What’s in the name? – Well, in India, if you are buying a property, everything!

The Prohibition of the Benami Property Transactions Act, 2016                                                                                                                                               

Going by the famous Romeo and Juliet play written by none other than William Joseph Shakespeare, a rose called by any other name would smell as sweet as before – What is in the name? Says he. But buying a property in India, under any other name may land you in trouble and the rose would then not smell as sweet as earlier. One of the major promises on which our Hon’ble Prime Minister Mr. Narendrabhai Modi rose to power was to dig out the unaccounted money (popularly termed as black money) buried in the potholes of the tricolored economic system and also curb the corrupt practices which are the route cause for such unaccounted money. While we have a number of initiatives recently trending towards this in the form of Income Disclosure Scheme 2016, Demonetization, various amendments made in the Income Tax Act, 1961 and the Prevention of Money Laundering Act 2002, Promotion of cash less economy, E-governance on one hand, a number less spoken but vital steps are silently working behind the picture such as introduction of The Black Money Foreign Income and Asset Act, 2015 the Pradhan Mantri Garib Kalyan Yojna etc.

One of the less mainstream but a critical trigger is launched in the form of the Benami Property Transactions Act, 2016. This Act, with a view to hinder the black money generated through Benami transactions of moveable as well as immoveable property in the country was introduced by the Minister of Finance Mr. Arun Jaitley in the monsoon session of the Parliament in 2016 which is effective from 1st November, 2016 as per the CBDT Notification No. 100/2016 dated 25-10-2016.  While such an act may already be existing in the form of the Benami Property Transactions (Prohibition) Act, 1988 and a few industry track keepers mingle with a view to see this step as old wine in a new bottle (with a brand new label of course) it is essential to give prominence to the fact that the amended act consists of seventy two provision in comparison with the old act having only nine sections. The amended act focuses on key structural changes in the following areas –

The main objective of this Act is to curb black money in the domestic markets and identifying the people entering into such practices. According to a few estimates, the parallel unaccounted money running in the veins of the country is estimated to be more than 30 times of the annual GDP of the country. This is far bigger challenge for Team Modi to mainstream such unaccounted money than to draw the funds which are already sailed through the shores via different tax havens away from the country. Since the Government being well acquainted of the traditional tried and trusted route used by the financial blessed Indian business men, traders, merchants and such other class to route their unaccounted income via acquisition of Benami Property, this act is also seen as a major step to not only discourage such activities in future but also refill the arsenal of the taxmen with tools to dig out previous cases of such benami transactions by giving a retrospective effect to the amended provisions of the Prohibition of Benami Property Transaction Act. This means that nothing shall stop the taxmen to dig out the transactions already honored before the enforcement of this act and slap tax along with interest and penalties for such historic transactions.

Expanding the net of Benami Transactions:

Earlier a Benami transaction was one where a property, where transferred to a person, but the consideration has been paid or provided by another person. However, the new law states has been amended to include and exclude the below transactions as well:

Inclusions:

  • Any transaction involving transfer of property, which is made in a fictitious name.
  • A situation where the owner of the property (on paper) is not aware or denies to acknowledge his ownership of the property under consideration
  • The person providing the consideration of property is not traceable

Exclusions:

  • A transaction where the beneficial owner of property is a member of a Hindu Undivided Family, and the consideration for the property is being paid out of the income of such Hindu Undivided Family.
  • A person in fiduciary capacity. (Meaning: A person who holds a relationship of trust with another party for e.g. Agent, Trustee, Guardian etc.)
  • A person providing consideration for property but, is not traceable viz. payments made by fictitious person.
  • Interestingly, the Act empowers Central Government to grant exemption to any religious or charitable trust to be under the ambit of this Act.

The scope of Benami transactions has been widened by inclusion of the term arrangements of any kind. Though the law makers have not defined the word arrangement in the act, as per Black’s Law Dictionary, arrangement shall include a measure taken or a plan made in advance of some occurrence. Going with this inclusive definition, the law maker intends to cover all the aspects of transactions or arrangements where the source of funding for acquisition of a Benami property has no permissible links to the ownership structure.

Property:

Under section 2(26) this Act, property is defined as “property means assets of any kind, whether moveable or immoveable, 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.” From the above definition, it is observed that the Act has taken into its scope transactions not only limited to transfer of immoveable properties such as land, building etc. but also assets like shares, financial instruments as well as other arrangement of transfer of money under fictitious bank accounts/names.

The Knights of the Ministry:

Speaking of Judiciary mechanism to be set to tighten the rope on Benami transactions, this act establishes four authorities to conduct the inquiries or investigations namely

A brief description on the division of authorities and responsibilities for the adjudicating authorities to proceed against a Benami transaction or a benamidar is outlined below;

The Appellate Tribunal: 

Section 25 of the Prohibition of Benami Property Transactions Act, 2016 provides for appointment of Adjudicating Authorities as notified under NOTIFICATION NO. SO 3288(E) [NO.97/2016 (F.NO.149/144/2015-TPL (PART-II)], DATED 25-10-2016 (AS CORRECTED BY NOTIFICATION NO. SO 3681(E) [NO.113/2016 (F.NO.149/144/2015-TPL (PART-II)], DATED 8-12-2016)

The Appellate Tribunal is given the responsibility to as far as possible hear and finally decide the appeal within a period of 1 year from the last date of the month in which the appeal is filled. Any person including the adjudicating officer can make an appeal before the Appellate Tribunal. The time limit for making such an appeal is 45 days from the date of order passed by the Adjudicating Authority.

 

Penalties under the new act:

The new act contains more stringent punitive measures against the Benami transactions and benamidars. The property under such Benami transactions can now be confiscated by the initiating officer for a period of 90 days while further extending such period for a time which he may deem fit to do so. Other penalties are tabularized as below;

It is noteworthy for the readers to understand that s the applicability of section 54 is amplified to all such cases where the investors are solicited by the companies/funds or other ponzi schemes by giving wrong information or misrepresentation of data for magnetizing the funds.

Track-o-meter for the performance of the Act:

According to a press release by the Ministry of Finance, Several benami transactions have been identified since the coming into effect of the amended law. Show cause notices for provisional attachment of benami properties were issued in 140 cases involving properties of the value of about INR 200 crore within just 5 months from which the act came into effect. Out of these, provisional attachment has already been effected in 124 cases. The benami properties attached include deposits in bank accounts and immovable properties. Till December 2017, income tax department has already frozen benami bank accounts holding funds of about INR 1,800 crore under this Act.

Certain Industry experts have an opinion that the success of this act lies in its quick and strict implementation. The Government with this view of effective implementation of the act has put in place empowered institutions such as the Commissioner of Income Tax, the Income Tax Officers, the Deputy Commissioner of Income Tax and such other powerful authorities for efficient implementation of the amended law. Also, the appeals made against the orders passed by the Appellate Tribunal is directly to be heard by the High Court.

The next big thing:

If one is to believe the Modinomics, in case there is a gimmick to be played on the benami transactions, the Lok Sabha session in the first half of the 18th year of the century is the best time for Mr. Prime Minister to trigger it. Given its huge disruptive influence on real estate market as well as politics, a crackdown on benami immovable property has the possibility of hogging the headlines all through 2018. Even while having the political glasses on, it cannot be better-timed since any mass-scale, visible action against corruption is sure to give Narendrabhai, a lot of electoral benefit.

For the people who have affixed the eye on the big screen for the most awaited annual financial fest of the country to be hosted by none other than the Hon’ble Finance Minister Mr. Jaitley, please do not be surprised in case the ministry increases the beats on the tunes of the Benami Property Act, 2016 along with fireworks by the Revenue Department to catch more fishes in the pond (big or small) in a net already laid about an year ago.

 

Note: With Inputs from Press Trust of India, the Press Information Bureau, Lakshmikumaran & Sridharan Attorneys, Kolkata, Economic Times and Studycafe. Accordingly, information comes from reliable sources and all rights are reserved with original publisher. The information contained in this article is intended solely for informative purpose and may be subject to legal privilege. Udyen Jain & Associates accept no liability for any damage caused, directly or indirectly, accept any sort of liability for any errors or omissions caused due to this information. All rights reserved with the author.

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