India’s Benami Transactions (Prohibition) Act, of 1988, commonly known as the Benami Law, was enacted to combat the issue of “benami” property- property held by one person but paid for by another. The purpose of the law is to prevent individuals from avoiding taxes by acquiring assets in the name of others. Read here to learn more.
A Special Bench of the Supreme Court on Friday (October 18, 2024) recalled its August 23, 2022 judgment which declared provisions and amendments made in the benami property law “unconstitutional and manifestly arbitrary.”
The Bench, headed by Chief Justice of India D.Y. Chandrachud, referred the case for fresh adjudication.
Benami Law in India
A benami transaction is one in which a property is held by someone (the benamidar) who does not have the financial means to have purchased it, while the real owner (beneficial owner) remains undisclosed.
The intention behind such transactions is often to evade taxes or conceal illicit wealth.
- Prohibition and Penalties: Under the Benami Transactions (Prohibition) Amendment Act, of 2016, which strengthened the original law, benami transactions are strictly prohibited. Violators can face penalties such as:
- Up to 7 years of imprisonment.
- Confiscation of the benami property by the government.
- Fines amounting to 25% of the property’s fair market value.
- Confiscation: Properties identified as benami are subject to confiscation by the authorities. These assets are then managed by a designated authority as per the law.
- Exceptions: Some transactions are exempt from the scope of the law, including:
- Property held in the name of a spouse or child where the property is purchased using known sources of income.
- Joint ownership is where the contributors are known and can account for their share.
- Adjudication Mechanism: The 2016 amendment introduced a detailed adjudication process involving the appointment of an Adjudicating Authority to investigate suspected benami properties, as well as an Appellate Tribunal for appeals.
- Objective: The law aims to curb black money, prevent tax evasion, and increase transparency in property ownership.
The 2022 ruling on benami law
The 2022 Supreme Court ruling on India’s Benami Transactions (Prohibition) Act of 1988 focused primarily on the constitutional validity of Sections 3(2) and 5 of the amended Act, which came into effect in 2016. Section 3(2) pertains to the prohibition of benami transactions, and Section 5 addresses the acquisition of properties involved in such transactions by the state.
- In its 2022 ruling, the Court struck down these provisions, particularly on the grounds of their retrospective application.
- It held that criminalizing transactions or confiscating property under the 1988 law for actions that took place before the 2016 amendment violated legal principles.
- This decision was significant as it impacted numerous cases initiated after the 2016 amendments but concerning transactions before 2016.
However, this ruling left open further judicial scrutiny.
- The Court is expected to reexamine these sections to clarify their application in ongoing cases and the constitutional balance between enforcing anti-corruption laws and protecting individuals’ rights from retrospective penalties.
- This scrutiny reflects the judiciary’s efforts to balance robust enforcement of anti-corruption measures with the protection of constitutional rights, particularly concerning the principle of non-retroactivity in penal laws.
What is a Benami property?
Benami property refers to any asset or property that is held in the name of one person while the actual beneficiary or owner is someone else.
In other words, the person in whose name the property is registered is not the real owner, but a “benamidar” (a front or proxy).
The word “benami” itself comes from Persian, meaning “without a name” or “nameless.”
Key Characteristics of Benami Property:
- Ownership Discrepancy: The real owner funds the purchase, but the property is registered under someone else’s name to conceal the identity of the true owner.
- False Representation: The property is owned by one person but held in someone else’s name for deceptive purposes.
- Intent to Evade Law: Often, benami transactions are done to evade taxes, hide illegal wealth, or launder money.
Legal Framework in India:
- The Benami Transactions (Prohibition) Act, of 1988, and its subsequent amendment in 2016 (Benami Transactions (Prohibition) Amendment Act) are aimed at curbing these types of transactions.
- The 2016 amendment gives the government powers to seize benami properties and prosecute those involved in such deals. If convicted, the owner and benamidar can face penalties, including fines and imprisonment of up to seven years.
Legitimate Exemptions:
Certain transactions are not considered benami, such as properties held in the name of a spouse or child when the funds for the purchase can be proven to be from the legal owner.
Conclusion
The Benami law is a significant tool in the Indian government’s efforts to tackle corruption and illicit financial practices, especially in the real estate sector.
Benami properties have been a significant issue in India’s fight against black money, with enforcement agencies actively working to trace and seize these assets under the amended law.
Previous Year Question (PYQ)
Q. With reference to the ‘Prohibition of Benami Property Transactions Act, 1988 (PBPT Act)’, consider the following statements: (2017)
- A property transaction is not treated as a benami transaction if the owner of the property is not aware of the transaction.
- Properties held benami are liable for confiscation by the Government.
- The Act provides for three authorities for investigations but does not provide for any appellate mechanism.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) 1 and 3 only
(d) 2 and 3 only
Frequently Asked Questions (FAQ)
Q. What is an example of a Benami property?
Ans: Here are some examples of Benami properties:
- A person buys a house in the name of their daughter-in-law, but the father-in-law pays for the property.
- A property is purchased and registered in the name of Mr A, but Mr B pays for it.
- A property is purchased under a fictitious name.
- The owner of the property is unaware of or denies ownership of the property.
- The person who pays for the property is untraceable or fictitious
Q. Who is the real owner of the Benami property?
Ans: Benami property refers to assets held by one person but financed by another. The person in whose name the property is held is known as the ‘benamidar,’ while the person who finances the purchase is the real owner.
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–Article by Swathi Satish
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