UNIVERSITY OF LUCKNOW

‘Faculty of Law’

Subject-Property law
Topic- “SALIENT FEATURES OF
BENAMI TRANSACTION ACT, 1988”

Submitted by- Anurag Patel

(LL.B. Hons.)
Semester-4th
Roll no.-180010450021
Submitted to-Prof. Lalit Srivastava
BENAMI TRANSACTION ACT,1988
Benami Transactions (Prohibition) Act, 1988 was introduced as an Act of the Parliament in
1988 to prohibits certain types of financial transactions. The 1988 Act had come into force on
5th September, 1988. Although benami transactions were declared illegal due to enactment of
the said Act, the Act had limited success in curbing them. Updated versions were therefore
passed in 2011 and 2016, seeking to more comprehensively and effectively enforce the
prohibitions.
One of the leading issue in Indian economy is the effort made by the Government to tackle
the problem of black money and related illegal economic activities. Several efforts were
made by the Government to fight black money, money laundering etc. One such serious step
is enactment of the Benami Transactions (Prohibition) Amendment Act 2016. The
amended Act has come into effect on 1st November, 2016. The modified new legislation will
be known as Prohibition of Benami Property Transactions Act, 1988 (PBPT Act).
The Act is going to be an ace weapon to track black money supplementing the Income
Declaration Scheme 2016 and the demonetisation programme carried out by the Government.
“The Benami Transactions (Prohibition) Amendment Act, 2016” was notified to come into
force from 1 November 2016.The 2016 Act also has safeguard mechanisms such as the
adjudicating authority and the appellate mechanism for appeals.
Compared to the previous legislation, the modified Act is more clear but stern in terms of its
treatment of Benami Property Transactions. The PBPT Act defines benami transactions,
prohibits them and further provides that violation of the PBPT Act is punishable with
imprisonment and fine. The PBPT Act prohibits recovery of the property held benami from
benamidar by the real owner. Properties held benami are liable for confiscation by the
Government without payment of compensation. We are analyzing in this article salient
features relating to Benami Property Transactions law as amended in 2016.
1. What is Benami transaction?
The original 1988 Act defined a benami transaction as a transaction where a property is held
by or transferred to a person, but the consideration has been provided for or paid by another
person/ third party. After amendment in 2016, Prohibition of Benami Property Transactions
Act, 1988 (PBPT Act) has widened the definition of benami transaction and added other
transactions such as property transactions where:
(i) the transaction is made in a fictitious name,
(ii) the owner is not aware of or denies knowledge of the ownership of the property, or
(iii) the person providing the consideration for the property is not traceable.
As per Clause 2(8) of Benami Transactions (Prohibition) Amendment Act, 2016, Benami
Property” means any Property which is the subject matter of a Benami transaction and also
includes the proceeds from such property”.
As per clause 2(26) "Property" means assets of any kind, whether – movable or immovable,
tangible or intangible, corporeal or incorporeal and includes any right or interest or legal
documents or instruments evidencing title to or interest in the property and where the
property is capable of conversion into some other form, then the property in the converted
form and also includes the proceeds from the property;
However, Property transactions among family members is not benami transaction. Here, the
Act clearly sets the limit of relationship. Only lineal ascendants (father, mother, grandparents
and great grandparents) and lineal descendants (children, grandchildren and great
grandchildren) are considered as family members.
Meaning of Benami as per "Merriam Webster" dictionary: made, held, done, or transacted in
the name of (another person) used in Hindu law to designate a transaction, contract, or
property that is made or held under a name that is fictitious or is that of a third party who
holds as ostensible owner for the principal or beneficial owner.
Large scale Benami deals happened when land reforms entailed the abolition of zamindari,
giving tillers rights to own the land as well as imposition of agricultural land ceilings. In
urban areas, this became quite rampant after the passage of the now-scrapped Urban Land
(Ceiling and Regulation) Act, 1976.
2. What is Benami Property?
The word Benami property means the property which has been purchased in the name of
some person other than the person who has financed it. The person who has rendered the
required money for the said purchase has not purchased it in his name but in the name of
some other person. The person who financed the property has not really purchased it to the
benefit of the person on whose name he has purchased it.
Simply, benami property is the one whose legal owner is different from the actual owner.
Benami Transactions (Prohibition) Act, 1988 is an Act of the Parliament of India that
prohibits certain types of financial transactions. The act defines a ‘benami’ transaction as any
transaction in which property is transferred to one person for a consideration paid by another
person. Such transactions were a feature of the Indian economy, usually relating to the
purchase of property (real estate), and were thought to contribute to the Indian black money
problem. The act bans all benami transactions and gives the government the right to recover
property held benami without paying any compensation.
Some features in Benami transactions are :
a) The beneficial ownership vests on the real owner.
b) The Benamidar bears the ostensible title as described in the Transfer of Property Act,
1882.
c) There is no intention to benefit the person in whose name the transaction is made by the
person who has financed the purchase of the said Benami property.
d) The name of that person, Benamidar, is an alias for that of the person beneficially
interested the real owner.
The amended Act gives a comprehensive definition of benami property. Benami essentially
means property without a name. The term “Benami” has its origin from the Persian language.
Benami property or assets, therefore, is a reference to property/assets whose actual owner is
not the person in whose name it is. Benami deals have been quite common in India; cases
date back to the late 19thcentury.
As per the amendment, Benami property includes: immovable assets such as land, flat or
house, movable assets such as gold, stocks, mutual fund holdings, bank deposits etc. If the
property is sold, then the proceeds from the sale is also included under Benami property.
3. What transactions are considered as Benami Transactions?
As per Section 2(9) of Benami Transactions (Prohibition) Amendment Act, 2016 Benami
Transactions are as per Table A below:
Table-A : Transactions considered as Benami Transactions:
(i) A Transaction or an arrangement, where 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; and
(ii) The property is held for the immediate or future benefit, direct or indirect, of the person
who has provided the consideration. (There are some exemptions in point (ii) as given below
in Table – B)
(iii) A transaction or an arrangement in respect of a property carried out or made in a
fictitious name.
(iv) A Transaction or an arrangement in respect of a property where the owner of the property
is not aware of, or, denies knowledge of, such ownership;
(v) A transaction or an arrangement in respect of a property where the person providing the
consideration is not traceable or is fictitious.
4. What transactions are NOT considered as Benami Transactions?
As per Clause 2(9) of Benami Transactions (Prohibition) Amendment Act, 2016,the
following are NOT considered as Benami Transactions (as per Table B):
i) The property is held for the immediate or future benefit, direct or indirect, of the person
who has provided the consideration except when the property is held by –
a) a Karta, or a member of a Hindu undivided family, as the case may be, and the property is
held for his benefit or benefit of other members in the family and the consideration for such
property has been provided or paid out of the known sources of the Hindu undivided family
b) a person standing in a fiduciary capacity 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 a participant as an agent of a depository under the Depositories Act, 1996;
c) any person being an individual in the name of his spouse or in the name of any child of
such individual and the consideration for such property has been provided or paid out of the
known sources of the individual;
d) any person in the name of his brother or sister or lineal ascendant or descendant, where the
names of brother or sister or lineal ascendant or descendant and such 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.
ii) any transaction involving the allowing of possession of any property to be taken or
retained in part performance of a contract referred to in section 53A of the Transfer of
Property Act, 1882, if, under any law for the time being in force:
(a) consideration for such property has been provided by the person to whom possession of
property has been allowed but the person who has granted possession thereof continues to
hold ownership of such property;
(b) stamp duty on such transaction or arrangement has been paid; and
(c) the contract has been registered.
5. What are the consequences if any person is caught with ‘benami’
property?
The Act prohibits illegal benami transactions, and provides imprisonment up to seven years
and fine for violation of the Act which may extend to 25% of the fair market value of the
benami property. If any person is caught with ‘benami’ property, he may be prosecuted and
punished. Providing false information about benami transaction may also lead to prosecution.
The Act also provides for confiscation of the property and non-return of the property from the
benamidar to the real owner. There is no compensation by the Government if the property is
confiscated. The Act has tried to sort out the weaknesses of the existing provisions and is
remarkable in terms of the following features:
6. What are the Highlights of the amended Act ?
Some of the highlights of the Act are:
a) Up to seven years’ imprisonment and fine for indulging in Benami transactions.
b) Furnishing false information is punishable by imprisonment up to five years and fine.
c) Properties held Benami are liable for Confiscation by Government without compensation,
holding the property benami and then refer the case to Adjudicating Authority.
d) Adjudicating Authority will then examine evidence and pass an order.
e) Appellate Tribunal will hear appeals against orders of Adjudicating Authority.
f) High Court to hear appeals against orders of Appellate Tribunal.
7. What is institutional framework for the implementation of the law?
The main weakness of the earlier Act was that there was lack of an institutional machinery to
carry out Benami transaction procedures in an effective manner. The amendments in 2016
have created the required institutional arrangements for implementation of the law. Under the
Act, an Authority to acquire benami properties was to be established by the Rules. The Bill
seeks to establish four authorities to conduct inquiries or investigations regarding benami
transactions:
(i) Initiating Officer,
(ii) Approving Authority,
(iii) Administrator and
(iv) Adjudicating Authority.
The Act gives the Initiating Officer the power to enquire into any person, place, documents or
property in the course of investigation into any matter related to a benami property
transaction. Interestingly, the Act covers all domestic benami property transactions conducted
since 1988.
8. What actions have reportedly been taken after 2016 amendments for the
implementation of the law?
Several benami transactions have been identified since the coming into effect of the amended
law. Show cause notices for provisional attachment of benami properties have been issued in
many cases involving properties of the value of considerable amount. Out of these,
provisional attachment has already been effected in more than 100 cases. The benami
properties attached include deposits in bank accounts and immovable properties. It may be
noted that the Income Tax department is the enforcing department to take action in cases of
benami properties.
The concern on Benami transaction came into light with full emphasis, in the year 2014 “in
the election manifesto of the political party now in power at the Centre.
9. Why some people used to acquire property benami ?
There are numerous purposes mainly of those are illegal ones and only to accomplish the
illegal intentions. Some of these are :
a) The Benami transactions were made in order to find a way with the land ceiling laws, so
the real owner can have more landed properties than provided in the abovementioned laws.
b) The benami transactions are made to transfer the property in the name of the relatives of
the real owner or some other’s name to evade income tax as well as other taxes.
c) Benami transactions were also used as a way to conceal black money obtained through
corrupt practices.
10. What punishment and penalty can be imposed if any person holds a
benami property or enters into a Benami transaction?
Anyone entering into a Benami transaction for whatever reason, to defeat the law, avoid
payment of statutory dues or creditors or abetting such a transaction is liable for rigorous
imprisonment for a period between one and seven years as well as fine up to 25 per cent
of the fair market value of the property.
Anyone providing false information or providing false documentation can get rigorous
imprisonment of six months to five years and may also have to pay fine up to 10 per cent
of the fair market value of the property.
It is submitted that the provision for confiscation of Benami property without consideration,
is enough deterrent.However the provision for rigorous imprisonment for a period upto
seven years as well as fine up to 25 per cent of the fair market value is quite unfair and
stringnent and the Government should urgently review the same to be fair.
11. What steps have been taken by CBDT to catch benami properties ?
About 25 special units across India have been formed by the CBDT in 16 regional/zonal
offices, across India have been formed to implement its action-plan against benami properties
in India. These special units are formed only to investigate and take action against all those
individuals and entities related to undisclosed domestic and foreign properties. Each unit will
have four to five members, including 3 to 4 Income Tax officials, one Additional
Commissioner/ Joint Commissioner and one Deputy Commissioner. Each unit would be
headed by an Additional Commissioner.
The CBDT has issued Notification No. 36/2017 [S.O. 1621(E)], dated 18-05-2017in
exercise of its powers conferred under sub-section (2) of section 28 read with section 59 of
the Prohibition of Benami Property Transactions Act, 1988, and in supersession of earlier
Notification No. S.O. 3290(E), dated the 25th October, 2016, and has directed that the
Income-tax authorities under section 116 of the Income-tax Act, 1961, having headquarters at
the places specified in the said Notification dated 18.5.2017, to exercise the powers and
perform the functions of the ‘Authority’, under the Prohibition of Benami Property
Transactions Act, 1988, in respect of the territorial areas specified in the said Notification.
The designated authority would be reporting to the respective Director General (DG) in that
city, who would be in co-ordination with CBDT Chairperson on real time basis.
The IT department has identified more than 200 benami properties. The main focus would be
benami properties that include flats, apartments, bungalows, plots, bank accounts, jewelleries
etc.
In the public interest, the department had informed through advertisements in newspapers,
warning that benami properties would get attached and confiscated, with rigorous
imprisonment of up to seven years.
Harsh punitive actions are likely to be taken against the deviant Shell Companies including
freezing of Bank Accounts, striking off the names of dormant companies, invocation of
Benami Transactions (Prohibition) Amendment Act, 2016. Action is contemplated against
Shell Companies so as to prevent their misuse for money laundering and tax-evasion,
especially in the context of unearthing black money, post demonetization. In an analysis of
such companies, it has been found that large amount of cash had been deposited in these
entities during November-December, 2016 period. Serious Fraud Investigation Office (SFIO)
has filed criminal prosecution for cheating National Exchequer after investigation of entry
operators.
These information has been shared with SIT, Income Tax Department, Enforcement
Directorate, SEBI and The Institute of Chartered Accountants of India (ICAI). Income Tax
Department has reopened completed assessment in these cases and Enforcement Directorate
has initiated action under Prevention of Money Laundering Act (PMLA), 2002. It is learnt
that ICAI has also initiated disciplinary proceedings against its members. Winding up process
has been initiated in respect of many Shell Companies.
In order to create a credible deterrence a “Whole of Government Approach” will be adopted
through co-ordinated efforts and by leveraging technology. It has also been decided that
appropriate red flag indicators would be used for identifying shell companies, and a data base
of such companies and their Directors would be built by pulling in information from various
agencies. The data base will also capture Aadhar number of individual Directors in the
companies.
It is learnt that there are about 15 lakh registered companies in India; and only 6 lakh
companies file their Annual Return. This means that large number of these companies may be
indulging in financial irregularities.
It is learnt that a Task Force has been set-up under the Co-chairmanship of the Revenue
Secretary and Corporate Affairs Secretary with members from various regulatory Ministries
and Enforcement Agencies to monitor the actions taken against deviant shell companies by
various agencies.
A Task Force with members from various regulatory Ministries and Enforcement Agencies
has been set-up under the Co-chairmanship of the Revenue Secretary and Corporate Affairs
Secretary to monitor the actions taken against deviant shell companies by various agencies.
The department has formed a special unit called Benami Properties Unit (BPU) to identify
and probe such assets. Apart from politicians, there are hundreds of such properties belonging
to some top businessmen in the country.
12. What impact Benami Transactions (Prohibition) Act is likely to create
after amendment in 2016?
The new Benami Transactions (Prohibition) Act, after its amendment in 2016, offers a wider
scope. With its wider scope the new Act will be a great help to deal with this social fallacy
i.e. Benami properties. Due to the narrow and ambiguous scope of the earlier Act of 1988,
many such cases regarding Benami properties could not be effectively solved. But now with
the wider and specific scope, the said such cases can be easily proved in the court of law.
The popular perception of “Benami property” has now undergone a sea change and it will
include all transactions and arrangements even beyond the transactions in respect of
immovable property.
The Benami Transactions (Prohibition) Amendment Act, is certainly a very comprehensive
piece of legislation and also very stringent. There could be scope for harassment but how that
plays out in practice, remains to be seen.
There is a saying of Justice Holmes “Taxes are what we pay for civilized society. I like to pay
taxes, with them I buy civilization.”

13. Is there any reward to the informants of Benami Property?

The CBDT has introduced the Reward Scheme for informants giving information of benami
property actionable under Prohibition of Benami Property Transactions Act, 1988 as
amended by Benami Transactions (Prohibition) Amendment Act, 2016 vide Letter
[F.NO.299/31//2017-DIR (INV.III)/22], Dated 23-4-2018. The salient features of the said
scheme are as under:
(a) A person can get reward up to Rs. One crore for giving specific information of benami
property. Identity of the informant shall be kept confidential.
(b) The information given by the informant can be treated as specific information under the
scheme only if it includes:
(i) verifiable particulars of the benami property;
(ii) name and address of the person in whose name the property has been acquired
(benamidar); and
(iii) credible basis including supporting evidence for the information that the property was
actually benami property.
(c) Procedure of furnishing information
(i) A person who wants to give specific information in expectation of reward may contact the
Joint Commissioner of Income Tax/Additional Commissioner of Income Tax (Benami
Prohibition) [hereinafter referred to as ‘JCIT/Addl. CIT (BP)’] having jurisdiction over the
place where the benami property is situated.
(ii) If the JCIT/Addl. CIT (BP) feels that the person has given specific information of benami
property, he will give one set of prescribed form as per Annexure-A to such person who shall
fill, sign and submit it to the JCIT/Addl. CIT (BP).
(iii) If there are more than one benami properties located at different places, the person may
give information to any of the JCsIT/Addl. CsIT (BP) having jurisdiction over any of these
properties.
(iv) Where the person gives information about benami properties to any other Income Tax
authority, such other authority shall forward such information and guide him to the
jurisdictional JCIT/Addl. CIT (BP). Where there are more than one BP (Benami Property)
units at a place, such person may be directed to approach the jurisdictional DGIT
(Investigation).
(v) If the information is furnished by a group of persons, the prescribed form, statements, etc.
shall be filled and signed by all such persons, jointly and Informant code will be allotted to
each of them separately. The reward payable in such cases, if any, shall be disbursed in equal
proportion, unless specified otherwise by such persons at the time of furnishing information
in the prescribed format (Annexure -A).
(vi) Where a foreign person wants to give information of benami property actionable under
the Act, he may contact the Member (Investigation), CBDT, North Block, New Delhi-110001
either in person or by post or by a communication at email id member.inv@incometax.gov.in
with a copy to citinv-cbdt@nic.in for further action. He may take assistance of Income Tax
Overseas Units (ITOU) working in Indian missions in some foreign countries in this regard.
(vii) The informant shall be liable to render assistance as may be required by the JCIT/Addl.
CIT (BP) or any other investigating officer to whom the JCIT/Addl. CIT (BP) concerned may
assign the investigation into the information given by the informant.
(viii) The informant will be allotted a code and after the lime of allotment of Informant Code,
the person shall be identified with such Informant Code only and his actual identity shall be
known to the JCIT/Addl. CIT (BP) only.
(ix) In case of any difficulty, the person desirous of giving specific information of benami
property, may contact the PDIT (Inv)/DIT (Inv) of the area. The decision of PDIT (Inv)/DIT
(Inv) will be final in the matter of allotment of Informant Code under this scheme.
(d) It should be noted that furnishing false information/evidence is an offence and a person
giving false information/evidence/statement will be liable to be prosecuted for such offence.
(e) When reward may be granted:
An informant under the scheme can be granted interim and final reward by the competent
authority.
(i) Interim reward can be granted on fulfillment of the following conditions:
(a) the informant has given specific information of benami property in the prescribed format
in Annexure-A and obtained informant code under the scheme;
(b) provided assistance required, if any, by the AddL/JCIT (BP) or any other investigating
officer to whom the JCIT/Addl. CIT (BP) concerned may assign the investigation into the
information given by the informant; and
(c) pursuant to such information, the benami property has actually been provisionally
attached under Section 24(4) of the Act.
(ii) Final reward can be granted on fulfillment of the following conditions:
(a) the informant has given specific information of benami property in the prescribed format
in Annexure-A and obtained informant code under the scheme;
(b) provided assistance required, if any, by the AddL/JCIT (BP) or any other investigating
officer to whom the JCIT/Addl. CIT (BP) concerned may assign the investigation into the
information given by the informant;
(c) the benami property has been confiscated under Section 27 of the Act; and
(d) Such confiscation has become final in judicial proceedings after confiscation order is
passed. The confiscation shall be deemed to be final if two years have passed from the date of
confiscation and there is no litigation pending against such confiscation.
(f) Amount and stage of granting interim and final reward
(i) Interim reward up to 1% (one per cent) of the fair market value, as defined in the Act, of
movable property, and circle rate, as defined in this Scheme, of immovable property,
provisionally attached under section 24(4) of the Act may be granted by the competent
authority on fulfillment of eligibility conditions under the scheme subject to the maximum
ceiling of an amount of interim reward of Rs. Ten lakh in respect of information of a single
benami property.
(ii) Final reward up to 5% (five per cent) of fair market value, as defined in the Act, of
movable property, and circle rate, as defined in this Scheme, of immovable property,
confiscated under the Act may be granted by the competent authority on fulfillment of
eligibility conditions under the scheme. While granting the final reward, the amount of
interim reward paid, if any, shall be reduced from the total final reward granted. However,
maximum amount of total reward (interim and final) in respect of a single benami property
shall be limited to Rs. One crore.
(iii) If there are more than one benami properties informed in a single Annexure – A form,
reward shall be computed on the basis of entitlement applying the above percentage rates and
maximum limits individually for each benami property.