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Benami Transactions: Tracing the evolution of Benami law in India

Income Tax - By: - Mr. Puneet Agrawal - Dated:- 13-4-2018 - Puneet Agrawal, Advocate -Purvi Sinha, Advocate Meaning of Benami Transaction : Purchase or holding of properties in the name of another is known in India, as a Benami transaction . The word Benami literally means without name . The essential legal characteristic of these transactions is that there is no intention to benefit the person in whose name the transaction is made. The Benamidar (transferee) is simply an alias for that of the p .....

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, Courts in India have, by and large, recognised two distinct classes of transactions as Benami. A. TRIPARTITE: A typical instance of it is when A sells a property to B , but the sale deed mentions C as the purchaser. Here the real purchaser is B and C is only the Benamidar. Such a transaction is described as the real Benami transaction. (For convenience, the first type of transaction is often referred to hereinafter as tripartite Benami transaction-as three persons are involved in it-or the fir .....

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he fundamental difference between the two categories of transactions is this. In the former, there is an operative transfer resulting in vesting of title in the transferee, whereas in the latter, there is no operative transfer and the transferor continues to retain title of the property notwithstanding execution of the document. The latter transaction is known as sham transaction .2 One common feature, however, in both these cases is that the real title is divorced from the ostensible title and .....

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consideration for the transfer. But in the latter case, when the question is whether the transfer is genuine or sham, the point for decision would be, not who paid the consideration but whether any consideration was paid.3 Comparison of Indian Law and English Law in regard to Benami Transactions: Under the English law, when real or personal property is purchased in the name of another person, a resulting trust is presumed in favour of the person who is proved to have paid the purchase money in t .....

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the benefit of the person in whose favour the legal title is transferred even though the purchase money may have been contributed by another person.6 So far as the purchase in the name of a stranger is concerned, the position is same in Indian Laws and English laws. But where the purchase is in the name of a relation, the Indian law is the reverse of the English law. The English presumption of advancement has not been applied in India on the ground that it is a rule of positive English Law and n .....

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s not its real character, the burden would have rested on him; but the individual in whose name the present purchase was effected was the son, and at that time the only son, of the person who made the purchase, and whose money it was, and it has been contended that the circumstances changes the presumption, and that what be the presumption in the case of a stranger does not exist between father and son; that the prima facie character of the transaction was not its real character, the burden woul .....

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earn, there is no authority in Indian law, no distinct case, or dictum, establishing or recognising such a principle, or such a rule. Statutory recognition to Benami Transaction: The original Indian law regarding recognition of Benami Transactions was contained in the provisions of Indian Trust Act, 1882, and was based on the same principle as English Law. This Act re-inforced the Benami transaction and gave statutory recognition to such practice. Section 82 of the Trust Act, as it existed befor .....

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r a consideration paid or provided by another person, and it appears that such other person did not intend to pay or provide such consideration for the benefit of the transferee, the transferee must hold the property for the benefit of the person paying or providing the consideration. Nothing in this section shall be deemed to affect the Code of Civil Procedure. Section 317 of Act No. XI of 1859 (to improve the law relating to sales of land for arrears of revenue in 34 the Lower Provinces under .....

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that he intended to dispose of the beneficial interest therein, the transferee or legatee must hold such property for the benefit of the owner or his legal representative. Section 84 of the Indian Trust Act covered those Benami transactions which are carried out for illegal purpose but such purpose is not executed, then in such case and also the cases covered by the provision, the transferee holds the property in trust. To quote: 84. Transfer for illegal purpose. - Where the owner of property tr .....

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se not coming within the scope of any of the preceding sections, where there is no trust, but the person having possession of property has not the whole beneficial interest therein, he must hold the property for the benefit of the persons having such interest, or the residue thereof (as the case may be), to the extent necessary to satisfy their just demands. Therefore, the Trust Act clearly recognised Benami Transactions in India. However, the statute does not recognise the English doctrine of a .....

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6 of Civil Procedure Code, which provides that no suit shall be maintained against any person claiming title under a purchase certified by the Court on the ground that the purchase was made on behalf of the plaintiff or on behalf of someone through whom the plaintiff claims. It may be added that Law Commission in its 54th report recommended an extension of the principle of this provision so as to prohibit also pleading of a defence based on Benami in such cases. However, this provision is confin .....

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alleged to be Benami. Section 281-A of Income Tax Act, 1961 as then introduced provided that no suit shall be instituted in any court to enforce any right in respect of any property held Benami unless the claimant has either disclosed the property in question or, the income therefrom in connection with his wealth tax or income tax assessments or given notice to Income Tax officer about the particulars of such property in the prescribed form. Need for a specific law to regulate or prohibit the Be .....

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mmendations were as under: According to the Law Commission, the law should refuse to recognise the Benami character of transactions, without making them as offence.8 The law should, in effect, provide that where the property is transferred Benami, the Benamidar will become the real owner. Also, the Law Commission recommended exception in certain cases like exceptions in the case of acquisition made by karta for himself and the members of the joint family, or by the trustees for the beneficiary o .....

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ent of India enacted the Benami Transactions (Prohibition of the Right to Recover Property) Ordinance No. 2 of 88 on May 19, 1988. The Ordinance more or less bodily adopted the draft recommendation set our under the marginal note Recommendation with one important variation that while the Law Commission was of the opinion that it is necessary to make an exception for past transactions, as the provisions of the Ordinance stand, the President appears to have resolved to make them retroactive. The p .....

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y for the benefit of the Coparceners and, (2) property held by a trustee or other person standing in fiduciary capacity for the benefit of another person. The Ordinance did not define (1) Benami Transactions or (2) Property , nor imposed any prohibition on entering into a Benami transaction after the commencement of the Ordinance and declared it as an offence punishable with imprisonment or fine or with both. The Ordinance also did not provide any exception in respect of transactions entered int .....

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ubject in all its ramifications so that the Bill to replace the Ordinance may be brought out as a comprehensive law on Benami Transactions touching all the relevant aspects. The Law Commission through its 130th Report made the detailed analysis of the situation and of the ordinance and gave recommendations, which would have had far reaching implications. However, thereafter, Benami Transactions (Prohibition) Bill, 1988 was introduced in the Rajya Sabha on 31st August, 1988 and received the assen .....

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ided by another person. In the case of Bhargavy P. Sumanthykutty v. Janaki Sathyabhama and others,11 the issue before the Hon ble Kerela High Court was whether sham transactions are included within the purview of Benami Act. The Hon ble Court analysed the scope of definition of Benami transaction. The Court noted that even before the promulgation of the Ordinance, courts in India have, by and large, recognised two distinct classes of transaction as Benami i.e. tripartite Benami transaction and b .....

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istance of court machinery to recover Benami property by the real owner. The ordinance does not even remotely affect them or their Benami transactions. The Ordinance does not remotely affect transactions between people having close intimate friends/relations. In such case, the ordinance will remain a paper tiger , ineffective in every manner. Also, the Commission noted that the Ordinance does not cover the case of re-transfer of property to the real owner. Further, the Ordinance does not prohibi .....

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ncome Tax Act, 1961 which provides that if any immovable property of a fair market value exceeding one hundred thousand rupees has been transferred by a person to another person for an apparent consideration which is less than the fair market value of the property and the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument if transfer, the competent authority can start a proceeding under Section 296C read with Section 269D for the acquisit .....

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inery of inspectors and superior officers. Therefore, the Commission was of the opinion that voluntary agencies must be involved. Recognised non-governmental organisations must be empowered to lay a complaint before a tribunal pointing our violation, namely, entering into Benami transactions. It was recommended that a district judge in each district should be declared as a tribunal for the purpose of this Act Other existing machineries were also recommended to be used for this purpose. However, .....

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to the Ordinance, it was never brought into operation in absence of any Rules and administrative setup, and hence more or less remained a Paper tiger. Reason for introducing the Amendment Bill, 2015 In such scenario, it was found that the provisions of the Benami Transactions (Prohibition) Act, 1988 were inadequate to deal with Benami transactions; therefore comprehensive amendments to the Benami Transactions (Prohibition) Act, 1988 became necessary. The Finance Minister, Mr. Arun Jaitley, whil .....

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1988 as well as to create conditions for smooth implementation of the Act. Specifically, the Bill seeks to- Amend the definition of a Benami Transaction; Provide for Adjudication Authorities and a Tribunal; and Specify appropriate penalties where the ban on Benami transactions is violated.16 The Prohibition of Benami Property Transactions Act, 1988 [New Law] The Benami Transaction Prohibition (Amendment) Act, 2016 has renamed the Act and the amending Act is now named as the Prohibition of Benam .....

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s also the enforcement machinery and the Adjudicating Authorities. The definition of Benami transaction as provided under section 2(9) of the Amended Act is much wider and detailed. It provides for four specific cases where transaction shall be Benami. Clause A of section 2(9) of the Act provides that in order to be a Benami transaction or arrangement, both the conditions mentioned thereunder need to be fulfilled i.e. property is transferred or held by a person and consideration for the same is .....

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ctitious name. Example: Person A buying a property in the name of Person B when there is no person in existence with a name B, and it is just an imaginary person. Clause (C) of the definition provides third instance of Benami transaction as a transaction or an arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership. Example: when a person A purchases property in the name of another person B, and person B is either not aware of .....

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inary. In such case, the transaction shall be Benami transaction . An explanation has also been added to this definition which takes care of those cases where Section 53A of Transfer of Property Act, 1882 applies and properties are held on the basis of agreement to sale and power of attorney without execution of proper conveyance deed. Three conditions have been added for taking benefit of this explanation. The conditions mentioned with the explanation are as under: Consideration for such proper .....

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it would be a Benami transaction. For a transaction to be a Benami transaction, it must be in the nature of Benami transaction as provided in four clauses of the definition. The Amended Act further contains provision to prohibit entering into a Benami Transactions and also provides punishment for transactions entered before the commencement of the Amended Act 17i.e. period after promulgation of Ordinance and before the enactment of the new Act and also provides punishment separately for those t .....

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d Benami Act). Section 1(3) of the Amended Act provides that the provisions of section 3, 5 and 8, shall come into force at once, and remaining provisions of this Act shall be deemed to have come into force on the 19th day of May, 1988. Therefore, this section makes it clear that the Amended Act would be deemed to come into force on 19th May, 1988 (date of enactment of ordinance), except section 3, 5 and 8, which would be deemed to come into force on 5th September, 1988 (date of enactment of old .....

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ere not covered by the old Benami Act but is now covered under the Amended Act, would also become Benami under the Amended Act and would be liable for acquisition. Conclusion: Benami transactions were clearly recognised in India and have been practiced even before the advent of Britishers. It was intially recognised by the Indian Courts and hence was judge-made law but later on it was accorded statutory recognition with the enactment of Indian Trust Act. It was not considered objectionable by th .....

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duced in 1988 followed by the 1988 Act. However, this 1988 Act, did not have effective provisions prohibiting such transactions and had no enforcement mechanism. A need to have a better Legislation was thus felt and therefore, an attempt was made in the form of The Benami Transactions (Prohibition) Bill, 2011 . However, the Bill lapsed with the lapsing of the Lok Sabha even though it was referred to a Standing Committee and the Report did come. Then, 2015 Amendment Bill was again introduced and .....

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sing of 2015 Amendment Bill and has provided a exhaustive definition of Benami Transaction and also detailed machinery for the implementation of the provisions to control Benami transaction efficiently. Though even the rechristened Act has many open issues, which in our view could be settled only with the passage of time, however it gives the necessary teeth to the authorities to effectively deal with the Benami transactions. - Notes: 1. Gurnarain v. Sheolal, 1918 (10) TMI 1 - Privy Council 2. B .....

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