Benami Transactions (Prohibition) Bill, 2011

Purpose: To prohibit holding property Benami and restrict the right to recover or transfer such property. Background: Under growing attack over corruption and black money, the Union Cabinet on 21^st July, 2011, approved the proposal for the enactment of a new legislation in the form of the Benami Transactions (Prohibition) Bill, 2011 to replace the existing Benami Transactions (Prohibition) Act. During the process of formulating the rules for implementing certain provisions of the present Act which was passed in 1988, it was found that owing to infirmities in the legislation, formulation of the rules would not be possible without a comprehensive legislation by repealing the Act. The major infirmities of the existing Act were:

• Powers of a civil court have to be conferred on the authorities under the Act.
• Specific provisions have to be introduced for vesting of confiscated property with the Central Government.
• An appropriate appellate structure has to be defined, while barring jurisdiction of a civil court against an action taken by the authorities under the Act.
• Matters of procedure relating to its administration, notice of hearing to parties concerned, etc are to be provided.
• The word ‘wife’ needs to be replaced with the word ‘spouse’.
• Property purchased in the name of certain other family members is to be allowed under the Act.

‘Benami Transaction’ – Meaning: The word ‘Benami’ is of Persian Origin and literally means ‘property without a name’. A Benami Transaction is one where property is transferred or purchased in the name of one person but another person is paid consideration for the transfer. As per Section 2(a) of the existing legislation “Benami transaction” means any transaction in which property is transferred to one person for a consideration paid or provided by another person. Clause 2 (g) of The Benami Transactions (Prohibition) Bill, 2011 defines the term Benami Transaction as:

• (A) a transaction or arrangement –
• (a) where a property is transferred to, or is held by, a person for a consideration provided, or paid by, another person; and
• (b) the property is held for the immediate or future benefit, direct or indirect, of the person providing the consideration, except where the property is held by -
• (i) a karta, or a member of a Hindu Undivided Family, as the case may be, and the property is held for his benefit or the benefit of other members of the family; or
• (ii) a person standing in fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, agent, director of a company or legal adviser, a depository or participant as an agent of a depository under Depository Act, 1996 and any other person as may be notified by the Central Government for this purpose;
• (B) a transaction or arrangement in respect of a property carried out or made in a fictitious name; or
• (C) a transaction or arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership.

Exceptions:

• Properties held by coparcener in a Hindu undivided family; or
• Properties held by a person in “fiduciary’’ capacity are excluded from the definition of benami transaction.
• Properties acquired by an individual in the name of spouse, brother or sister or any other lineal ascendant or descendant are benami transactions which are not prohibited

Important Changes: 1. Punishment If 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 beneficial owner, benamidar and any other person who abets or induces any person to enter into such benami transaction, shall be punishable with an imprisonment for six months to two years, and liable to a fine of up to 25 per cent of the fair market value of the property held in benami. In addition, any person who willfully gives false information shall be liable to an imprisonment of three months to two years and a fine of up to 10 per cent of the market value of the property. The Bill provides for Special Courts to try such cases. 2. Confiscation A benami property shall also be liable for confiscation by the Adjudicating Authority after the person concerned has been given due opportunity of being heard. 3. Procedure Elaborate provisions dealing with the definition of benami transaction and benami property, prohibited benami transactions, consequences of entering into a prohibited benami transaction and the procedure and mechanism for implementing the benami law have been provided for in a detailed manner. 4. Exceptions to Prohibition Properties acquired by an individual in the name of spouse, brother or sister or any other lineal ascendant or descendant are benami transactions which are not prohibited from entering into benami transactions. Consequently, they are not subject to penal provisions. Properties held by coparcener in a HUF and properties held by a person in “fiduciary” capacity are excluded from the definition of benami transaction. 5. Authorities The authorities for the purpose of this Act shall include; (a) Initiating Officer who is an Assistant Commissioner of Income Tax , (b) Approving Authority who is a Joint Commissioner of Income Tax, and (c) Administrator who is an Income Tax Officer. These authorities shall have same powers as vested in a civil court while trying a suit in matters such as inspection, production of documents, issuing commissions, etc. The Bill provides that the Adjudicating Authority and the Appellate Tribunal established under the Prevention of Money laundering Act, 2002, shall also be the same for the purposes of this Act. If the Initiating Officer has reason to believe that a property is held benami, he may issue a notice to the benamidar and call for documents and reports for inquiry. The Initiating Officer may issue a notice, after the approval from the Approving Officer, to provisionally attach any property, which he has reason to believe is held benami. The Initiating Officer or the Adjudicating Authority may impound or retain any books of accounts that it may feel is required for the inquiry, for a period not exceeding three months from the date of attachment of the property. The Adjudicating Officer, after hearing the person whose property is attached, may make an order for the confiscation of the property held benami. The Administrator shall have the power to receive and manage the property which has been confiscated. The Administrator shall issue the notice for the surrender or forcible takeover of possession of the benami property. 6. Appeal Any person aggrieved by an order of the Adjudicating Officer shall appeal to the Appellate Tribunal. Any person aggrieved by the Appellate Tribunal in turn may appeal to the High Court. The new Bill also provides greater clarity on the scope and procedure for filing an appeal. This addresses a loophole in the previous Act. Since the new Bill has detailed provisions, it offers a wider legal net within which benami properties can be defined. This means that a lot more cases involving benami properties, which would previously have been dismissed because the laws were too vague, can now be proved in court. Benami Transaction (Prohibition) Bill 2011, will provide more clarity on certain grey areas of the 1988 Act.