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Actor Shah Rukh Khan’s Alibaug bungalow alleged ‘Benami’

Source: News India Today, www.indiatoday.in

The Income tax Department has recently attached Shah Rukh Khan’s luxurious bungalow in Alibaug, Maharashtra suspecting it to be Benami property. The department has alleged that the land owned by Déjà vu Farms Pvt Ltd is in control, use and possession of Shah Rukh Khan. The shares of this company were earlier held by father-in-law and mother-in law of the actor, which later on in the year 2006-07 were transferred to the actor and his wife. The department suspects that the transactions have been arranged in such a way that the land acquired by Déjà vu Farm would ultimately accrue benefits for the actor. In this case, Déjà vu Farms acts as a Benamidar of the alleged property and Mr. Khan is the beneficiary as the consideration for acquisition of such property has moved from him in disguise of loan. The matter has been referred to the Adjudicating Authority for confirmation of the attachment made under the Benami Act.

Posted on: 03-02-2018

AN ENDEAVOUR TOWARDS UNDERSTANDING THE BENAMI LAW

INTRODUCTION

After surgical strike on black money holders through demonetization, the NDA Government went on with a second round by overhauling ‘The prohibition of Benami Property Transaction Act, 1988’ to bring in force ‘The Benami Transactions (Prohibition) Amendment Act, 2016’ (hereinafter referred to as the "Act") with effect from November 1, 2016 with an objective to curb Benami Properties transactions. Earlier, the Law contained only eight sections, however now, the Law is in its full swing with seventy two sections.

A question that arises is why such a great overhauling is done, instead of bringing a new law into force. The rationale behind this was explained by the Finance Minister in his speech explaining that, if they had created a new Law, that would have granted immunity to all the people who acquired Benami properties between 1988 and 2016. One plausible solution to deal with this situation could be to make the Law applicable retrospectively. However, in view of provisions of Article 20 of the Constitution of India, penal Laws cannot be brought into force retrospectively. Accordingly the government considered that the immunity of twenty eight years would not be in the interest of public and preferred to amend the Law instead of replacing it.

With the amendments made in 2016, the ‘Act’ has come into full force providing procedures to deal with Benami properties and stringent punishments for offenders. As of now, 24 Benami Prohibition Units (BPUs) have been set up across India for taking action under the Benami Act. More than 400 Benami transactions have been identified. Provisional attachment of properties under the Act has been done in more than 230 cases. The market value of properties under attachment is more than Rs. 800 crore.

1.BASIC UNDERSTANDING ABOUT BENAMI

In present time, if someone speaks the word ‘Benami’, it echoes black money, fraud and tax evasion. That is why, majority of the people believe that ‘Benami’ itself means illegal and offensive. However, it is not true.

The term ‘Benami’ is a Hindi word having Persian origin which means ‘without name’. It is most commonly used to denote a transaction which is done by a person in other’s name. A point of curiosity here is that, these transactions are though made in someone’s name, still they are called as Benami!!!!

This may be because, in such transactions, people do not know the name of the person who actually enters into such transaction, they only know in whose name such transaction is executed. Since the actual beneficiary remains unknown, the transactions are said to be Benami. For instance, ‘A’ purchased a property from ‘B’ out of its disclosed sources but purchase deed mentioned ‘X’ as the purchaser. Here, people will know ‘X’ as the owner, whereas A was the real purchaser. As the purchase was itself genuine, there was no illegitimacy in this. Benami transactions were very common in the pre-independence period and were not considered wrong as the same accorded with the customs and habits then prevalent.

However with passage of time, people started taking advantage of such common practice, obviously, not in good faith. The modus operandi followed was that indebted people used to transfer their properties to others (like relatives) for protecting it from being claimed by the creditors. In such cases, effective control and ownership used to still lie with the real owners but claims of the creditors were often sought to be defeated. Thereafter, Benami transactions were also resorted to for furthering illegal, fraudulent or questionable objects such as tax evasion. This became common knowledge and resulted in massive Benami dealings, which aroused the need for a stringent law to curb this practice. The result of all this is, that now a Benami transaction is equivalent to an offence.

2.WHEN A TRASANCTION IS SAID TO BE A BENAMI TRANSACTION?

A question that becomes a significant point of discussion is what actually a Benami transaction is and what does it includes?

The Act has given an exhaustive definition of ‘Benami Transactions’ in section 2(9). But, the use of word ‘means’ in the definition would cover every possible situation that would relate to the types of transactions mentioned therein.

As per the act, a Benami transaction is-

1)-A transaction where a person buys a property with his own money but in the name of another person or,

-buys a property in his own name and subsequently transfers it in the name of another person without any intention in either case to benefit such other person.

For Example- A buys a land and paid consideration for the same. Such land is purchased in the name of B or was earlier purchased in the name of A and has been subsequently transferred to B, without giving B any rights or benefits of ownership in either case. This is a Benami transaction.

In legal terms, here B is the ‘benamidar’ as he holds and represents the property for all practical purposes to the entire world except the real ownership. And, A is the ‘beneficial owner’ (the one for whose benefit, property is held by benamidar).

In simple words it can be said that, if the person who has paid the consideration is himself the owner of the property, not just in document but in real sense reaping the benefits of the same, then that would be a valid transaction, not a Benami transaction.

However, there are certain exceptions to the above definition. That is, without bringing the transaction within the purview of this Act -

an individual can legally hold a property solely in the name of his spouse or child, or,
In the name of his brother or sister or a lineal ascendant/descendent provided he is the joint owner.
A property can also be held by a Karta or a member of HUF for his benefit or benefit of other family members for which consideration has been paid out of the known sources of HUF or,
A property can also be held by a person standing in the fiduciary capacity for the benefit of other person like as trustee, executor, partner, director of a company etc.

The number of cases where property can be legally held by one person for the benefit of other person has been narrowed a lot. Now, if a person buys a property even in the name of his parents or siblings where he is not the co-owner, the purchase will be prima facie assumed as Benami as the exceptions are for spouse and children only (thankfully they have been kept out of its net).

Another point of consideration is that in the first exception discussed above, since the law has used the term ‘child’ only, it may be considered to include any child, whether son, daughter, married son, married daughter, adopted child and may be step child also.

2) Second type of Benami transaction is a transaction done in respect of a property in the name of a fake person/fictitious identity who actually does not exist, or a transaction done in the name of a person who even though exist, does not have knowledge of the transaction done in its name.

The significance of fake and fictitious above is that a person is said to be fake if he claims to be someone who he is actually not and a person is fictitious when such person does not exist in real at all.

For instance, suppose a property is purchased by someone in the name of Mr. X. If Mr. X is a fictitious identity, i.e. no such person actually exist, the transaction would be a Benami transaction.

Take another case where Mr. X is a person in real having true existence but he denies the knowledge of ownership or is not aware of such ownership. In this situation also, the transaction would be called as a Benami transaction.

3)Similarly, if the person who has provided the consideration is fictitious or untraceable, the transaction would be a Benami transaction.

3.WHAT WOULD CONSTITUTE A PROPERTY UNDER THIS ACT AND IMPACT ON BENAMI PROPERTIES?

Sec. 2(8) defines Benami Property as a property, which is a subject matter of Benami Transaction. The Law framers have defined the word ‘property’ in the widest import. It includes asset of any kind — movable, immovable, tangible, intangible, corporeal or incorporeal, any right, interest, or legal documents could be termed as Benami property. The meaning is not restricted to land or building only. Therefore, any property which is a subject matter of Benami transaction would face consequences specified in the Act.

RELEVANCE OF ‘PROPERTY’

Where any proceedings under the Act have been initiated against a person, then as a part of proceedings, the concerned officers can provisionally attach the ‘property’ in subject. By attachment, it means prohibition of transfer, conversion, disposition or movement of the property.

At the completion of proceedings, if a property is found to be benami, the same shall be liable for confiscation and all the rights and title in such property shall vest absolutely with the Central Government free of all encumbrances and no compensation shall be payable in respect of such confiscation.

4.CONSEQUENCES OF BEING GUILTY OF A BENAMI TRANSACTION

Where any Benami transaction is entered into with an intent to defeat 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 such transaction, shall be guilty of the offence of Benami transaction. [section 53]
Whoever is found guilty of the offence shall be punishable with-

#Rigorous Imprisonment of not less than one year but which may extend to 7 Years and,
#Fine which may extend to 25 per cent of the fair market value of the property

It is significant to note that irrespective of the motive of entering into Benami transaction, the Benami property shall still be liable to be confiscated by the Central Government. Further, no person being a benamidar shall be allowed to re-transfer the Benami property held by him to the beneficial owner. Where any such transfer is made in contravention, the transaction of such property shall be deemed to be null and void.

It is to be considered that no conclusion would be reached casually. It has to be conclusively established that a particular transaction/property is Benami. In this regards, following criteria would be looked into:

#Source of purchase consideration
#Possession of the property after purchase
#Person who is enjoying income from the property. Whether such income is being disclosed in income tax return.
#Custody of the title deeds
#Reason for purchase of property in the other person’s name

Above is not an exhaustive list. There can be other parameters as well to determine the nature of a transaction. Where such factors indicate that the transaction was done with an intent to settle unaccounted money or evade payment of statutory dues or to defeat the provisions of any law, the persons involved in such transaction would be held guilty of the offence of Benami transaction. And, the property involved would be held ‘Benami’ under the Act.

5.PROCEDURAL ASPECT:

The Act provides for four authorities to carry out the process or mechanism laid down under it for dealing with Benami transactions. They are - the Initiating Officer, the Approving Authority, the Administrator and the Adjudicating Authority. These authorities are vested with the same powers as those of the Civil Courts under Civil Procedure Code, 1908 while trying a suit. For the purpose of enforcement of this Act, the income tax authorities, customs officers, officers of RBI, SEBI and others specified in the Act shall assist.

The procedure laid down in the Act with regards to attachment, adjudication and confiscation of the Benami property is presented in the file attached in tabular format.

Summarized in the procedure in the file attached , the initiating officer if has reason to believe that any person is benamidar, will issue notice asking for details. After perusal of the same, an order shall be passed by him either attaching or not attaching the property. If the order passed is for attachment of property, the case shall be referred to the Adjudicating Authority for further adjudication. The Adjudicating Authority will then again issue a notice to the concerned parties and will examine details and evidences. After consideration of all the documents, he shall pass an order holding the property as Benami or not Benami. If the property is held Benami, it shall be confiscated and the guilty parties will face penal consequences.

6.APPEALS

Any person, including the Initiating officer, aggrieved by the order of the Adjudicating Authority can file an appeal before the Appellate Tribunal within 45 days from the date of order.
Where an appeal is preferred against the order of attachment passed by Adjudicating Authority, the property shall be confiscated after the order of Tribunal.
An appeal against the order of the Appellate Tribunal on any question of law may be preferred in the High Court within 60 days from the date of communication of decision or order of Appellate Tribunal.

CONCLUSION

This Amendment Act has been passed in the midst of growing public sentiments against corruption and a drive against black money in India. The Amendment Act is one amongst a series of legislations being passed by the Government to stop circulation of unauthorized currency and purchase of unaccounted property in India. The inclination of the present Government to effectively curb fraudulent property transactions and bring transparency is therefore quite evident.

An attempt has been made to analytically interpret the provisions of the Act. The provisions have been discussed in its most logical sense. However, further clarity of the provisions will be achieved in the time to come when the world will see the light of judicial expositions.