Benami Transactions

Introduction

The word benami means “without a name”. In simple terms, benami transaction  refers to any transaction made by a person without using his name or by using the name of another person. As an example, a benami property is a property bought by a person in the name of another person. There is a popular perception that benami transactions are used to disguise the real ownership for reasons, including tax avoidance, maintain secrecy, creating personal wealth at the expense of business, parking unaccounted money etc.

A common illustration of a Benami transaction is one in which an individual purchases a house in the name of his daughter-in-law. Thus the property is sold to a lady, however, the consideration for the same is provided by her father-in-law. If we deconstruct this, the house is the subject matter of the benami transaction and is called ‘Benami Property’.2

It must be noted that, contrary to popular misconception, the application of benami law is not confined to immoveable properties alone.  The term ‘property’, for the purposes of Benami, is quite wide and includes within its wide ambit : assets of ‘any kind’; whether movable or immovable, tangible or intangible, corporeal or incorporeal; and not only that, it also 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 is included as well. In fact, the proceeds from the property are also included within the definition of ‘property’. 

What Is Benami Transaction

 In a Benami transaction, a property is transferred or held by one person (Mr A, the ‘Benamidar’) and the consideration for such property is paid by another person (Mr B, the ‘beneficial owner’) for whose benefit such property is held. The following transactions also fall under the definition of Benami transactions:

  • Where a property related transaction is carried out under a fictitious name – The Benamidar can also be a fictitious person
  • Where the owner of the property has no knowledge / denies having any knowledge of the ownership of such property
  • Where the person providing the consideration is untraceable or fictitious – the identity of the beneficial owner may also be unknown.
  • An individual holding property in the name of his spouse or child and where the consideration is paid from the known sources of such individual ;
  • An individual holding property jointly with a brother, sister or lineal ascendant/descendant and where the consideration is paid from the known sources of such individual.

Punishment Under Benami Act

  • Imprisonment between 1 to 7 years and
  • Fine up to 25% of the fair market value of the property
  • Where a person who is required to provide information under this Act provides false information, he shall be punishable with:
  • Imprisonment between 6 months to 5 years and
  • Fine up to 10% of the fair market value of the property

Confiscation Of Benami Property

The Act empowers the authorities to provisionally attach properties. Attachment implies a prohibition on transfer, conversion, or disposition of property. Once it is adjudicated that a property is benami, it can be confiscated by the Central government.

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;

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