Benami is essentially an Indian origin word which means holding in someone else’s or a fictitious name to cover up the identity of the beneficial owner. Benami property means any property which is the subject matter of a benami transaction and also includes the proceeds from such property. This is defined so in Section 2(8) of the Prohibition of Benami Property Transactions Act, 1988 (PBPT Act).
The word Benami Transactions is defined in Section 2(9) of the same Act to mean a transaction or an arrangement where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration. Benami transaction includes a transaction or an arrangement in respect of a property carried out or made in a fictitious name; or where the owner of the property is not aware of, or, denies knowledge of, such ownership; or where the person providing the consideration is not traceable or is fictitious.
A person or a fictitious person, in whose name the benami property is transferred or held is called "benamidar" and this includes a person who lends his name.
Some exceptions are made to benami property concept. The concept of Hindu undivided family, wherein the property is held by a Karta (elderly person who takes responsibility/decisions of/for the family) or a member of a Hindu undivided family, for his benefit or benefit of other members in the family, and the consideration for such property has been provided or paid out of the known sources, is not included in the concept of benamy property. Similarly the following persons / entities do not come under the definition of benami property/transaction:
- person standing in a fiduciary capacity for the benefit of another person such as a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 and any other person as may be notified by the Central Government for this purpose;
- an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual;
- any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and the individual appear as joint owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual;
- any transaction involving the allowing of possession of any property to be taken or retained in part performance of a contract referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882), if, under any law for the time being in force,-
(i) consideration for such property has been provided by the person to whom possession of property has been allowed but the person who has granted possession thereof continues to hold ownership of such property;
(ii) stamp duty on such transaction or arrangement has been paid; and
(iii) the contract has been registered.
Though the Benami Transactions (Prohibition) Act, 1988 has been on the statute book, the same could not be made operational because of certain inherent defects. For instance, this Act defined benami transaction to mean “any transaction in which property is transferred to one person for a consideration paid or provided by another person”. It did not provide adequately for an enforcement mechanism. With a view to providing effective regime for prohibition of benami transactions, the said Act was amended through the Benami Transactions (Prohibition) Amendment Act, 2016.
The amended law empowers the specified authorities to provisionally attach benami properties which can eventually be confiscated. Besides, if a person is found guilty of offence of benami transaction by the competent court, 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.
The Benami Transactions (Prohibition) Amendment Act, 2016 came into effect from 1 November, 2016. After coming into effect of the Amendment Act, the existing Benami Transactions (Prohibition) Act, 1988 was renamed as Prohibition of Benami Property Transactions Act, 1988 (PBPT Act).
The PBPT Act defines benami transactions, prohibits them and further provides that violation of the PBPT Act is punishable with imprisonment and fine. The PBPT Act prohibits recovery of the property held benami from benamidar by the real owner. Properties held benami are liable for confiscation by the Government without payment of compensation.
An appellate mechanism has been provided under the PBPT Act in the form of Adjudicating Authority and Appellate Tribunal. The Adjudicating Authority referred to in section 6(1) of the Prevention of Money Laundering Act, 2002 (PMLA) and the Appellate Tribunal referred to in section 25 of the PMLA have been notified as the Adjudicating Authority and Appellate Tribunal, respectively, for the purposes of the PBPT Act. A Joint / Additional Commissioner of Income-tax, an Assistant / Deputy Commissioner of Income-tax and a Tax Recovery Officer in each Region have been notified to perform the functions and exercise the powers of the Approving Authority, Initiating Officer and Administrator, respectively under the PBPT Act.
Several benami transactions have been identified since the coming into effect of the amended law.