Benami Transaction (Prohibition) Act, 1988 – Economic, Business and Commercial Laws Important Questions

Benami Transaction (Prohibition) Act, 1988 – Economic, Business and Commercial Laws Important Questions

Question 1.
Define the term ‘Benami Transactions’ under the Benami Transaction (Prohibition) Act, 1988.
Answer:
Benami transactions are a transaction or arrangement whereby the identity of the real owner (beneficial owner) of the property is concealed by showing someone else (Benamidar) as the owner on records. The beneficial owner provides or pays consideration for the purchase of the property.

Benami Transaction [Section 2(9)]:
1. Benami transactions is 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. Similarly, a transaction or arrangement where the property is held by some other person for the immediate or future benefit, direct or indirect, of the person who has provided the consideration is also a Benami transaction.

However, the following transactions or arrangements do not amount to Benami transaction:

• A HUF purchasing a property in the name of a Karta or any other member from known sources.
• A person holding the property in a fiduciary capacity. (e.g. trustee, executor, partner of a partnership firm, director of a company, a depository participant, etc.)
• An individual purchasing a property in the name of his spouse or any child provided the consideration is paid out of the known sources.
• Any person purchasing property in the name of his brother or sister or lineal ascendant or descendant, where he is one of the joint-owners, provided the consideration is paid out of the known sources.

2. A transaction carried out in a fictitious name is a Benami transaction.

3. A transaction where the owner of the property is not aware of or denies knowledge of such ownership is a Benami transaction.

4. A transaction where the person providing the consideration is not traceable or is fictitious, is a Benami transaction.

Possession of property in part performance of a contract – not Benami trans-action: Benami transaction shall not include 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, if under any law for the time being in force:
(a) consideration for such property has been provided by the person to whom the possession of the property has been allowed but the person who has granted possession thereof continues to hold ownership of such property;
(b) stamp duty on such transaction or arrangement has been paid; and
(c) the contract has been registered.

Question 2.
Ramesh invested ₹ 1,00,000 in equity shares of some private companies in name of his wife Reshma out of the savings made by him in the last five; years. However, such savings are not disclosed anywhere in his accounts or income tax returns. Whether this transaction/arrangement amounts to Benami property under the Benami Transaction (Prohibition) Act, 1988?
Answer:
(a) Facts of Case: Ramesh invested ₹ 1,00,000 in equity shares of some private companies in name of his wife Reshma out of the savings made by him in the last five years. However, such savings are not disclosed anywhere in his accounts or income tax returns.

(b) Provision: Benami transactions are a transaction or arrangement whereby the identity of the real owner (beneficial owner) of the property is concealed by showing someone else (Benamidar) as the owner on records. The beneficial owner provides or pays consideration for the purchase of the property. However, if an individual purchases a property in the name of his spouse or any child and the consideration is paid out of the known sources then it will not be a Benami transaction.

(c) Conclusion: As per the facts given case, Ramesh invested ₹ 1,00,000 in equity shares of some private companies in name of his wife Reshma out of the savings made by him in the last 5 years which was not disclosed in his accounts or income tax returns and hence investment is made from an unknown source. It amounts to a Benami transaction.

Question 3.
Ratnakar, a Karta of HUF, purchased gold for ₹ 2,00,000 in the name of her minor daughter on her sixth birthday. This gold was purchased out of funds held in Axis Bank and details of this bank account are filed with income tax authorities. Whether this transaction/arrangement amounts to Benami property under the Benami Transaction (Prohibition) Act, 1988?
Answer:
(a) Facts of Case: Ratnakar, a Karta of HUF, purchased gold for ₹ 2,00,000 in the name of her minor daughter on her sixth birthday. This gold was purchased out of funds held in Axis Bank and details of this bank account are filed with income tax authorities

(b) Provision: Benami transactions are a transaction or arrangement whereby the identity of the real owner (beneficial owner) of the property is concealed by showing someone else (Benamidar) as the owner on records. The beneficial owner provides or pays consideration for the purchase of the property. However, a HUF purchases a property in the name of a Karta, or any other member from known sources, it does not amount to a Benami transaction.

(c) Conclusion: As per facts given in the case, Ratnakar had purchased gold for his minor daughter out of the funds held in Axis Bank details of which are available with income tax authorities and thus it is an investment out of known sources and the transaction does not amount Benami transaction.

Question 4.
Mr. Nitinkumar Gupta is director of Hi-Fi Ltd. The company purchased some property in the name of Mr. Nitinkumar and paid the consideration for the property. State with reason whether this transaction/arrangement amounts to Benami transaction under the Benami Transaction (Prohibition) Act, 1988?
Answer:
(a) Facts of Case: Mr. Nitinkumar Gupta is director of Hi-Fi Ltd. The company purchased some property in the name of Mr. Nitinkumar and paid the consideration for the property

(b) Provision: As per exception provided by Section 2(9) of the Benami Transaction (Prohibition) Act, 1988, when a property is held by a person in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity, the transaction or arrangement will not be Benami transaction. Thus, property held by the trustee, executor, partner of a partnership firm, director of a company, a depository participant, for the benefit of another is not Benami property as they are holding property in a fiduciary capacity.

(c) Conclusion/Decision: Keeping in view the above discussion, property purchased by the company in the name of its director.

Mr. Nitinkumar Gupta is not a Benami transaction as he holds the property in a fiduciary capacity for the benefit of the company.

Question 5.
Explain the salient features of the Benami Transactions (Prohibition) Act. 1988. [June 2019 (3 Marks)]
Answer:
Salient features of the Benami Transaction (Prohibition) Act, 1988 are given below:

• It defines ‘Benami Transaction’ and ‘Benami Property.
• It provides for exclusions and transactions which shall not be construed by Benami.
• It provides the consequences of entering into a prohibited Benami transaction.
• It lays down the procedure for determination and related penal consequences for prohibited Benami transactions.
• It also provides that the powers of the Civil Court to the authorities under the Act.
• Provisions have been made for service of notice, protection of action taken in good faith, etc.
• Central Government empowers to make rules for the implementation of the provisions of the Bill.
• It enables the Central Government in consultation with the Chief Justice of the High Court to designate Special Courts.
• It provides a penalty for entering into Benami transactions and for furnishing any false documents.
• It provides for the transfer of suit or proceeding in respect of a Benami transaction pending in any Court/Tribunal (other than High Court) to the Appellate Tribunal.

Question 6.
How Benami transactions are prohibited under the Benami Transaction (Prohibition) Act, 1988? What is the penalty for Benami transactions under the Act?
Answer:
Prohibition of Benami transactions [Section 3]: No person shall enter into any Benami transaction. Whoever enters into any Benami transaction shall be punishable:

• with imprisonment up to 3 years or
• with fine or
• with both.

Where any person enters into any Benami transaction on and after the date of commencement of the Benami Transactions (Prohibition) Amendment Act, 2016, shall be punishable.

Property held Benami liable to confiscation [Section 5]: Any property, which is the subject matter of Benami transaction, shall be liable to be confiscated by the Central Government.

Penalty for Benami transaction [Section 53]: Where 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 the Benami transaction, shall be guilty of the of-fence of Benami transaction.

Whoever is found guilty of the offense of Benami transaction shall be punishable:

• With rigorous imprisonment for a term which shall not be less than 1 year, but which may extend to 7 years and
• With a fine that may extend to 25% of the fair market value of the property.

Question 7.
Explain Adjudication of Benami Property under the Benami Trans-action (Prohibition) Act, 1988. [Dec 2018 (3 Marks)]
Answer:
Provisions relating to the adjudication of Benami property are given below: Notice by Adjudicating Authority to furnish documents, evidence, etc.

[Section 26(1)]: On receipt of a reference u/s 24(5), the Adjudicating Authority shall issue notice, to furnish such documents, particulars, or evidence as is considered necessary on a date to be specified therein. Such notice has to be served on the following persons:

• Benamidar,
• Beneficial owner,
• Any interested party, including a banking company,
• Any person who has made a claim in respect of the property.

The Adjudicating Authority shall issue notice within a period of 30 days from the date on which a reference has been received.

Serving of notice where Benami property is held jointly [Section 26(2)]: The notice should specify that person to whom the notice is served is required to give necessary information within 30 days from the date of the notice.

Where the property is held jointly by more than one person, the Adjudicating Authority shall make all endeavors to serve notice to all persons holding the property.

Such notice can be sent to any one of the joint holders and it is not required to send the notice to all joint holders.

Orders by Adjudicating Authority [Section 26(3)]:

• Adjudicating Authority may by passing an order hold the property not to be a Benami property and revoke the attachment order.
• Adjudicating Authority may by passing an order hold the property to be a Benami property and confirm the attachment order.

Before passing any of the above order the Adjudicating Authority is required to adopt the following procedure –

•  He should consider the reply of notice issued u/s 25(1);
• He may conduct inquiries and may call such reports or evidence as he deems fit.
• He should take into account all relevant materials relating to the case.
• He should provide an opportunity of being heard to Benamidar, the Initiating Officer, and any other person who claims to be the owner of the property.

Procedure to be adopted by Adjudicating Authority when only some part of the property is Benami property [Section 26(4)]: Where the Adjudicating Authority is satisfied that some part of the properties in respect of which reference has been made to him is Benami property, but is not able to specifically identify such part, he shall record a finding to the best of his judgment as to which part of the properties is held Benami.

Power of Adjudicating Authority to attach other property even though no reference has been made by Initiating Officer [Section 26(5)]: If during the course of proceedings, the Adjudicating Authority finds that some other property is also Benami property but for such other property no reference has been made by the Initiating Officer then he can provisionally attach such other Benami property even though no reference has been made by the Initiating Officer.

Power of Adjudicating Authority to remove a name or add the name of any person in relation case before him [Section 26(6)]: The Adjudicating Authority may, at any stage of the proceedings, either on the application of any party, or Suo Motu, strike out the name of any party improperly joined or add the name of any person whose presence before the Adjudicating Authority may be necessary to enable him to adjudicate upon and settle all the questions involved in the reference.

The time limit for passing order [Section 26(7)]: No order shall be passed after the expiry of 1 year from the end of the month in which the reference was received by the Adjudicating Authority.

Appearance before Adjudicating Authority [Section 26(8)]: The Benamidar or any other person who claims to be the owner of the property may either appear in person or take the assistance of an authorized representative of his choice to present his case.

Question 8.
Explain the provisions relating to filing of an appeal with the Appellate Tribunal under the Benami Transaction (Prohibition) Act, 1988.
Answer:
Appeals to Appellate Tribunal [Section 46]:

• Any person, including the Initiating Officer, aggrieved by an order of the Adjudicating Authority may prefer an appeal to the Appellate Tribunal within a period of 45 days from the date of the order.
• The Appellate Tribunal may entertain any appeal after 45 days if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal in time.
• On receipt of an appeal, the Appellate Tribunal may pass such orders thereon as it thinks fit after giving the parties to the appeal an opportunity of being heard.
• The Appellate Tribunal, as far as possible, may hear and finally decide the appeal within a period of 1 year from the last date of the month in which the appeal is filed.

Question 9.
Discuss briefly the penalty for various offenses under the Benami Trans-action (Prohibition) Act, 1988.
Answer:
Penalty for Benami transaction [Section 53]:
(a) Who is guilty: Where 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 the Benami transaction, shall be guilty of the offense of Benami transaction.

(b) Penalty: Whoever is found guilty of the offense of Benami transaction shall be punishable:

• with rigorous imprisonment for a term which shall not be less than 1 year, but which may extend to 7 years, and
• with a fine which may extend to 25% of the Fair Market Value of the property.

(c) Penalty for false information [Section 54]:
Any person who is required to furnish information under the Act knowingly gives false information to any authority or furnishes any false document in any proceeding under the Act, shall be punishable:

• With rigorous imprisonment for a term which shall not be less than 6 months but which may extend to 5 years and
• With a fine that may extend to 10% of the Fair Market Value of the property.

(d) Previous sanction [Section 55]: No prosecution shall be instituted against any person in respect of any offense under section 3, 53, or 54 without the previous sanction of the CBDT.

Economic, Business and Commercial Laws Questions and Answers