1. What’s in a name?

What’s in a name?

The new Benami Act provides enough deterrents, but enforcement still remains the key

By: | New Delhi | Published: November 4, 2016 6:20 AM

People with unaccounted income will sure have a tough time ahead as the Benami Transactions (Prohibition) Amendment Act, 2016, came into effect on November 1. The new law, which seeks to give more teeth to the authorities to curb black money/benami transactions, has strict provisions to confiscate benami properties and impose penalty for entering into such transactions.

The new comprehensive legislation, an amendment of the older Benami Transactions (Prohibition) Act 1988, was announced last year as the earlier one introduced in 2011 had lapsed. Though the law was enacted 27 years ago, it could not be formulated due to certain legal issues. The bill was again referred to a Standing Committee on Finance after introducing it in the Lok Sabha last year. Following clearance from the panel in April, it was passed in the Lok Sabha and Rajya Sabha on July 27 and August 2, respectively.

The 2016 Act, which prohibits illegal benami transactions, has a provision of rigorous jail term of up to seven years plus fine which may extend to 25% of the fair market value of the benami property, replacing the three-year jail term, or fine, or both. A person could also face rigorous imprisonment for up to five years for knowingly giving false information and will have to pay a fine of up to 10% of the market value of the property.

As per the Act, a benami transaction is one where a property is held by one person and the amount for it is paid by another. Therefore, the name of the person who paid the money is not mentioned. The definition also includes property transactions where a transaction has been made under a fictitious name, the owner is not aware or denies knowledge of the ownership of the property and the person providing the property is not traceable. Directly or indirectly, the benami transaction is done to benefit the one who pays. Assets of any kind—movable, immovable, tangible, intangible, any right or interest, or legal documents can qualify to be benami. It also specifies that certain cases which will be exempt from the definition of a benami transaction includes cases when a property is held by (i) a member of a Hindu undivided family, and is being held for his or another family member’s benefit, and has been provided for or paid off from sources of income of that family; (ii) a person in a fiduciary capacity; (iii) a person in the name of his spouse or child, and the property has been paid for from the person’s income.

There are four authorities who will conduct inquiries or investigations i) initiating officer, (ii) approving authority, (iii) administrator, and (iv) adjudicating authority. An initiating officer can issue a notice to any benamidar on suspicion. The officer may then hold the property for 90 days from the day the notice was issued, subject to permission from the approving authority. Upon the end of the 90 day period, the initiating officer may pass an order to continue holding the property following which, he/she 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. A joint/additional commissioner of income-tax, an assistant/deputy commissioner of income-tax, and a tax recovery officer would be notified to perform the functions and exercise the powers of the approving authority, initiating officer and administrator, respectively.

An appellate mechanism has been provided under the Act, in the form of an adjudicating authority and appellate tribunal. Appeals against orders of the tribunal will lie with the high court.

To penalise those with unaccounted wealth abroad, there is already the stringent Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. “There is black money both within and outside the country—it is a reality. If we have to stop black money generation, formulating laws and their implementation has to be a continuous process,” FM had said. “The transactions before 1988 will not be covered (under the amended law). Prior to 1988, the Indian Trust Act had certain provisions that permitted benami transactions,” he said.

Benami transactions are one of the notorious ways to deal with black money killing accountability of an economy. These transactions pump back money through circulation and investments. This is majorly an offspring of corruption prevalent worldwide including India.

While the Law Commission of India started examining the prohibition of benami transactions as early as 1972, it wasn’t until 1988, that The Benami Transaction (Prohibition) Act came into existence. The Act made it illegal for a person to hold or transfer property the consideration for which was paid by another person. But several shortcomings made the Act ineffective.
Experts have termed the 2016 Act as “a good measure”. The latest amendment definitely is harsher than the earlier proposed law. Stiffer penalty coupled with monetary fine for furnishing of the wrong information will definitely go a long way in achieving the target. The new law will check domestic black money especially in the real estate sector.

“You may not be a party to a benamidar transaction but if you furnish wrong information, then also you are subject to prosecution under the new law, so no doubt this law has enough powers being bestowed upon the officer to initiate the penalty and prosecution proceedings against the offenders,” Kuntal Dave, proprietor, Nanubhai Desai & Co, had said.

Even the burden of proof has completely shifted on to the taxpayer to show that he is actually not guilty.

However, discovering these benami transactions could prove to be a challenge. Such transactions in their entirety are difficult to detect as they are entered into with blood relatives or family members or someone with whom a person shares a fiduciary relationship. Another instance where majorly Benami transactions take place is landlord and tenant or master and his servant where the relationship is influenced by other considerations like fear of losing his or her job.

While moving away from cash transactions might be a slower process, the immediate discovery of benami transactions may be possible if the government can put in place proper IT infrastructure to track multiple transactions. This can be done when there is intra-governmental cooperation between the different arms of the finance ministry, whether it’s RBI, or I-T authorities, according to tax experts.

The new Act provides a remedy for tackling the increasing black money problem by way of suitable civil machinery and enough deterrents, but enforcement still remains the key issue. After all, how much ever effective legislation is, if it lacked in effective implementation it will not have the desired effect.

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