In a further crackdown on the parallel economy that has affected the Indian economy adversely, the Central Board for Direct Taxes (CBDT) on November 1, 2016 has notified the Benami Transactions (Prohibition) Amendment Act, 2016 (Amendment Act). The Amendment Act brings within its purview several changes to the Benami Transactions (Prohibition) Act, 1988 (1988 Act).
The Amendment Act seeks to cover comprehensively all aspects of transactions or arrangements where the source of funding for acquisition of a benami property has no permissible links to the ownership structure. In other words, a benami transaction encompasses all such transactions in which the real beneficiary of a property is a different entity from the entity who has made the payment for such property, as a result of which, the owner of such property is a mere ‘front’ for the actual beneficiary/ funding entity.
It may be worthwhile to understand the concept of “benami transactions” through a comparative analysis between the 1988 Act and the Amendment Act. The concept of “benami transactions” under the Amendment Act is much wider and also includes ‘arrangements’ under its ambit. Though the term ‘arrangement’ has not been defined in the Amendment Act, one may refer to its definition in the Black’s Law Dictionary (Tenth Edition), which defines the term “arrangement” to include ‘a measure taken or a plan made in advance of some occurrence’. This would imply that a transaction which may not have concluded or an ‘understanding’ which may or not have been documented is also included in the definition of benami transaction. The inclusion of arrangements has thus widened the definition of benami transaction and has effectively plugged the loophole in the 1988 Act. Benami transactions also include transactions carried out in fictitious names or where the person providing the consideration is not traceable.
The Amendment Act, unlike the 1988 Act, provides certain exceptions to the definition of benami transactions under Section 2(9) and in this regard, property held by the following categories of persons have been exempted from the purview of ‘benami transactions,’ thus providing legitimate relaxations to certain types of transactions:
- a Karta or a member of a Hindu undivided family, provided such property is held for his benefit or the benefit of other members in the family;
- a person standing in fiduciary capacity for the benefit of other person;
- an individual purchasing property in the name of his spouse or child; and
- any person in the name of his brother or sister or lineal ascendant or descendant.
It is interesting to note that the Amendment Act empowers the Central Government to exempt any charitable or religious trust’s property from being under the purview of this Act (by issuance of a notification to this effect). This may not be feasible given the recent crackdown on licenses granted by the Government of India under the Foreign Contribution Regulation Act, 1976 and the stringent views taken in relation to such not-for-profit organizations.
The Amendment Act has brought new concepts that include inter-alia ‘benami property’, ‘benamidar’, ‘beneficial owner’, ‘fair market value’ and ‘transfer’. ‘Benami property’ has been defined as a property which is the subject matter of a benami transaction. A ‘benamidar’ is a person in whose name a benami property is transferred or held. A ‘beneficial owner’ is the person for whose benefit the property is held by a benamidar.
The definition of ‘transfer’ under the Amendment Act is more detailed than the definition given under Section 4 of the Transfer of Property Act, 1882. The said definition is inclusive in nature and broadens the ambit of the term ‘transfer’, which includes sale, purchase or any other form of transfer of right, title, possession or lien in a property.
The Amendment Act also empowers the Central Government to confiscate any benami property. It further prohibits a benamidar from transferring the benami property to the beneficial owner or any other person acting on his behalf. Thus, it is abundantly clear that the intention of the legislature is to create a mechanism to curb and redress benami transactions. However, it is equally interesting to note that the Amendment Act does not curb any mischief with respect to transfer of a benami property to a third party (i.e., not being a beneficial owner or any other person acting on his behalf) by a benamidar.
Chapters II and III of the Amendment Act envisage creation, role and jurisdiction of several authorities, namely (i) the Initiating Officer, (ii) the Approving Officer, (iii) the Administrator and (iv) the Adjudicating Authority. These authorities are vested with the same powers as that of a civil court under the Code of Civil Procedure, 1908. The Amendment Act also deems every proceeding instituted by any of the authorities involving discovery, inspection, summons, etc. to be a judicial proceeding within the meaning of the Indian Penal Code, 1860. This serves as an indication of the intention of the legislature to give more teeth to the erstwhile 1988 Act since no such distinct authority had been constituted under the 1988 Act which had the authority to seize and acquire benami property as provided under Section 5 of the 1988 Act. This, in turn, was ostensibly due to the fact that the requisite rules in relation to the 1988 Act had not been framed. At this juncture, it is worth mentioning that in the case of Shanmuga Patro v. Ministry of Finance, in 2012, a writ petition was filed in Delhi High Court with a prayer to have the Court appoint a competent authority contemplated under Section 5 of the 1988 Act, and thereby frame rules in relation to the procedure to be adopted by the said authority for acquiring benami properties. However, the Court dismissed the writ petition by stating that it was beyond the powers of the judiciary to undertake such action. In light of the above, Chapter III of the Amendment Act seeks to remove the lacunae of the 1988 Act and provide more clarity on the aforesaid issue.
Section 19 empowers any authority constituted under the Amendment Act to require any police officer, officer of the Central or State Government for conducting proceedings under the Act. Section 20 of the Amendment Act mandates any officer of the Income Tax Authorities, Customs and Excise Department, Narcotics Control Bureau, Reserve Bank of India and banking companies, Securities and Exchange Board of India and the stock exchange, Enforcement Directorate, any body-corporate constituted under any State or Central Act, and local authorities to assist the above-mentioned authorities in the enforcement of the Amendment Act. The Amendment Act provides wide powers to the authorities in relation to calling for information from, and impounding records of, any person including from any officer of the Government.
Chapter IV of the Amendment Act lays down the procedure for attachment, adjudication and confiscation of benami property and Section 24 of the Amendment Act provides the accused an opportunity to show cause as to why a property should not be treated as a benami property, thus opening a scope for trial.
The Initiating Officer shall commence proceedings, issue notice and pass necessary orders including that of provisional attachment with the approval of the Approving Authority. Upon passing of the order, the Initiating Officer shall refer the same to the Adjudicating Authority for hearing and orders. Any appeal against the order of the Adjudicating Authority shall be placed before the Appellate Tribunal as set up under Chapter V of the Amendment Act.
Chapter VI provides for constitution of special courts for conducting trial of an offence punishable under the Amendment Act. However, it may be noted that the Special Courts have not been granted with any power to take cognizance of matters suo motu. Chapters VII sets out the penal consequences for entering into a benami transaction and prescribes rigorous imprisonment of up to 7 years and fine of up to 25% of the fair market value of the property. In addition, the Amendment Act prescribes rigorous punishment by imprisonment and fine for furnishing false information to any of the authorities under the Amendment Act. It is imperative to note that all offences under this Act are non-cognizable and shall not bar the application of any other applicable law for the time being in force including but not limited to a separate action under the Income Tax Act, 1961.
Benami transactions have been a bane of the Indian economy since the 1980s, requiring a comprehensive legislation to curb the effects of such transactions which cripple a growing economy. This Amendment Act has been passed in the midst of growing public sentiments against corruption and a drive against black money in India. The Amendment Act is one amongst a series of legislations being passed by the Government to stop circulation of unauthorized currency and purchase of unaccounted property in India. The inclination of the present Government to effectively curb fraudulent property transactions and bring transparency is therefore quite evident.