As we all know, it is indeed a common practice to accumulate wealth without payment of legitimate taxes. Such type of unaccounted wealth or money is generally called ‘Black Money’. It is also very much common to park such type of black Money in movable/immovable properties in the names of other persons. In India, this term is popularly called “Benami” i.e. without any (genuine) name.

It is a well admitted fact that this type of practice results in the social inequality, benefit to the dishonest, resulting in undue burden on the honest tax payers and is always harmful for the society as well as proper governance.

With the purpose to curb such menace, a law was enacted, namely “Benami Transactions Act, 1988”. The said act was very toothless & was not even notified for a long period of 26 years.

In view of the above and to prohibit the rampant illegal benami transactions, in August 2016 “The Benami Transactions (Prohibition) Amendment Act, 2016, was enacted, under which imprisonment  up to seven years and severe penalties for those indulging in such activities was prescribed. The amendment came along with the assurance from the Finance Minister, Sh. Arun Jaitley that genuine religious trusts would be kept out of the purview of this new legislation. The earlier Act has been renamed as “Prohibition of Benami Property Transactions Act, 1988” and has duly been notified w.e.f. 1st November’2016 with the issuance of “Prohibition of Benami Property Transactions Rules, 2016”. It is important to note here that the provisions of this Act have overriding effect on all other Acts in force.

The timing of notification of this Act coincides with one of the strongest & major step to unearth & eliminate black money i.e., just before the announcement of demonetization, so that the dishonest are not able to get the benefit of benami transactions, that they used to indulge into, earlier. This Act along with the stringent Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, aims to penalize those with unaccounted wealth abroad also and will help the government in its fight against black money both within and outside the country.

Targeted Areas for the Amendment
The primary focus of the Amendment was:-
(i) to widen the definition of benami transactions.
(ii) to establish adjudicating authorities and an Appellate Tribunal to properly deal with benami transactions, and
(iii) to impose penalties for entering into benami transactions.

Benami Property:
In view of Section 2(8) r/w Section 2(26), Benami property is defined in the widest possible way. It means assets of any kind, be it movable or immovable, tangible or intangible, corporeal or incorporeal. It also includes any right or interest or legal documents or instruments evidencing title to or interest in property, or 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.

Benami Transactions:
Under Section 2(9), a benami transaction is a transaction or an arrangement where a property is held by or transferred to a person, but the consideration for such property has been provided, or paid by another person for his own benefit.

The amended definition also includes the following:
i. transactions made in a fictitious name, or
ii. owner of property is not aware of or denies knowledge of ownership of property, or
iii. person providing consideration for property is not traceable or is fictitious.

Exceptions to the definition of Benami transaction under section 2(9):-
When a property is held by the following & paid off from known sources of income:
1. Karta or a member of a HUF, held for him or his family member’s benefit
2. Held in a fiduciary capacity; that is, transaction involving a trustee and a beneficiary.
3. Held under the name of spouse or child.
4. A property jointly held with brother, sister or other lineal ascendants or descendent relatives.

Legal Implications of Benami Transaction:
The PBPT prohibits any persons from entering into a benami transaction. As per section 3(2) & 3 (3) read with Section 5 and 53, the Act provides for both criminal and civil liability for those guilty of the offence of entering into a benami transaction, which ranges from imprisonment from one to seven years and a fine up to 25% of the fair market value of the property or both & the said property would also be subjected to confiscation.

Authorities under the Act:
Authorities under the Income Tax Act have been notified to perform the functions and exercise the powers of the Approving Authority, Initiating Officer and Administrator, respectively because they are specialists in handling such like transactions. A combination of IRS and ILS has been provided to perform the function of Adjudicating Authority.

Functioning of the Authorities:
Chapter IV of the Act provides for attachment, adjudication and confiscation of property involved in benami transaction. As per Section 24, an Initiating Officer can issue a show cause notice to any benamidar when he has reason to believe that any person is a benamidar and beneficial owner in respect of a property with the powers to provisionally attach the property for a period not exceeding 90 days.
Where the initiating officer passes an order continuing the provisional attachment of the property or passes an order subsequently for provisionally attaching the property, he shall within 15 days from the attachment, draw up a statement of the case and refer it to the Adjudicating Authority.
The notice u/s 24(1) may be served on the person named therein either by post or as if it were a summons issued by a Court under the Code of Civil Procedure, 1908.

Adjudication of Benami Property:
As per Section 26, on receipt of the reference from the initiating officer the Adjudicating Authority shall issue a notice to Benamidar, Beneficial owner, any interested party like a Banking Company or any other person, to furnish such documents, particulars or evidence as is considered necessary.
The Adjudicating Authority shall, after considering all material facts & affording an opportunity of being heard to all parties, pass an order holding the property either as a benami property or otherwise. Such order shall be passed within one year from the end of the month in which the reference from the Initiating Officer was received. The Adjudicating Authority may also provisionally attach the property, other than a property referred to it by the Initiating Officer if he has a reason to believe it to be a benami property.
The Benamidar or the owner of the property may appoint Legal Representative like his Relative, Chartered Accountant, Advocate or any other person as mentioned in explanation to Section 26(8).

Confiscation of the Benami Property:
In view of Section 27, once the order becomes final, the benami property will be confiscated by the Central Government without any compensation.
Where appeal has been filed against the order of the Adjudicating Authority, the confiscation of property shall be made subject to the order passed by the Appellate Tribunal u/s 46.
Any right of the third person created with a view to defeat the purpose of this Act shall be null and void & no claim shall lie against the Government.
In case the alleged benami property is held or has been acquired by a person prior to the issue of the show cause notice, without having the knowledge of the benami transaction and for an adequate consideration, such property is outside the preview of confiscated.

Appellate Tribunal
Appeals against the adjudicating authority’s decision can be taken to the Appellate Tribunal, established by the Central Government at New Delhi. The tribunal will consist of one chairperson and at least two other members having stipulated qualifications, of which one shall be Judicial member and other shall be an administrative member. The chairperson can also constitute the benches of appellate tribunal and may transfer a member from one Bench to another Bench.

Conclusion
The Act is going to be an ace weapon to track and trap black money supplementing the Income Declaration Scheme, 2016, the demonetization drive and the proposed Goods and Services Act. The modified Act is more clear and stern in terms of its treatment of Benami Transactions. The act tries to sort out the weaknesses of the provisions of the old Act and provides stricter norms. Since it is being done to curb black money, persons with unaccounted income are sure have see tough times ahead.