Benami transactions are those transactions within which the property is held within the name of someone, for consideration paid and benefit enjoyed by another. The person in whose name the property is taken is Benamidar, whereas the title is asserted by the person providing the consideration. The person exercising actual control over the property is the person providing the consideration, whereas to the globe the Benamidar is the real owner.
Essentials of a Benami transaction are-
- Consideration has been provided by one person.
- Actual control over property by the similar.
- Property is within the name of another.
In THAKUR BHIM SINGH V. THAKUR KAN SINGH, SC explained the concept of Benami Transaction. The case includes two kinds of Benami transactions. First when the property is bought by the person together with his own money but within the name of another person with no intention to profit that other person. consistent with the second case, Benami transactions are, where an individual who is that the owner of the property executes a conveyance in favor of another without the intention of transferring the title to the property thereunder. in the following case, the transferor continues to be the original owner. Benami transactions weren’t illegal in India before the 1988 Act and there was no punishment or bar for getting into Benami transactions.
REASON BEHIND BENAMI TRANSACTION-
A portion of the explanations for Benami exchanges are all things considered:
- The Benami exchanges are made to discover a route with the land laws making way for a proprietor to possess more land properties than allowed by the Indian laws.
- Tax evasion. Benami transactions are one of the foremost effective ways to cover black money obtained through corrupt practices.
- The Joint Hindu Family obtaining secret profit.
- Fraud on creditors.
In GUR CHARAN V. SHOE LAL SINGH, Privy Council said that “The system of acquiring and holding property and even of carrying on business in names except for those of the real owners, usually called the Benami system, is and has been standard practice within the country. There’s nothing inherently wrong with it. So long, therefore, as a Benami transaction doesn’t contravene the provisions of the law the Courts are certain to provide its effect.”
In SIR GEORGE FARWELL BILAS KUNWAR V. DASRAJ RANJIT SINGH, Council held the Benami transactions as unobjectionable and highlighted their resemblance to the English law system’s doctrine of Resulting trust.
Illegal Purpose- After the passage of time, Benami transactions began to be executed with the illegal purpose of defrauding creditors or evading taxes. Insolvent persons or persons not entitled to dealings by means of the benamidars, entered into the acquisition of properties and when the transaction was over would seek to recover the possession.
In T.P. PETHERPERMAL CHETTY V. R. MUNIANDY SERVAICouncil held that when the real owner used Benamidar as an alias to cover off his own debt and cheated creditors, Benamidar isn’t merely a mask but a reality. The court may further not allow the original owner to resume the individuality which he has once removed so as to defraud others and recover the property.
- THE BENAMI TRANSACTIONS (PROHIBITION) ACT, 1988
The main objective of this act is to stop people from committing fraud by prohibiting the Benami transactions and to have the right to recover the property held by Benami. This Act is required to prevent-
- Tax Evasion.
- Money Laundering.
- Balance Equal Distribution of Land.
Punishment- Section 3 penalizes the one who has proved to be guilty under which the imprisonment of a term can extend up to 3 years or fine or both. The section prohibits the Benami transaction.
The burden of Proof- The Act states that the burden of proof lies on the one who is saying and/or asserting that the transaction is that the quiet aforesaid transaction i.e. Benami transaction. While initially the person aerating an equivalent has established his contentions within the Court of Law the burden of proof shifts on the person on whom it’s alleged that he has been a part of Benami transactions. The foremost important factor it carries is the Trust Act. Section 82 states that if someone purchases property within the name of another, and therefore the consideration is paid by somebody else then there’s an implied trust in favor of the one that paid the consideration. Hence the burden of proof lies on the one that is asserting the case to be it.
In MEERA DEVI V. CHANDRA MOHAN JADAV The court on the question of absence of consideration within the transaction laid down that, “The Benami Transactions (Prohibition) Act is applicable only in respect of a transaction for consideration where consideration is paid or provided by another person although the property is transferred in favor of 1 person. The Act isn’t in any respect applicable to the transfers without consideration”.
- THE BENAMI TRANSACTION (PROHIBITION) AMENDMENT ACT, 2016
The Act converges to strict consequences on persons who evade the law by holding property by illegitimate means. The amendment was brought out to give a clear-cut definition to Benami property. The act further covers the proceeds from such property. The Benami property is a property whose title deed is held in the name of another person known as benamidar were as the real owner as a beneficial owner.
For example, if A wants to buy a property from C, he will pay the consideration and take possession of the property but the sale deed will show that the buyer’s name is B who is either a fictitious entity or a person having no connection with the property. However, not all properties are Benami properties if bought under someone else’s name.
The exceptions are:
- Representing benefit by one person or another like a partner of a firm or a trustee of a trust or any person as such.
- A person buying property under joint ownership (in his name and his lineal ascendant or brother’s or sister’s) but paying the consideration from his own income.
- Karta of Hindu Undivided Family buying a property but the consideration is paid by the HUF.
Punishment- Under this act, the punishment has been extended up to 7 years and the liability to fine has been increased by 25% of the market value of the property.
Benami Transaction A Crime-
When a Benami transaction is entered into, in order to defeat the provisions of any law, to avoid payment of statutory dues or to avoid payment to creditors, it attracts penal provisions of the Benami Act, and prosecution can be initiated under the Act after receiving the sanction of the Central Board of Direct Taxes constituted under the Central Board of Revenue Act, 1963.
Special Courts for the trial of offenses under the Act will be set up by the Central Government, as per the mandate under the Act.
The Special Court, whenever it is set up, will take cognizance of any offense punishable under the Act, upon a complaint in writing made by—
- the Initiating Officer.
- the Approving Authority.
- the Administrator.
- the Adjudicating Authority.
- any officer of the Central or State Government authorized by Government.
COMPARISON TO ENGLISH LAW-
- Firstly, the law commission explained origin, growth, essence, and judicial recognition to understand the historical background and validity of Benami Transactions. The commission said that defrauding creditors, evading taxes were major reasons for the growth of Benami transactions.
- Law commission analyzed the situation of law in the English legal system and explained the concept of resulting trust. The Doctrine of Resulting Trust, says that when a person holds another person’s property in his name, he should hold it for his benefit.
- Section 82 of the Indian Trusts Act, which encapsulates the concept of resulting trust, says that a person holding property in his name for purchase money provided by another must hold it for the benefit of the real owner.
- It was suggested, by the commission, that the doctrine of resulting trust under the section should be modified to the doctrine of advancement. The doctrine of advancement is an assumption by English Courts, where they assume that when a person has bought a property in the name of another, the purchase is intended to benefit that another. For instance, when a husband buys property in the wife’s name, it would be presumed by the courts that the husband intended to benefit the wife.
The doctrine of Benami transactions should not be recognized in India and Benamidar should be considered as the real owner. The law should refuse altogether the Benami character of the transactions. As a result, a claim on the part of the person claiming to be the real owner against the person having the title would not stand. A separate law was proposed under whose provisions, no claim or right by the person claiming to be real owner against the Benamidar for recovery of the property was to be allowed. However, suggesting an exception for Joint Hindu families because the Karta would buy the property and manage property for the benefit of the members of the family.