Consider a situation where person X use person Y’s name to purchase some asset such as real estate, shares, debentures, fixed deposits etc. to hide the fact that the money used for this transaction is earned through illegal means. This is is fundamentally what the Benami Property Transaction is all about.
SO, WHAT IS A BENAMI PROPERTY TRANSACTION?
The name “Benami” to use for such transactions is a little misleading. “Benami” means without a name whereas these transactions are best described as proxy transactions where the person entering into the transaction is neither paying the funds to procure the asset nor the beneficial owner of the property.
The person whose name is used as a proxy in the contract is called the “Benamidar”. A Benamidar does not have any beneficial interest in the asset.
The Benami Transactions (Prohibition) Act, 1988 was enacted to prohibit benami transactions.
The Benami Transactions (Prohibition) Amendment Act, 2016 empowers certain authorities to attach and confiscate assets transacted through Benami transactions and also lays down the penalty and punishments for such transactions.
WHICH TRANSACTIONS ARE BENAMI?
According to section 2(9) of the Benami Transactions (Prohibition) Act, 1988, the following criteria are set to identify Benami Transactions.
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.
b. The property is held for the immediate or future benefit, direct or indirect for the person who has provided the consideration.
c. The following are exceptions
i. A Karta or a member of a Hindu Undivided Family (HUF) is the beneficial owner of an asset whereas the consideration is paid by known sources of the HUF.
ii. A person who has fiduciary responsibility for the benefit of another person. Example - a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository etc.
iii. An individual's transacting in the name of her or his spouse or child.
iv. An individual acting in the name of brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and the individual appear as joint-owners in any document and the consideration for such property has been provided or paid out of the known
sources of the individual.
d. If a transaction is carried out in a fictitious name.
e. When a transaction or arrangement carried out in the name of a person who is unaware of such transaction/ arrangement or denies such transaction/ arrangement.
f. A transaction or an arrangement where the person providing the consideration is not traceable or is fictitious.
PENALTY AND PUNISHMENTS
A person entering into a Benami transaction can get 1-7 years of prison time and a fine up to 25% fair market value of the asset as per section 53 of the Benami Transactions (Prohibition) Act, 1988.
If a property is proved to be held Benami, the person on whose name the asset is held or any other person claiming to be the real owner cannot have an enforceable claim on such property.
The Benamidar will not be allowed to re-transfer the asset to the real owner or any other person acting on behalf of the real owner. Any such re-transfer will be null and void.