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Benami transactions: Havoc caused to our system

What havoc Benami transactions has caused to our system? Exordium Transactions that qualify as Benami? The exigency for the amendment,2016 Punishment Re-transfer of property Some landmark cases that clear the stand of law: Field of vision Conclusion Evading taxes through investing in assets with some other name and also getting a return on investment for your black money? Seems good right? The amendment of 2016 in Benami transactions bill, you will not like and this attracts rigorous imprisonments for the said act.

As we are Indians and inventors of great solutions; one such solution for this is transferring the property again when you get to know that you can be interrogated and declared it in good faith? Lawmakers too have many solutions. Let's analyze these situations and make people aware that Benami transactions will not be easy anymore.

Exordium
  • The Benami Transaction (Prohibition Act, 1988) The Benami Transactions (Prohibition) Act, 1988 was enacted to prohibit Benami transactions and the right to recover property held by Benami and for matters connected therewith. Benami literally means without a name.

    In this Act, the word Benami is used to refer to a property/asset with no name attached to it. The actual owner is not the person who has the legal title to the property. This act is essential to govern the flow of black money invested in assets and not hoarding cash. Assets in this act comprise property, shares, debentures, fixed deposits, and bank accounts are held by one person for another.

    There are some terms required to begin the journey - \Section 2(10) defines Benamidar as Benamidar means a person or a fictitious person, as the case may be, in whose name the Benami property is transferred or held and includes a person who lends his name.

    Section 2(12) defines a Beneficial owner as Beneficial owner means a person, whether his identity is known or not, for whose benefit the Benami property is held by a benamidar. The beneficial owner provides or pays consideration for the purchase of the property. A beneficial owner can be any person. Section 2(16) defines Fair market value as:
    1. the price that the property would ordinarily fetch on sale in the open market on the date of the transaction; and
    2. where the price referred to in subclause (I) is not ascertainable, such price may be determined in such manner as prescribed in Rule 3 of Prohibition of Benami Transactions Rules, 2016.

Transactions that qualify as Benami?
  • a transaction where the property is transferred or to held by one person and the consideration for such property paid by another person and
  • property held for immediate or future benefit of the person who gave the consideration, Except When Property Is Held By:
    1. Karta or Member of HUF
    2. a person in a fiduciary capacity for the benefit of another person like a trustee, partner, director of the company, or depository as an agent of the actual buyer.
    3. an individual in name of spouse and child
    4. Joint owners (brother or sister, lineal ascendant or descendant.
     
  • transaction in a fictitious name.
  • a transaction where the owner of the property is unaware or denies ownership.
  • a transaction where the source of consideration is unknown. (Not traceable)

Let's discuss some of the examples for better understanding
  1. Mr. X, a non-resident Indian, purchased a flat for 10,00,000 in the joint name of his brother and himself and made the payment from an unknown source
  2. Mr. Y a resident Indian, purchased a flat for 10,00,000 in the name of his son a USA resident but he denies the ownership of the flat.
  3. Mr. B a resident Indian sold a flat that was not in his name and was in an unknown person's name. But deposited the sale proceeds in his own account.
  4. Mr. K, a resident Indian, a flat was purchased for 10,00,000, and payment was made by an unknown person.

The exigency for the amendment, 2016 
Punishment 
Before the amendment, the punishment for Benami transactions was:
3 years of jail, a fine, or both. After the amendment, the punishment faced will be rigorous imprisonment for up to 7 years and a fine of up to 25% of the fair market value of such property.

As time grows laws get outdated and inefficient for protecting the rights of people and rules laid by the government.

Re-transfer of property 
If it is re-transferred then it will be declared null and void unless as per section 190 of Finance Act, 2016, where if the undisclosed property could be disclosed then it will be valid. 
The whole process affects the revenue generation of the government and hampers the growth and development of the country. Since the percentage of taxpayers in the country is a miserable low, the government fails to successfully implement its policies and schemes due to a lack of resources or will. A strong law against Benami properties is the need of the hour to check corruption.

Some landmark cases that clear the stand of law:
  1. Bhim Singh & Anr vs Kan Singh (Supreme Court) Key points from the case:
    • The burden to prove a transaction is Benami or not lies on the person who claims it to be Benami.
    • If consideration is paid by a different person other than in whose favor property is transferred, then purchase is assumed to be for the benefit of the person who paid consideration.
    • The intention of the person who paid consideration is most important.
    • The intention is decided on current circumstances, the relationship of parties, motives behind
    • the transaction, and their subsequent conduct.
       
  2. Smt. P.Leelavathi vs V. Shankaranarayana Rao Key points:
    In the case of Binapani Paul v. Pratima Ghosh the court had held that the source of money had never been the sole consideration, and is only merely one of the relevant considerations but not determinative (deciding) in character. "It is true that, at the time of purchase of the suit properties, some financial assistance was given by Late G. Venkata Rao.

    However, as observed by this Court in the aforesaid decisions, that cannot be the sole determinative factor/circumstance to hold the transaction Benami in nature. It is not a Benami transaction. Only financial assistance by the father in purchasing the property will not confer it to be a Benami transaction.
     
  3. Niharika Jain W/o Shri Andesh Jain Vs Union of India Key points: The Rajasthan High Court observed that-Unless a contrary intention is reflected, a legislation is presumed and intended to be prospective. Where an amendment affects rights or imposes obligations or casts a new duty or attaches a new disability is to be treated as prospective. Accordingly, the Rajasthan High Court threw the entire transactions entered by the petitioner before amendment out of the purview of the Benami Act.

Field of vision
  1. The government took a great stance by amending the laws rather than getting new ones. An amendment was issued instead of a new Act because if a new Act was introduced then the transaction entered from 1988 to 2016 would get protection as the law does not allow retrospective punishment
     
  2. People intentionally do this to avoid payment to the creditors and by doing so they are hindering the revenue system in two ways; first for their creditors by increasing their bad debt and secondly by evading taxes themselves encouraging the use of black money.
     
  3. Benami transactions especially in the real estate market prevail, skyrocketing the prices of lands because people who purchase lands in this way are ready to give more prices without disclosing to the government creating an imbalance between price on paper and price in real.
     
  4. Benami transactions in foreign currency are still the regular practice among businesses and a big loss for the Indian government as we can't trace the account; the steps have been taken but still much more effort is still required.
     
  5. In India, the currency for Benami is gold also and it has a very wide scope for embezzlement. There is a practice in markets: people book gold with some other name and consideration is given by some other person.
Conclusion
Revenue for the government is still embezzled and Indian people actually have methods but the government now has become stringent in many ways, these days we are seeing covid frauds and it is also related to our topic; Benami person booking an injection on some other’s name (prescription) and then black marketing starts. This example above is the small scenario we have discussed some really big problems in our article above to curb these transactions and work for strengthening the economy and people of this country.

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