Prohibition of Benami Property Transactions Act – Meaning & Consequences

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  • Last Updated on 3 May, 2021
What are Benami Transactions?

Benami transaction is a transaction or arrangement whereby the identity of real owner (beneficial owner) of property is concealed by showing someone else (benamidar) as owner on record. The beneficial owner provides or pays consideration for purchase of property. Benami transactions can be entered into by ‘any person’ (viz., individual, HUF, firm, company, trust, etc.). The benamidar can be any person. So also, the beneficial owner can be any person.

Prohibition of Benami Property Transactions Act, 1988

These are 4 Categories of Benami Transactions:

Category 1: Transaction or arrangement where consideration provided by a person other than the transferee or the person in whose name property is held:

 

Under category I, all the following conditions must be satisfied for a transaction to be called a benami transaction:

  •  The transaction or arrangement actually takes place;
  •  Transaction or arrangement results in property being transferred to, or property being held, by a person (benamidar);
  •  Consideration is paid or provided by person other than the benamidar. Such person is called ‘beneficial owner’;
  • Neither the benamidar nor the beneficial owner is fictitious or untraceable;
  • Benamidar is aware of and does not deny the transaction or arrangement;
  • The possession of property is with benamidar ; and
  • The property is held by the benamidar for the immediate or future benefit, direct or indirect, of the person providing the consideration (beneficial owner)

Exceptions to Category 1 Benami Transactions: 

In following circumstances, transactions shall not be regarded as ‘Benami Transactions’, even though consideration is paid by someone other than the benamidar (person in whose name property is held) and the property is held in benamidar’s name.  

i) HUF property held in the name of Karta/Members of HUF – To avail the exception, the following conditions need be satisfied :

    • Property is held by karta or member of HUF;
    • Property is held for benefit of karta or other members of HUF; and
    • Consideration is paid out of known sources of HUF.

ii) Property held in fiduciary capacity – To avail the exception following conditions need be satisfied :

    • Property is held by a person standing in fiduciary capacity (viz., as trustee, executor, partner, agent, director of a company, etc.).
    • Property is held for the benefit of another person towards whom he stands in fiduciary capacity (viz., trust/beneficiary of trust, firm, principal, company, etc.)

iii) Property held in the name of spouse or child – To avail the exception following conditions need to be satisfied :

    •  Property is held by individual in name of spouse or child.
    •  Consideration is paid out of known sources of individual.

iv) Property held by an individual in joint names of self and brother/sister/Lineal ascendent (grandson or granddaughter/great-grandson or daughter)/Lineal descendent (Parents/grandparents/great grandparents) : To avail the exception following conditions need be satisfied :

    • Property is held by an individual in joint names of himself or his brother/sister/lineal ascendent or lineal descendent.
    • Consideration is paid out of known sources of individual.
Law Relating To Prohibition of Benami Property Transactions Act 1988

Category 2: Where a transaction is carried or made in a fictitious name: 

    • Transaction or arrangement in respect of property is benami transaction if the transaction is carried out or made in a fictitious name.
    • In other words, the benamidar is fictitious person or entity or nonexistent person or entity
    •  For example, an entry in books shows money payable to ‘Mirchi Seth However creditor ‘Mirchi Seth’ is not traceable and is a fictitious person.

Category 3: Benamidar not aware of a denies knowledge of transaction: 

    • Transaction or arrangement in respect of property is benami transaction if owner is not aware of, or denies knowledge of, such ownership.
    • For example, a black money hoarder B deposits Rs. 30 lakhs in the Jan Dhan bank account of X a labourer. X has no clue how that money landed in his account and expresses shock when told of it. He denies knowing B or ever having met B or ever talking to him personally or over the phone. The bank balance of X, to the extent of Rs. 30 lakhs, is benami property.
    •  For example, jewellery seized from the lockers of a corrupt bureaucrat/politician raided by CBI is explained by him as streedhan of wife. Wife denies any knowledge of this jewellery. This jewellery are Benami property.

Category 4: Beneficial owner who paid consideration is fictitious or is untraceable. 

Transaction or arrangement in respect of property is benami transaction if beneficial owner is fictitious or is untraceable.

Benami Black Money & Money Laundering Laws

What is Benami Property?

Benami property is any property which is subject matter of benami transaction. It can be in any form viz.,

    • Immovable property
    • Movable property e.g. – cash, jewellery, bank deposits
    • Intangible property
    • Tangible property
    • Corporeal or incorporeal property

What is Benamidar? 

    • It means a person (individual/HUF/firm/company/AOP/BOI/AJP) in whose name benami property is transferred to or held.
    • Benamidar may be actual person or fictitious/non-existent person or entity.
    • Benamidar can be even a mere name-lender, i.e., where possession of property is with beneficial owner and not with benamidar and only his name is used.

What is a Beneficial Owner? 

    • The beneficial owner is the person for whose benefit property is held by Benamidar.
    • It is immaterial that the identity of the beneficial owner is known or not known.

Consequences of Benami Transaction: 

Benami Transactions entered into prior 1-11-2016: 

The following are the legal consequences of benami transactions entered into prior to 1-11-2016: Benami transaction is a punishable offence: 1. Whoever enters into any benami transaction shall be punishable with imprisonment for a term which may extend to three years or with fine or with both. Prohibition of the right to recover property held benami: 2. No suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a person claiming to be the real owner of such property. 3. No defence based on any right in respect of any property held benami, whether against the person in whose name the property is held or against any other person, shall be allowed in any suit, claim or action by or on behalf of a person claiming to be the real owner of such property. Property held benami liable to confiscation: 4. Any property, which is the subject matter of benami transaction, shall be liable to be confiscated by the Central Government. Prohibition on re-transfer of property by benamidar: 5. No person, being a benamidar shall re-transfer the benami property held by him to the beneficial owner or any other person acting on his behalf. Any such re-transfer shall be null and void. However, this prohibition shall not apply where re-transfer is made in accordance with Income Declaration Scheme, 2016 i.e. in accordance with section 190 of the Finance Act, 2016.

Benami Transactions entered into or or after 1-11-2016: 

The following are the legal consequences of benami transactions : Benami transaction is a punishable offence 1. Whoever enters into any benami transaction on or after the 1-11-2016 shall be punishable in accordance with in accordance with section 53 of the Act. Section 53(1) provides that where any person enters into a benami transaction in order to defeat the provisions of any law or to avoid payment of statutory dues or to avoid payment to creditors, the following shall be guilty of the offence of benami transaction:

    •  beneficial owner,
    •  benamidar and
    •  any other person who abets or induces any person to enter into benami transaction

Where any person is found guilty of the offence of benami transaction as above, he shall be punishable with rigorous imprisonment for a term not less than one year but which may extend to 7 years and shall also be liable to fine which may extend to 25% of the fair market value of the property. Prohibition of the right to recover property held benami 2. No suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a person claiming to be the real owner of such property. 3. No defence based on any right in respect of any property held benami, whether against the person in whose name the property is held or against any other person, shall be allowed in any suit, claim or action by or on behalf of a person claiming to be the real owner of such property. Property held benami liable to confiscation 4. Any property, which is the subject matter of benami transaction, shall be liable to be confiscated by the Central Government. Prohibition on re-transfer of property by benamidar 5. No person, being a benamidar shall re-transfer the benami property held by him to the beneficial owner or any other person acting on his behalf. Any such re-transfer shall be null and void. However, this prohibition shall not apply where re-transfer is made in accordance with Income Declaration Scheme, 2016, i.e. in accordance with section 190 of the Finance Act, 2016.

Also Read:

New Benami Law 

Appeals and Rectification Remedies Under Benami Act

Machinery for Adjudication & Confiscation under the Prohibition of Benami Property Transactions Act (PBPT Act)

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