be able to conduct inquiries regarding benami transactions:

S. No.	Name of Authority	Post of Authority	Responsibility
1	Initiating Officer	Assistant Commissioner of Income-Tax (ACIT) or a Deputy Commissioner of Income-Tax (DCIT)	Notice and attachment of property
2	Approving Authority	Additional Commissioner of Income-Tax (AdlCIT) or a Joint Commissioner of Income-Tax(JCIT)	Notice to furnish evidence
3	Administrator	Income Tax Officer (ITO)	Possession and management of properties confiscated
4	Adjudicating Authority	Officers Drawn from ITD	Confiscation and vesting of property

Process:

1. Issue of Show Cause Notice by Initiating Officer where he has reason to believe that any person is a benamidar in respect of a property.
2. Provisional attachment of property if necessary.
3. Revoke provisional attachment if satisfied the property is not benami.
4. Continuing provisional attachment or ordering provisional attachment where not satisfied that property is not benami and refer a statement of case to Adjudicating Authority.
5. Adjudicating Authority to hear affected persons and pass order holding that property is benami or not. The authority will decide within a year if the property is benami.
6. Where adjudication order holds property as benami, hear affected persons and pass confiscation order. all rights and title in such property shall vest absolutely in the Central Government free of all encumbrances
7. Administrator to take possession of benami property and manage it. Appeals against orders of the Appellate Tribunal will be to the respective High Court with jurisdiction.

The Act mandates Central Government to designate one or more Session Court as Special Court for trial of offence punishable under it.

Penal provisions under Benami Act

• The various forms of punishment under the Benami Act are as follows:
•  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 who is required to provide information under this Act 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.