Client Asks:- Mr. Singla, today we want to know about ‘Benami’ transactions which is burning issue in the country.
CA Singla:- Yes, that is true.
After attacking on black money by demonetisation of high value currency notes, Hon’ble Prime Minister Narendra Modi ji is all set to take on ‘Benami’ properties to check corruption. In his Mann Ki Baat, Modi ji said that the government will soon operationalise a strong law to effectively deal with ‘Benami’ properties. This is major step to eradicate corruption and black money.
The government has already enacted the Benami Transactions (Prohibition) Amendment Act, 2016 which provides for rigorous imprisonment of up to seven years, and a fine which may extend to 25 per cent of the fair market value of the benami property.
Client Asks:- Singla Sir, We heard about benami, benami… but we are unable to understand it. We want to know the meaning of ‘Benami’ transactions in simple words.
CA Singla:- Very simple, a property bought by anyone not under his/ her name is benami property. It can include property held in the name of any relative/ friends or joint name. The transaction involved in the same is called benami transaction. The real owner of these properties is hard to trace due to fake names and identities. The benami transactions include buying assets of any kind — movable, immovable, tangible, intangible, any right or interest, or legal documents and where the property is able of exchange into some other shape, then the property in the converted shape and also includes the proceeds from the property.
The person on whose name the property is purchased is called ‘Benamdar’.
For instance: During de-monetisation, if anyone deposits his old notes (Rs. 500 or Rs. 1000/-) in the account of another with the intention that the account holder will return the money in new currency is also a benami transaction.
Client Asks:- Singla Sahib, then please.. nature of some transaction which cover under Benami Act.
CA Singla:- Any deal is considered as benami transaction if any one of the following grips as factual:
Transactions are in a fictitious name; or
The owner is ignorant of or denies awareness of the ownership, or
The person who is providing the consideration for the property is hard or not traceable.
A so-called benamidar will be served a notice on source of funds by an Initiating Officer. If the answer is not adequate, action will be initiated under Benami Transactions Prohibition Act, 2016.
Client Asks:- Mr. Singla Sahib, any court or judicial cases say something on benami transactions.
CA Singla:- Yes, our Hon’ble Supreme Court in case of Bhim Singh v. Kan Singh has explained Benami Property Transaction as :
…..where a person buys a property with his own money but in the name of another person without any intention to benefit such other person, the transaction is called benami and the Property is called Benami Property…
In such cases the transferee (in whose name the property purchased) holds the property for the benefit and real ownership of the person who has contributed the purchase money.
Client:- Oh…ho.. it is very true…Mr. Singla.
Client Asks:- CA Sahib… is there any laws against benami properties?
CA Singla: Yes… to curb black money, the act against benami properties was passed in 1988 as the Prohibition of Benami Property Transactions Act, 1988. Modi government in July 2016 decided to amend the act. This act came into force in November 2016 as Benami Transactions (Prohibition) Amendment Act, 2016.
Client Asks:- Singla ji… is there any punishment under this laws who holds the benami properties?
CA Singla: Yes… we have discussed as before, there are stringent provisions of punishment of imprisonment and fine under this act.
Client Asks:- Singla ji… then the govt. Why not amended the Act 1988 and why not passed the new Act 2016?
CA Singla: Oh..ho… this question is very important. Our Modi Govt. is very smart.. you know… How..? (Client impatiently asked) . 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.
Client:- Oh.. yes…. Singla ji…
Client Asks:- Mr. Singla.. Why this need for tough law for Benami Transactions?
CA Singla: In simple words…in my mind….usually the tax avoiders put their accumulated illegal wealth in buying benami properties rather hoarding the black money in cash. The whole process affects the revenue generation of government and hampering growth and development of the country. Since the percentage of tax payer in the country is a miserable low, the government fails to successfully implement its policies and schemes due to lack of resources or will. A strong law against benami properties is the need of the hour to check corruption.
Client Asks:- Mr. Singla.. then.. this mean we can purchase any property in the name of our relatives etc.. as per this Act.
CA Singla: No..no…no..you can purchase if —
any person being an individual in the name of his spouse/ any child of such individual and the consideration for such property has been paid out of the known sources of the individual;
any person holds the property in the name of his brother/ sister or lineal ascendant/ descendant (parents or children), where the names of brother/ sister or lineal ascendant/ descendant and the individual appear as joint-owners in any document, and the investment in such property has been paid out of the known sources of the individual;
a Karta, or a member of HUF (Hindu undivided family), as the case may be, and the property is held for benefit of HUF and the investment in such property has been paid out of the known sources of the HUF;
a person standing in a trustee for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, a depository or an agent of a depository under the Depositories Act, 1996 and any other person as may be notified by the Government for this purpose;
Client Asks:- Mr. Singla.. then.. why people enter into benami transaction?
CA Singla: There are many reasons for people do a benami transaction. The money earned by these people from unfair means like corruption, tax evading. Thus, to utilise the black money, people enter into benami transactions.
Since these people cannot show the transaction in their own names due to the usage of black money, therefore they use the names of other people or create some fabricated names for entering into such transactions.
Sometimes, the people want to hide the ownership of the property from their creditors/ bankers/ lenders.
Client Asks:- Mr. Singla.. the chartered accountants (CA‘s) can helpful to find out these benami transaction and how?
CA Singla: Yes, CA’s are considered the most competent person with regard to trace out benami transactions. CA’s have wider range experience of their different nature of client by using multi type of audit techniques and thout process on multi dimensions. The major technique to be used for tracing out the benami transaction is forensic audit.
Client Asks:- Mr. Singla.. can you show benami transactions in pictorial form for more clarity to us?
CA Singla: yes…. Please refer the pictorial from of benami transactions by the direction of movement in arrows —-
After that Client said we come to an end the discussion on benami transactions over here….we will do meetings again… and hope you will be available on short notice of our request.
Sure…sure sir… client is King….
Thanks….thanks Mr. Singla..
Reproduced in the interest of other clients or general public who were not present on the day by:
CA Om Pawan Kumar Singla
For Singla Pawan Associates